All Forum Posts by: Kenneth Estes

Hey Jared,

If you put 0% down on a 360k property and get reasonable financing terms (6% APR and 20 amortization), your monthly payment is 2579.15!

That's a loss of at least $1179.15 a month, not including taxes,insurance, vacancy, maintenance, etc.

This property doesn't make sense as a rental.

I've recently written a blog post emphasizing that real estate isn't something you should go into casually and that real estate gurus (people arguing you should do 0% down) are not acting in your best interest.

It might be worth a read: http://peartreeproperty.com/real-estate-gurus-are-full-of-it/

Hey there,

I agree with everyone here that you need a little more prep work.

One thing I can't stress enough is that real estate is a great way to build passive cash flow, but it's got a steep learning curve and is really time consuming for the money you get back out.

A lot of people have this idea, mostly argued by real estate gurus, that real estate is a great place to make some quick money. This just isn't correct.

Heya Dave,

My personal take is you loosely lump real estate investors into three groups: speculators, flippers, and landlords (emphasis on cash flow). The flipper category doesn't really apply here, so that means you're either going to be a speculator or a landlord.

My crystal ball is pretty rusty so I steer clear of speculative investments.

You very well could be right and that area is going to appreciate massively in the next couple of years. However, I can say for certain you're going be paying money every month to find out if you're right. Small payments with the hope of a big pay day? To my mind it feels a bit like a slot machine.

If you do think the area is ripe for a huge boon, wouldn't it make sense to take that same money and buy a property that DOES cash flow but also shares in the potential upside? That way you get paid money while you wait.

https://www.biggerpockets.com/users/That_REGuy_Alex. The 2% rule is hard to hit. Despite what every get rich quick real estate web site or spokesman will tell you, real estate investing takes a lot more than a bit of capital.

I heard some numbers once and they seemed reasonably in line with my experience.

For every 1000 properties you see online, you will look at 1/10 (100)
For every 100 properties you look at, you will make an offer on 1/10 (10)
For every 10 properties you make an offer on, you'll get one accepted.

As you get more involved in the game these numbers get a bit less unwieldy, but when you're first starting out you'll have to overcome a massive learning curve and time commitment.

Remember, everyone who is encouraging someone to start personally buying real estate is selling something. The easier they make it sound, the more money they make.

The 2% deals are out there, but you've got to be able to put in the time to find them.

Either that, or find someone who is already in the game and work with them. **cough** shameless plug **cough**

Hey Dave,

Here's a dirty analysis:
Annual Income
Rent - 1800 * 12 = 21,600
Minus 5% vacancy (very conservative) = 20,520

Annual Expenses
Monthly Expenses = 1830 * 12 = 21,960
Property Management (10% of rent collected) = 2,196
Upkeep and maintenance (one month's rent) = 1800

Annual Cash Flow = -$5,436

Let's say you drop your monthly payment by 200 a month if you refinance. You're still losing 3 grand a year.

Why would you want to make this a rental?

If you want to get into the rental business you'd be better served by selling the home, taking the ~40k in cash it frees up and investing in a rental property that actually cash flows well.

From your post it sounds like this is the situation:

An LLC, of which you're 50% owner, purchased a property and took out a recourse loan putting you on the hook.

If that is the case then you can only claim 50% of the mortgage interest on your personal return.

This message carries a strong personal bias, so apologies in advance.

Why do you want to be a hard money lender? You've got a lot of experience in real estate so you know how to evaluate a good deal and a bad deal. Is it simply that you don't want to spend the time and energy to do the deal yourself?

Why wouldn't you just invest in a fund that buys and fixes up real estate? Your experience will let you evaluate them quickly and then you can participate in the upside as well as your APR.

My bias comes from the fact that I run just such a fund.

In this situation you have to figure out how much it would cost to get a new home on that lot.

Two numbers you need to come up with:
1 - How much to get the burnt out husk off the property
2 - How much to build a home and how much you think it will rent for. To do this you're going to have to first get familiar with the rental market and what people want then you're going to have to get a general contractor to bid on the job.

You've already got a fair amount of experience in real estate, but it feels like this would be your first new construction. Is that a challenge you're willing to take one?

My opinion is that the first contact of a potential seller should first and foremost be to figure out if you are even in the same ballpark on price. Figure out what they're thinking of selling the property for, multiply that by 80% and compare that to what you/they think the property will rent for.

You're looking for that magical 2% number. The monthly rent should be 2% of the all in price (after rehab). If the numbers don't work, thank them for their time and save yourself the hour to run through the property.

That's a very broad topic. You could write a book about it. Fortunately a LOT of people already have.

Here's a fly by, as a first investor you don't want anything requiring much rehab work.

You also want a lot of buffer: you can't go wrong with the famous 2% rule. Meaning your monthly rent should be 2% of the total purchase price (after rehab).

Like I said, broad topic. Connect with me if you want to chat about it a bit more, or check out my blog.