congratulations. Your deals look like success. However, your three flips have not sold yet, and your two holds have not had enough seasoning under your ownership to test either long term vacancies, rental market declines or sudden and unexpected major repairs.
"You don't count your money while you're still at the table"
Agreed. My success in this post was to highlight starting out towards financial freedom and what can be accomplished in a short time by focus and determination. There is still a lot of time and work to go before i fully reap the rewards of these purchases especially on the buy and hold side.
The good thing for the buy and hold is that i can service the debt of both properties and pay for expenses our of my salary. That means that right now all income from the property just sits in my business account since i dont need it to live. I have enough now to go fully vacant for a year plus and still cover capital expenditures without even touching my salary. That puts me in a confident spot. My wifes salary is just icing on the cake.
Thanks for the advice though. I always think of that when i start getting ahead of myself.
PLEASE help me understand this. Please!
Go here and download the BP Renal Analysis spreadsheet.
Do your best to enter in numbers for the Albany Park 4-Unit. (the OP didn't really give us enough into to fill this out completely, such as Interest Rate, etc) I put in numbers until it worked.
Look at the first image below, it shows the numbers pretty much identical to the OP, right down to NOI.
Now look at the second image. This is what you get when you slide all the way to the right and evaluate this property after a full 30 years. On his $100,000 investment he made a Total Return, including Equity Accrued, of $761,181.
Now whip open your handy compound interest calculator and dial in 100,00 for 30 years, and here's the important bit -- 7% interest -- and you get $761,226 -- basically the same number.
I must be missing something!
Yes I know he can rent out one more unit and make some more money, but it does not make much difference in the end. Because from everything I can tell, if you invest extremely conservatively in the stock market for 30 years you will achieve at least a 7% return, and almost certainly higher, and you did not have to spend 30 years of your life being a landlord, plunging toilets, evicting tenants, doing rehabs, financing properties, etc., etc. Now maybe you like doing all that stuff -- but if you had the choice between 30 years of work, or 30 years of literally no work at all PLUS MORE MONEY which would you choose? Would anyone actually prefer to make less money and do lots of work?!
Again, perhaps I am missing something entirely. Please let me know!
You make some good points Micheal. However there are plenty of things that are not factored here that can challenge what you said.
First of all as you stated cash flow is increasing. I am moving out next month which adds over 1k a month (12K a year) into the cash flow category. That right there drastically increases the total return over time (an extra 360K at the minimum). Second the rents on one are going up over 200 a month in about 4 months (originally rented in winter) and rents on another are going up about 100. 300 more a month is quite a bit and can really move the ROI meter.
Another very important aspect you did not consider, while living there i am saving 1000-1500 a month in rent. If i put 100K in the stock market i still have to go pay 1000-1500 (based on my area for a 1-2 bed) in rent. so if you want to compare it to that you should subtract 1000-1500 every month from the money you put in the stock market at 7% for 30 years. I bet your returns are now much lower. (minimum of 360K subtracted from your return plus all the compounding that would have come with it)
Another aspect not factored is depreciation. This year i am taking about 12K or so in depreciation which lowers my taxable income by 12K. That is another bucket that cannot be gotten from stocks and increases ROI by decreasing the amount you have to pay the Gov.
Another great one, appreciation. My building i bought last year for 500K was appraised at 645K when i went to get a heloc a couple of months ago. So i have made 145K in equity in less than a year due to the area gentrifying. I pulled out 50K of my initial investment that i am using to flip so technically i no longer have 100K in the building. Redo your analysis with 50K and i guarantee you get a different ROI also. I would have pulled out all 100K but did not know the building would appraise for that much. I will pull out the rest of the 100K (maybe more) in about 4-5 months and at that time my cash on cash return is infinite because i have no money in the building (and the rents cover all of it and still pays me cash every month). Try doing that in the stock market. If you buy in a good area and wait 30 years you will always get appreciation. However i bought in an area that is rapidly gentrifying so that i can be sure it appreciates quickly
So in the end i fail to see how the stock market can beat this unless you consistently return 30%+ a year. In which case i need to park some money with you and you need to start a hedge fund asap.
