Quote from @Joe Villeneuve:
Quote from @John Carbone:
Quote from @Joe Villeneuve:
Quote from @John Carbone:
Quote from @Joe Villeneuve:
Quote from @Michael Wooldridge:
@John Carbone from the sounds of things you are a long term investor that is working to replacing his income with CF. My w2 also funds pretty quick purchases for properties.
I get @Joe Villeneuve point about rolling the equity forward into more properties faster. I’ll have to play with the numbers I think perhaps cashing out a bunch of equity about 41-53 would allow me to retire almost instantly instead of 55-56 as planned but there’s a lot of variables. Still it’s an interesting dynamic to play with.
I’ve never been a big fan of flipping and given that I have the income to invest 25% down consistently and quickly, my major goals has always been to replace the invoice to retire early. but it’s absolutely faster the way Joe is discussing. I’m just not sure how much faster.
As you said, "play with the numbers", do the math. You'll be very surprised. Einstein was once asked what he thought the greatest invention of the 20th Century was. His answer was "compound Interest". What he said after that was more important. "Those that understand it, will live off those that don't".
Isn't doing a cashout refi up to 80 percent the same thing though? Why sell the performing asset? I understand the math of doing 20 percent down payments for higher COC, but you are also using more leverage. Not saying leverage isn't a good thing, but it goes both ways. Granted, historically using leverage in real estate works out great as you describe, but until interest rates moderate and prices level off, I see no reason to jack up the real estate leverage. A 20 percent reversion in prices can knock you back multiple years.
I think the leverage aspect is misguided. I’m glad that investors in general follow this advice. When they are underwater and foreclose like has happened before in my area, I’ll purchase from their banks with leverage then.
How are you increasing leverage? You have the same number of loans.
Pulling out more equity with a sale than a refi. Also, when you cash out, the mortgage payment goes up, and the cash flow goes down as a result.
Keep in mind that all appreciation is based on the PV, so increasing your total PV is exponentially increasing future gains from appreciation.
REFI is a linear return, with a step backwards. Selling and moving forward gets you an exponential return.
It's the power of the penny...and that has nothing to do with "every penny adds up". I don't want them adding,...I want them multiplying...like Gold(fish).
If you took a penny, and every day you doubled the previous day's total, (so day 1 would be 2c, day 2 would be 4c, etc...), how much money would you have if you did this for 30 straight days? Simple math formula.
Your assumption though is that by selling and buying bigger and better is that the returns will be equal to the previous deal in a linear manner. As expansion goes up, risk of performance also goes up. Selling and buying bigger doesn’t mean a linear compounding increase in return. In theory, yes, multiplying the Pennies, but what happens when that 8th penny is only “worth” 4-5 pennies. I’d rather have a 20 percent return with minimal leverage than a 3-4 percent return on 5x leverage relying on overpriced underlying assets continuing to return at the same levels they did over the past decade.
Using my system, you're not concerned how 8 years from now will impact what you are buying today because you won't have the same property 8 years from today. The system only needs to have a handle on the next 3-5 years max. You can always design deals to make this work.
You're not always going bigger. Part of the steps will be splitting into more than one.
If you start with 50k in equity, and move it when it grows to $100k, then again when it reaches $200k (remember, this could be 4 properties with $50k equity), then $400k, then $800k...that's only 4 steps...and if that $800k was 20% DP's, that's $4M in PV. Now, the system I use isn't buying SFH or MF continuously...particularly as the equity/PV grows. As the numbers get bigger, I start to move into different types of RE...more suited to returns from the larger numbers.
Also, why do you assume I'm getting only a 3-4% return on the higher leverage. I'm actually getting much higher...and higher than the 20% you speak of. If you're not getting higher returns with higher leverage, then you're doing it wrong.
Joe your system is it designed for people with low capital? I've always understood the principal of being leveraged. I've never really intended to cash out on properties though because most my investments are in the $750k ish range these days for ideally larger performance per property. At some point you could look at stepping into what I call truly luxury rental $2 million, $3million properties etc... but it's a completely different type of property. While I may dabble in that at some point. I don't see myself cashing out (maybe refinancing) to do it.
Of course my current properties the cash flow after 5 years (rents go up also) is starting to return the original capital spent every 4 years (after 12 years) it's every 3. I guess I'm just wondering behind where you draw that line and why. I feel like I'm taking a similiar approach but slightly more cash flow heavy vs. you are appreciation heavy.
I did run the numbers quickly and it does look like with nominal appreciation I could speed up my CF situation with a large bump after about 7 years in. But I'm also talking about refinancing 8 properties in a year. Faster yes but just not sure how long it makes sense to keep selling off properties or how your drawing that balance so to speak.
