All Forum Posts by: Mike Roy

 @Melanie Kent - It doesn't happen overnight, and I imagine it is incredibly difficult as a single parent.  The fact that you're here is an awesome start.  If it were me starting from scratch in your position, I would try to get the big things in my life structured to my advantage and not worry so much about the small things.  

Cutting out a morning coffee will save you $1,000 per year, but you'd have to do that for 25-50 years to save enough money for a down payment on a rental property.  I say, have your coffee and enjoy it!

I would focus very heavily on housing, childcare, food and transportation. Even if this meant moving back in with family for a couple of years to save money that I would eventually use to purchase a 3 or 4 unit to house hack, I'd do it. I'm not sure if you're in a position to do this or not, but I do know that living for free with family for two years can save you $20k - $40k depending on your market, plenty for an FHA down payment on a small multifamily.

Once I got my housing in order, I would try to find a good job as close to my housing as possible.  If I could find something that enabled me to work from home, I would do that.  Short of that, I would try to get a job I could at least bike to.  Side hustles are okay if you can earn decent money, but I would also keep in mind that working 80 hours a week may get me to financial freedom faster, but it also represents family time that I can never get back.   

You didn't mention if your kids are in school yet, but I would offer money to family or friends to watch the kids while I worked if I needed daycare, something much cheaper than a daycare center.  Heck, maybe I would start a daycare center and bring my kids to work with me.

Next, I would tackle my grocery spending by planning my meals a week in advance and shop one time.  If you live in an area where you can do this online, it prevents a lot of spontaneous purchases that come with kids asking for everything they see (I was a kid once, I know...)  

I would also focus on eliminating high-interest consumer debt.  All of my savings would go to that before putting money away for a rental property.  Paying off a 20% credit card provides some of the best returns you'll every see.

Finally, I'd remind myself that I'm only 10 years away from financial freedom.  There are so many stories of people going from $100k in debt to millionaire status in this time frame simply by executing these fundamentals.  If you want it bad enough and are willing to do what it takes, you'll get there!

 Account Closed Thanks very much!

@Mark Millich My best advice is to find one All Star.  They will know the rest.  

Hi @Ji Hoon Kim - I would say that, while you definitely want to have a general working knowledge about real estate tax strategies, the most important thing to know is simply that rental real estate offer tremendous tax benefits.  

Yes, you want to educate yourself about the new tax law; how cost segregation can accelerate depreciation; how investing in opportunity zones can delay recent capital gains - but as a self-professed newbie, I would not get too bogged down.  Rather, I'd spend some of that time you might have put into reading tax law instead into finding a good CPA that understands investment real estate.  A CPA can discuss with you your investment goals and strategies and how the tax law can incrementally add value to them.

The general education piece can be found in a whole host of books and podcasts.  Tom Wheelwright is a frequent contributor to various real estate podcasts and has written at least one book that I'm aware of.  I usually find him very informative.

@Clifford Laguerre - You can certainly get 30-year fixed conventional financing on a non-owner occupied 1-4 unit property.  In fact, you can get as many as 10 per individual (so 20 if you're married.)  A mortgage broker can help you with this, and I've found rates to be about 1/2 point higher than what you'd get on an owner-occupied loan.

Just remember that you still have to qualify on credit, debt and income.  While the subject property's income will help toward that qualification, you still want to have a couple of years of solid W2 history and a decent FICO, just like if you were applying for an owner-occupied.

A good starting point would be to make sure you're credit, consumer debt and income are in order, and then start building a relationship with a broker well in advance of finding a property.

Hi @Mark Millich - I would suggest starting with a particular market and building a team (agent, manager, contractor, bank, etc.) before worrying too much about a particular property - although determining an asset class may at least help you narrow down a market.  I hear Memphis is great for single families, and I know my small corner of the world in New England is better for small multifamily properties.

I think the benefits of single family is that you may get a more stable, long-term tenant; and you might find your asset is more liquid when you want to sell.  The obvious downside is that one vacancy means 100% vacancy in your portfolio with bills continuing to come due.

The benefits of multifamily is that they tend to cash flow better due to economies of scale.  Generally, the more units under one roof, the more you spread out your expenses and vacancy risk.  The downside on 5-units or more is that you loose the ability to finance with 30-year fixed rate.  

My favorite investment is a hybrid of the two - the 4-plex.  Some of the economies of scale of multi, but with the benefit of long term fixed financing.

@Jonathan Jackson I would say you need to know the market cap rate for the class and type of property you are buying (and what that cap rate will be in the future) because that will determine your selling price in the future. 

However, you don't want to buy a particular cap rate. For one, anyone advertising an above market cap rate probably means there are hidden problems in the property, the area is bad, or the numbers are disingenuous. In fact, some of the best deals are offered at very low cap rates because there is so much opportunity to increase NOI. This means that you can buy a 2-3 cap and "turn it into" a 10 cap. However if your market sells at a 7 cap for stabilized properties of like class and type, that difference represents your forced appreciation.

Ex. You pay $100k for a property with $2k NOI (2 cap). You raise rent and reduce expenses to increase NOI to $10,000 (10 cap). Your market sells at a 8 cap. $10k NOI/.08 = $125k in value. You forced $25k in equity.

Also, just remember that any NOI you add can be divided by the market cap to determine the value added to the asset.

Instead of buying on cap rate, buy on projected cash on cash return (cash flow/[down payment plus initial repairs]).  That's your real return.

Best way to find out cap rates in your market is to speak with experienced brokers who deal in the asset class you're interested in.

@Kevin Romines I second that.  We bought a "9 unit" that we learned was on three separate parcels, and 30-year fixed was the best way to go.

If it is just one parcel, you might also reach out to your local municipality about whether you would be able to split them.  You may have to have your current lender in on that conversation too.

Hi @Melanie Kent - For us, the concept was incredibly simple - spend less than you earn and invest the difference in cash flowing assets - but the execution required planning, patience and determination.  

We spent years preparing to invest in real estate by always trying to grow that gap between our income and expenses.  My wife and I had decent incomes, but there was definitely a limit to what these W2 jobs would pay us.  However, there are so many things you can do on the expense side that a median US income is sufficient to save enough money for your first property in a few short years.

Your biggest expenses are housing, transportation and food.  I highly recommend this site as well as all the personal finance blogs and podcasts out there for more on how to master these expenses.  Housing is huge, and there are ways to house hack and live for free even when YOU are the one paying the rent.  Just ask @Brandon Turner.  Transportation is also very big, and Mr. Money Mustache has a blog about the economics of an automobile relative to your commuting distance to work.  I believe @Scott Trench is pretty big on biking to work.  If these things sound like big sacrifices, they are.  Acquiring wealth is not easy, nothing worthwhile is.

It's also important to know that you don't necessarily need a huge pile of cash to start investing. I like to recommend house hacking a well priced 4-plex with a 3.5% down FHA loan to young people considering their first real estate investment. Great way to get your feet wet and kill your biggest expense.

You are right.  Successful real estate investing does not require a degree.  But it does require education.  Listen to the podcasts, read books, network.  Most importantly:  take action, fail, and take action again - that's likely the one thing most of us have in common.

@Tim Johnson Thanks!