@Nnabuenyi Anigbogu -- I *really* want to invest in real estate! I like the work, and I assumed it would make me more money than just investing in the market. But I really don't see the numbers working out.
I took that spreadsheet, upped your Income by $1000/month and it brings your total return after 30 years to 1,159,804. To get that in the market you would have to earn a rate of 8.5%, and never work a day in your life. If you increase the rent some more, that just means you need a few more fractions of points more in the market.
I totally get that we all have to live somewhere, so it seems like paying yourself in a mortgage is better than paying a landlord in rent. But again, every penny you have in the market is compounding over 30 years. But every penny you pay on your mortgage is NOT going to you -- much of it goes to interest, of course. You really have to run all the numbers to get the complete comparison.
We could go back and forth on numbers all day -- but all I see is the bottom line. Do I really want to work really hard for 30 years and earn the same amount as I would have earned if I did nothing at all? That's why I look at the bottom-line number on that spreadsheet -- THAT indicates what your true return was, or will be, after 30 years.
And I really think we have to run some numbers at 30% return to see if that is actually realistic. There are lots of guys with $1 million, right? Any number of them could take their $1 million, invest in real estate for 30 years at 30%, and -- what would they end up with? $2,619,995,643! Try it here. That's $2.6 Billion! I really don't think there are many guys who do that! I think you quickly run into economies-of-scale, mortgage rates and down payments are higher for Commercial loans, etc. If you leave your $1 million in the market, every penny is working every single day for you, with no effort on your part, even if you have $2.6 Billion!
I don't want to get off-topic, or into politics at all! But there is one guy who fancied himself a great real estate developer, but it turns out if he had never worked a day in his life he would have BILLIONS more dollars. One could argue that his entire lifetime of work was wasted. Check this out.
I don't want to be that guy! At the end of 30 years you can look back at all your numbers and see exactly what your rate of return was on all your money, and you will be able to see exactly what you would have earned in the market. What if it didn't work out?! Again, I have invested in real estate in the past, and I am all geared up to do it again -- but I did some hard-analysis of some real numbers, and I just don't see them working out. This is SO not what I expected!
By the way i just did a calculation. If you put in 100k in the market at an return rate of 10% (which is decent) and you deduct 1000 a month for rent, you actually have a negative return over 30 years. That alone is enough to show that for this particular situation, real estate FAR outweighs anything the market can do. That would be a true apples to apples comparison since you have to live somewhere. Also i can take all of my extra cash flow (even if it is 1k a month) plus the money i would have paid in rent (1k) and then invest that in the market for 30 years.
12K a year (1k a month) invested at 10% for 30 years compounded daily = 2.2 million. 24k compunded is 4.5 mil. To do a true comparison as you are trying to do you have to factor these numbers in. Otherwise you are picking and choosing.
PLEASE help me understand this. Please!
Go here and download the BP Renal Analysis spreadsheet.
Do your best to enter in numbers for the Albany Park 4-Unit. (the OP didn't really give us enough into to fill this out completely, such as Interest Rate, etc) I put in numbers until it worked.
Look at the first image below, it shows the numbers pretty much identical to the OP, right down to NOI.
Now look at the second image. This is what you get when you slide all the way to the right and evaluate this property after a full 30 years. On his $100,000 investment he made a Total Return, including Equity Accrued, of $761,181.
Now whip open your handy compound interest calculator and dial in 100,00 for 30 years, and here's the important bit -- 7% interest -- and you get $761,226 -- basically the same number.
I must be missing something!
Yes I know he can rent out one more unit and make some more money, but it does not make much difference in the end. Because from everything I can tell, if you invest extremely conservatively in the stock market for 30 years you will achieve at least a 7% return, and almost certainly higher, and you did not have to spend 30 years of your life being a landlord, plunging toilets, evicting tenants, doing rehabs, financing properties, etc., etc. Now maybe you like doing all that stuff -- but if you had the choice between 30 years of work, or 30 years of literally no work at all PLUS MORE MONEY which would you choose? Would anyone actually prefer to make less money and do lots of work?!
Again, perhaps I am missing something entirely. Please let me know!
You make some good points Micheal. However there are plenty of things that are not factored here that can challenge what you said.
