All Forum Posts by: Patience Echem

Quote from @Patience Echem:

When I hear cash is king, I have understood it to be a negotiation tactic where you offer all cash to quickly gain the deal. I never understood it to mean chasing cash flow. Today I learn it means something different. Patience, always ask for clarification 

your thought is correct it means what you think it means

I have two major issues with Bigger Pockets.  Before I get to the issues I want to point out Bigger Pockets is a great website for networking, free information, investing strategies and many other things.  Overall I think BP is a very well run company and one of my favorite platforms.

#1 - Cash Flow Investing - is for novice investors.  Sorry I know this one is going to be painful for many rookie investors just getting started who want to live on the beach with their mail order cash, but this is not they way investing works.  The real wealth is in equity.  Equity and debt paydown are king.  I have been investing for 15 years, own over 60 units, manage 700, and have data and analytics on everything.  The data is clear:  Stable, B class investing of quality assets, professionally managed makes investors rich through equity. 

High risk, C class or lower investments that chase cash flow makes people poor.  Even if everything goes great on your C class investment, the cash flow generated is normally not enough to make you rich.   Most people making good money on cash flow are self managing and are not really cash flowing, they are just saving on maintenance cost due to not having to pay a market rate.  

I have made FAR more money in equity over time, with great properties, than I ever have from cash flow on my entire portfolio.  Play the long game, buy good properties with low cash returns and stable tenancy.

#2 - BRRRR is a Good Strategy -  The BRRR is a great strategy, but not for you. The BRRR is one of the most complex investing strategies that exist. It takes market knowledge, construction knowledge, proper analysis, financial relationships, rent projections, property management knowledge, and a whole list of other things that are only gained through experience. You can try to outsource that experience to general contractors, property managers, agents, and others (I highly suggest you do), but all of those services will eat into the last "R" of repeat. You will not get to the repeat part, because you have to pay and pay well to get highly trained professionals on your side.

If you are a first time BRRR investor I suggest you outsource to trusted professionals and temper your expectations of infinite returns. If you get a property that has all new mechanicals, fully updated units, get it all done in a timely fashion, and still leave 25% in the deal you are WAY ahead of the game, due to the fact that you have front loaded risk and updated your mechanicals. That will save you big dollars in the future.

When I tell new investors that they should plan to leave 15-25% in the deal they look at me like I have a third eye and normally find another agent. However, the joke is on them, I am a BRRRR investor, have over 30 employees and do all of the work in house on my investments. We use my construction team and my property management team, and I DO NOT charge myself agency fee's. I still normally leave 15-25% in the deal. I am happy to do so because I have fully updated units and have beat the market by a few % points if I leave less than 25% in.

The path to wealth is not Cash... in this business cash is not King... Equity is.  

As a new investor focus on Equity growth over time and you will be rich.  Chase cash flow so that you can get infinite returns and you will be poor. 

Quote from @Michael Quarles:

Quote from @Alecia Loveless:

@Helene Goodworth I always put 20% down. But sometimes the appraisal comes back higher so I end up with extra equity after closing.

I have a great relationship with my primary lender and they require at least 20% down. They’re willing to work with me and are local to my market. They don’t sell off their mortgages so I will always have a local connection in case I need assistance with the loan or any other aspect of my business.

There’s plenty of good reasons to put 20% down and to me, not being concert leveraged is of primary concern.

Why are you always putting 20% down?   I’m perplexed.  

What makes a “good” deal can differ enormously from person to person.  Low down payment is a significant part of your criteria, Michael, and it obviously fits your personal needs, wants, financial position, goals….
But for myself, for instance, ability to pay a low dp is of absolutely no importance.  My main criteria is purchasing below market value, with a 12% or better ROI.  In fact, it’s a LOT easier to find a good / great below market deal if (1) you offer all cash, quick close, NOT subject to financing and or (2) the property is one in which obtaining financing is difficult, if not impossible.

Another example of where low DP is not preferable is when we syndicate property purchases.  We almost always utilize 50% leverage.  The reason is that we have a relationship with a regional bank that will provide financing and which if we limit leverage to 50% will (1) charge interest at their lowest commercial rate fixed for 20 years with no balloon, (2) charge 0 origination points and no “junk” fees and(3) allow us to sell the property with either a sub to or a wrap loan without increasing the interest rate - in other words no due on sale clause.  We sold one property this year where we wrapped the 4% mortgage note into a 10% note and as a result are enjoying a 17% annual ROI for a minimum of 2 years and possibly as long as 10 years if the borrower/buyer does not pay us off early.

After 40+ years of real estate investing, in many different markets across the country during many different economic climates, both in residential and (primarily) in commercial, I can tell you that hard and fast “rules” should be constantly evaluated to see if they are limiting the opportunity to “jump start” your wealth building.