All Forum Posts by: Matthew M.

Joe, nobody is saying equity you buy is a gain if you pay retail for a property, but if you buy at a discount it is in fact a gain because it can be monetized.  For instance, if you buy a 500k value house for 450k you gained 50k on the buy, hence the phrase - you make your money on the buy.  That's regardless of if you put 10k down, 100k down, or the full 500k down.  You can just sell the house or refinance to capture the equity you made on the buy.  Not saying it is bad to lever, I do so myself.  I'm just saying that it is silly to take the position that a deal is good based on the down payment required. How much you leverage is a personal decision but doesn't have much bearing on whether a deal is good or bad. 

I am shocked by the combination of arrogance and ignorance in your posts. 

Your equity position drops 50% in the 1st case from 100k to 50k, in the second case it drops 10% from 100 to 90k.  That is why I called you a genius, it was meant to be ironic.

You put 100k into 500k of value and the price drops 10% you lose 50k genius.  If you put 100k into 1 property and it loses 10% you lose 10k.  There are benefits of diversification so lets abstract away from "1" vs "5" for a minute, how about 10 vs 50, or 100 vs 500?   You are diversified either way, the only difference is the leverage employed.

Why do you say you don't make a profit until you recover your actual investment?  You may not REALIZE a profit until you sell or monetize a profit until you pull out the cash but that doesn't mean you don't make a profit until you recover your investment through cash flow or a liquidity event.  

I looked through this thread and I have to ask, what does this mean?    

"1 - Stock Market Analysis uses percentages to analyze. When you use percentages to analyze REI you lose...because those percentages lie. A return of 15%/year in the SM is not even close to a 5% return/year in REI...if both investors start with the same amount of cash, and reinvest all the returns back in. 5% here is greater, by far than 15%."

I think you are conflating the returns from leverage with unlevered returns. Yes you can put less money down and recover your investment quicker, grow quicker, recycle your cash, etc. but you are taking on more risk due to the leverage you are employing, it's not a free lunch.  

@Paul Bird just curious, but have you actually gotten a lender to give you such a small investment loan at that rate? I generally can’t find anything for less than 75k, and rates are pretty high for such small loan sizes.

@Alex Heidenreich pretty much the same for me, 75% ARV and usually about 12% rental yield on my all in cost. I usually narrow it down by area and only buy in a few different cities that I know so this tends to work.

@Matthew Wikler two things to consider from my POV, most likely you will need to wait 6 months to get a lender to provide financing; this is the typical seasoning period. Second, the bank may count this as a cash out refinance which is typically about 1 to 1.5 points higher than typical purchase financing so you will have a higher payment. Sometimes you can get around the seasoning if you put the rehab on the hud but it is somewhat bank dependent.

@Gary Parilis some things aren’t perfect and you hit on some common problems. You need to pay for the rehab in advance through the escrow so you need a contractor who you trust because the funds are being disbursed at close, so for instance I never do a delayed draw based on milestones but it goes to what you mentioned that I am doing it for small rehabs. I could see this being problematic for large rehabs because you may want a draw schedule. Also, if you over pay you can have the remainder refunded back to you after the fact by the contractor, this happens occasionally.

@Gary Parilis nothing too large, I usually deal with below 120k all in costs on the hud. I don’t see why it would be any different but I have never tried.

@Gary Parilis yes that is what I am talking about. I include the rehab + any inspections on the hud and get the lower of 70% of the arv or whatever is on the hud.