First of all as you stated cash flow is increasing. I am moving out next month which adds over 1k a month (12K a year) into the cash flow category. That right there drastically increases the total return over time (an extra 360K at the minimum). Second the rents on one are going up over 200 a month in about 4 months (originally rented in winter) and rents on another are going up about 100. 300 more a month is quite a bit and can really move the ROI meter.
Another very important aspect you did not consider, while living there i am saving 1000-1500 a month in rent. If i put 100K in the stock market i still have to go pay 1000-1500 (based on my area for a 1-2 bed) in rent. so if you want to compare it to that you should subtract 1000-1500 every month from the money you put in the stock market at 7% for 30 years. I bet your returns are now much lower. (minimum of 360K subtracted from your return plus all the compounding that would have come with it)
Another aspect not factored is depreciation. This year i am taking about 12K or so in depreciation which lowers my taxable income by 12K. That is another bucket that cannot be gotten from stocks and increases ROI by decreasing the amount you have to pay the Gov.
Another great one, appreciation. My building i bought last year for 500K was appraised at 645K when i went to get a heloc a couple of months ago. So i have made 145K in equity in less than a year due to the area gentrifying. I pulled out 50K of my initial investment that i am using to flip so technically i no longer have 100K in the building. Redo your analysis with 50K and i guarantee you get a different ROI also. I would have pulled out all 100K but did not know the building would appraise for that much. I will pull out the rest of the 100K (maybe more) in about 4-5 months and at that time my cash on cash return is infinite because i have no money in the building (and the rents cover all of it and still pays me cash every month). Try doing that in the stock market. If you buy in a good area and wait 30 years you will always get appreciation. However i bought in an area that is rapidly gentrifying so that i can be sure it appreciates quickly
So in the end i fail to see how the stock market can beat this unless you consistently return 30%+ a year. In which case i need to park some money with you and you need to start a hedge fund asap.
@Nnabuenyi Anigbogu -- I *really* want to invest in real estate! I like the work, and I assumed it would make me more money than just investing in the market. But I really don't see the numbers working out.
I took that spreadsheet, upped your Income by $1000/month and it brings your total return after 30 years to 1,159,804. To get that in the market you would have to earn a rate of 8.5%, and never work a day in your life. If you increase the rent some more, that just means you need a few more fractions of points more in the market.
I totally get that we all have to live somewhere, so it seems like paying yourself in a mortgage is better than paying a landlord in rent. But again, every penny you have in the market is compounding over 30 years. But every penny you pay on your mortgage is NOT going to you -- much of it goes to interest, of course. You really have to run all the numbers to get the complete comparison.
We could go back and forth on numbers all day -- but all I see is the bottom line. Do I really want to work really hard for 30 years and earn the same amount as I would have earned if I did nothing at all? That's why I look at the bottom-line number on that spreadsheet -- THAT indicates what your true return was, or will be, after 30 years.
And I really think we have to run some numbers at 30% return to see if that is actually realistic. There are lots of guys with $1 million, right? Any number of them could take their $1 million, invest in real estate for 30 years at 30%, and -- what would they end up with? $2,619,995,643! Try it here. That's $2.6 Billion! I really don't think there are many guys who do that! I think you quickly run into economies-of-scale, mortgage rates and down payments are higher for Commercial loans, etc. If you leave your $1 million in the market, every penny is working every single day for you, with no effort on your part, even if you have $2.6 Billion!
I don't want to get off-topic, or into politics at all! But there is one guy who fancied himself a great real estate developer, but it turns out if he had never worked a day in his life he would have BILLIONS more dollars. One could argue that his entire lifetime of work was wasted. Check this out.
I don't want to be that guy! At the end of 30 years you can look back at all your numbers and see exactly what your rate of return was on all your money, and you will be able to see exactly what you would have earned in the market. What if it didn't work out?! Again, I have invested in real estate in the past, and I am all geared up to do it again -- but I did some hard-analysis of some real numbers, and I just don't see them working out. This is SO not what I expected!
@Micheal Williams. The biggest point in all of this, and one i made in my previous post that you did not seem to pick up is the concept of leverage and appreciation that you do not get in the stock market.
