All Forum Posts by: JM Edward

Thank you a lot for this perspective, JD

> "another benefit of leverage - the bank becomes your partner, and puts
another set of eyes on the project. Because they don't want to lose
money, they're going to scrutinize the project for you almost for free,
and are going to (probably) refuse to lend you money on poor projects"

That's convincing for a beginner -- possibly more than worth the price of entry.

> "The acceleration of cash slows down considerably when it's trapped in a house."

Can you not execute on the "refinance" R of BRRRR even if you came in all cash? The attraction of all-cash to me is to avoid stress and pressure for a newbie on the build/rehab rather than on the back end, assuming one has more confidence for the next project.

@Joe Villeneuve that's a different way to look at it! I thought I was on the right track when @Chris Seveney validated my point, but everything can be seen multiple ways which is what makes these things so tricky. I feel all-cash is less risk because unless the market goes way down I can still likely get most if not all my principal back, even in a half done rehab(?).

As you see it, the lender is taking some of your risk away, but how does that work if there is a loss on the project? The lender takes the title and you lose your down payment and rehab costs? And you end up with a credit record that prevents you from taking out (decent) loans for the next many years? That sounds like more of a nightmare scenario than losing some principal, but I don't think I'm as educated on what this would look like and why you think it would be a better scenario. Can you say more?

@Kerlous Tadres

Thank you for laying it out in easy to understand language, Kerlous. Much appreciated.

 Ian -- thank you very much for that kind of feedback; it's very helpful. I'm curious about your choice to own outright:

> "I'm very conservative and don't want any debt on them because I feel this hardens them in case of a severe recession"

The tradeoff there is low return, right? $1500/mo on a $150,000 home is 12% in a year ignoring all other factors and you're not using any leverage to scale your investments. But you find the security of owning without debt removes risk and stress? I suppose if you need the money back out, that's more straight forward that if you had to get out of a ladder of loans and other properties. What about the risk that the value tanks?

You also talk about the benefit of direct control -- can you give any examples where that was helpful? Do you use a property management company?

Also, do you mind sharing the funds you've been happy with? If not appropriate in public, by DM? I'm also planning to make a different post asking how to vet funds and their managers.

> There is a whole category here on BP for syndications and passive real estaet as well as passive pockets.

Thank you, Chris, for some good thinking, very helpful! Can you say where this category is? I don't see it...

 "equity deals are typically an income play whereas a syndication leans more toward a growth play for the
investor - two very different investor personas"

Can you say more about that? As an investor, these kind of real estate offerings don't feel quite as different to me than making the choice between a value and growth stock, which can have massively different characteristics including risk profile. While real estate can certainly carry risk too, I don't find a 5-year hold is that much of a long-term vision as you should have buying a growth stock(?), and the risk in these real estate deals can be all over the map and not correlate very well to the distinction you've made? I'd love to hear you flesh this point out more.

For experienced investors, using leverage -- borrowing at a lower rate than what you are earning on that money through your real estate flips and BRRRRs seems like a good way to magnify your returns.

For someone new to the game, does it make sense to execute one's first project all-cash? The idea is that you give yourself more time to learn the process, make mistakes and avoid stress. You still have holding costs such as property taxes, insurance and utility bills (what else?), but I'm not thinking greedy on my first project. It could take a whole year and as long as it can return better than 10% that would be a winner to me (ignores the value of my time and stress).

Market swings are a concern for longer holds too. What other factors are there in this regard? Is it sensible or is there a big gotcha I'm missing?

Thank you!

Hello! Long time lurker, first post...

I'd like to hear the perspective of people on investing in private real estate funds: I'm looking at diversified funds (each has its own strategy and type of investments), the better of which offer returns around 12%.

For someone with no experience evaluating a deal or executing a rehab (can learn, yes, but I expect mistakes), as well as having a full life with plenty of existing commitments, interests and projects that already fill my calendar, I'm wondering if locking my money into a 2-5 year commitment at 12% (assuming it even stays that high) is more sane than adding an intensive months-long flip project to my life. If your opinion changes based on the need for loans, in my case, I'd probably do my first flip all cash to reduce holding costs and allowing more time for the learning process.

I see very enticing rates of returns on projects people talk about here (at least the successful ones), double what the best fund can offer and only in a few months. That is a strong argument for giving it a go, but that's got many more risks than a fund that's somewhat diversified (and I can diversify more by buying different funds).

Does anyone here invest in such funds? What are the pros and cons and how do you personally compare them to hands-on investing?