All Forum Posts by: Ben Leybovich

Hello Adam,

I was trained as a violinist at the Cincinnati Conservatory of Music. Due to a neurological condition (MS) which surfaced in the 1st year of Master’s degree, I chose not to pursue a career in performance. Everything I know about RE, I learned on my own. Pleased to make your acquaintance.

Vishal,

The most important metric in any investment is something we refer to as cash on cash return (COC). What makes RE such an excellent opportunity is that even the most un-imaginative investor is able to leverage $25,000 into a $100,000 purchase by way of a mortgage. So, let's consider a purchase of a $100,000 duplex for cash vs. 75% LTV financing.

Let's say that the 2 units in the property rent for $550/mo. each, and operating costs for the building (all costs excluding the cost of money) are $400/mo. This would leave you with $700 of NOI (net operating income). If you have no mortgage payment, this is also your CF. Thus, having purchased the building for cash, you will recover $8,400/year. This is a 8.4% return on your investment of $100,000 to buy this duplex.

Now let's say you put $25,000 and finance $75,000. At a high by today's standard 6% amortized over 30 years, your payment would be about $445/mo. This would bring your CF down to $255/mo. (NOI – Mortgage payment). This is 3,060 annually, which seems a lot lower than the $8,400 without a mortgage. However, because you only used $25,000 of your cash, the COC is actually 12.2%. Obviously this is a lot better than 8.4% return.

Now – you could use the cash flow to pay off the mortgage. Your CF would shoot up to $8,400 without a mortgage payment. But the return on your money would go down. On the other hand, you could save that cash flow and use it for a down-payment on another 3 buildings just like the first one. All things being equal, your CF would go to $255 x 4 = $1,020. You would diversify risk by having 8 rent checks instead of 2. And you would find out that there are significant benefits with respect to taxation, specifically if you don’t make too much at your day job.

This is of course overly simplified. I am just throwing numbers on paper. But this reflects my experiences as an investor very well. So, the question is - why pay off the mortgage? Hope this helps. Good luck!

Charles,

It is true – it may take some time to lay the groundwork. But, I can promise you that you can get into you car today, drive through your target areas, and as long as you know what to look for you can find 20 prospects. Now, have you defined your target areas? What criterion did you use? If not, that’s the place to start. Know what you are looking for, where, and why. Finding it is less of an issue than developing this “vision” for what it is you are looking for in the first place.

John, I think yuu are onto something with that last comment!

I don't look. Deals come to me. Why? Because people know that I am a serious player. They know that I am not so much an investor, as I am someone with a tool bag that is large enough to be able to solve people's problems around RE. Charles, RE is not necessarily about dirt with huildings on it. It is more about people and circumstances. Check out my web site. Might be something that interests you. If so, look me up by email, phone # on the site, or right here.

I have a 10-unit under contract as we speak. This is the only deal I found this year that was good enough to put under. Downpayment - 2.5%. CF day 1 - $1,000/mo. Expandability possibilities - $350 - $500/mo. Deals like that do not come from wholesalers.

It is a pleasure to make your acquaintance Charles. Hope I can help.

I agree with Bill G. Figure out the basics.

If I may, I’ll give you this advice. This alone will save your but many times over. I’ve learned that when getting into a deal, you must have 3 exits available to you. Thus, if you use hard money, but can not flip within the time-frame, have refinancing options lined up. At which point you have a rental on your hands. Can you cash flow this property in this case…

Flipping is very, very hard - the hardest thing there is in RE in my opinion. There is no margin. Check out this clip:

In short, assume the worst case. It should not be a matter of either making money or loosing money. Rather, frame the proposition as: which way will I be making money?

Personally, a wholesaler is the last place I would think to look for a deal.

The Government borrows money from the FED. FED prints money and writes a check to the government. This borrowed money is not free. The government has to pay interest on it. Where does the government get the money to pay this interest? Taxes is one place, but that’s not enough. The government borrows more money with which to pay interest on the previously borrowed money. The formation of the federal reserve system guarantees national debt – it is structural and unavoidable. Taxes have to go up because they spent too much and won’t be able to pay interest when rates go up. How long before hyperinflation hits? Your guess as good as mine…

Good job Tim. My first deal was similar - seems so long ago.

Welcome Steven! You are definitely in the right place.

Sorry Kanku, I meant to address my reply to Charles. Appologize