Leverage - As i stated i put 100k down in may of last year. as of the end of december i got a HELOC and took out 50k. So the basis for my return calculations from that point forward is 50k and not 100K. So my return is now that much higher. In 3-4 months im pulling out the rest of the 50K plus some extra.
So in about a year after purchase i have no money in the building and i would have taken out an extra 20-40k in equity. I could then leave that to run for 30 years AND put that 100k in the market for 29 years. I would have only lost a year of compounding and in the end all of that plus the return from the building would far exceed just putting the 100K in the market in the first place. There are investors on here that if you give them 100k, they would buy 3-5 houses a year for 5 years using the same 100K (buy, stabilize, refinance, reuse). In 5 years they have 15-20 houses that are making rental income and they have the same 100k to put in the market. they might miss out on the first 5 years of compounding but the cash flow from the houses far exceeds what they would have gotten.
Appreciation- It is hard to quantify this but if you buy in good areas it is usually going to at least match inflation if not exceed it. I have already gained 145K in equity that i am pulling out. The chances of more than doubling my initial buy in in the stock market in 9 months is very very slim. Obviously equity is nothing till you pull it out or sell. Real estate allows you to pull it out relatively easy without selling and then use that money to invest.
As you stated we could go back and forth in this. I have my masters in finance and have day traded the market with my own funds and also invest more long term in the market. I have had my fun analyzing derivatives and companies via private equity eyes so i have a decent understanding of the market. I see the benefits but real estate done right from what i have seen will beat the market in my opinion. There is a reason there are more millionaires made from real estate than other avenues.
PLEASE help me understand this. Please!
Go here and download the BP Renal Analysis spreadsheet.
Do your best to enter in numbers for the Albany Park 4-Unit. (the OP didn't really give us enough into to fill this out completely, such as Interest Rate, etc) I put in numbers until it worked.
Look at the first image below, it shows the numbers pretty much identical to the OP, right down to NOI.
Now look at the second image. This is what you get when you slide all the way to the right and evaluate this property after a full 30 years. On his $100,000 investment he made a Total Return, including Equity Accrued, of $761,181.
Now whip open your handy compound interest calculator and dial in 100,00 for 30 years, and here's the important bit -- 7% interest -- and you get $761,226 -- basically the same number.
I must be missing something!
Yes I know he can rent out one more unit and make some more money, but it does not make much difference in the end. Because from everything I can tell, if you invest extremely conservatively in the stock market for 30 years you will achieve at least a 7% return, and almost certainly higher, and you did not have to spend 30 years of your life being a landlord, plunging toilets, evicting tenants, doing rehabs, financing properties, etc., etc. Now maybe you like doing all that stuff -- but if you had the choice between 30 years of work, or 30 years of literally no work at all PLUS MORE MONEY which would you choose? Would anyone actually prefer to make less money and do lots of work?!
Again, perhaps I am missing something entirely. Please let me know!
You make some good points Micheal. However there are plenty of things that are not factored here that can challenge what you said.
First of all as you stated cash flow is increasing. I am moving out next month which adds over 1k a month (12K a year) into the cash flow category. That right there drastically increases the total return over time (an extra 360K at the minimum). Second the rents on one are going up over 200 a month in about 4 months (originally rented in winter) and rents on another are going up about 100. 300 more a month is quite a bit and can really move the ROI meter.
Another very important aspect you did not consider, while living there i am saving 1000-1500 a month in rent. If i put 100K in the stock market i still have to go pay 1000-1500 (based on my area for a 1-2 bed) in rent. so if you want to compare it to that you should subtract 1000-1500 every month from the money you put in the stock market at 7% for 30 years. I bet your returns are now much lower. (minimum of 360K subtracted from your return plus all the compounding that would have come with it)
Another aspect not factored is depreciation. This year i am taking about 12K or so in depreciation which lowers my taxable income by 12K. That is another bucket that cannot be gotten from stocks and increases ROI by decreasing the amount you have to pay the Gov.
Another great one, appreciation. My building i bought last year for 500K was appraised at 645K when i went to get a heloc a couple of months ago. So i have made 145K in equity in less than a year due to the area gentrifying. I pulled out 50K of my initial investment that i am using to flip so technically i no longer have 100K in the building. Redo your analysis with 50K and i guarantee you get a different ROI also. I would have pulled out all 100K but did not know the building would appraise for that much. I will pull out the rest of the 100K (maybe more) in about 4-5 months and at that time my cash on cash return is infinite because i have no money in the building (and the rents cover all of it and still pays me cash every month). Try doing that in the stock market. If you buy in a good area and wait 30 years you will always get appreciation. However i bought in an area that is rapidly gentrifying so that i can be sure it appreciates quickly
So in the end i fail to see how the stock market can beat this unless you consistently return 30%+ a year. In which case i need to park some money with you and you need to start a hedge fund asap.
You threw down 100k on the 4plex, then 13k on a 375k property no closing costs?
Anyone got 150k layin around?
Its all in how you look at it. I never said i did it with no money down or that it was easy. Yes i threw down some serious cash to buy the properties and probably another 70k on flips. However people usually dont know the blood, sweat and tears that went into getting that money.
Started out making 60k after grad school with loans out the wazoo (still have them). I worked my fulltime job and had a fulltime server position in a restaurant and was a part time valet. Moved back with my parents temporarily and saved 90% of my take home (while paying her 700 a month in rent.) Was able to save up enough to buy my condo in short order and got a roomate so i paid essentially $0 out of pocket to live in the condo. Working hours were 5am to 2am daily and weekends (restaurant) for all three jobs to get to the 100k for the 4 unit. O and i drove uber at times.
Now i make significantly more in my fulltime gig and dont need 3 jobs especially with rental income. But i still save or invest 80%+ of my salary and i still live very well. With all the flips im still just as busy but with more flexibility. So some may look at the amount of cash i have spent but dont know i started from 0 and got there in less than 3 years with crazy effort. The last 9 months are the culmination of 3 years of effort.
Congrats, this is very motivating for me. Might I ask how you are sourcing your properties (wholesale/auction/MLS)?
So far its all been MLS properties. I have had couple from wholesalers that didnt pan out.
Congrats - this is the very definition of hustle!
You mention "Construction Partners" - did you call them that because they take a portion of the projects' profits? Or do they just get paid GC fees.
Like @Mayur Patel, I'm curious how you're finding your great deals.
Keep up the great and inspiring work!!
I call them construction partners because we split the profits at the end. They handle all the construction and sale of the projects. I handle everything else. So far they have also been the ones to identify the properties also but i also search for deals. All four of my deals have been from the MLS.
The key for me is doing value additions. On project had a 2nd story added and basement finished. That added over 1.7k in livable sq ft and took it to arv of 450 as opposed to 200. Another project required a 2ft basement dig out which added a lot of value. I was lucky to find partners with experience in huge projects that could price out and tackle those things. All my flips have been full gut with some king of value add.
@Nnabuenyi Anigbogu congrats on all the success and upcoming wedding! Let me know when you're ready to do the next deal.
Do you have any before and after photos you want to share?
Kaleb, im at home in Nigeria for my wedding this Saturday. When i get back i can post some pics. They are all stored in my drive in Chicago and also the Internet here is not the fastest.
Hopefully i can get started on the next deal by end of April. We will discuss.
May I ask, how are you financing these deals? I have a decent sized portfolio of buy and holds but my husband and I want to add more and do a few flips. We have $60K in cash but we run into trouble with conventional investor financing. Any suggestions? Thanks tons and congrats, your story is very motivating!
I use hard money lenders to finance the deals. The ones i use typically cover 90% of the purchase and 100% of the rehab. I also try to raise private money that helps with fronting the repairs before the lender reimburses me. Since my deals are pretty good i can pay the high money costs and still make a great profit. With 60K i can probably flip a 300-500K building if set up right.
I'm confused, on you Gross rent line for both the Albany Park property, it says you live in one of the units. Please explain.
The first one listed is the one i currently live in. I am moving out of that and into the 2nd one within the next 45 days. However the gross rent on both is as if i lived in each one. I am not counting on the rent till i move out and get it rented out. So the monthly cashflow should be going up quite a bit soon for that one.