All Forum Posts by: Justin B.

With only what you put in the first post, it's way overpriced.  I say that with just the numbers and what I get in my area.  Maybe in your area that's the worth, but I don't know your area.  I have a few properties that have revenue around the same and I paid around 500-600k for them.  Just with your numbers, I'd walk away with my 5-minute look at it.

A 401k is what it is.  Investing in the stock market without any effort on your side.  I have one and so does the wife.  We also get matches.  My view of it is this.  If I didn't have money to invest in RE because I was contributing to my 401k, I would choose RE.  However, the 401k is just one of my investment vehicles.  I'm fortunate in that I have the money to invest in multiple vehicles (especially since I'm getting a match).  I currently invest in my 401k only to the point that maximizes my match.  When I am old enough to withdraw from it it will provide what I call surprise income.  My other investment vehicles will allow me to "retire" well before I can withdraw from the 401k without penalty, but if RE totally implodes (unlikely as it may be), I still have other vehicles to fall back on.  Worst case, I work until I'm 60+ but what I can't afford to do is put all my money into RE and have nothing if that doesn't pan out and work until I die.

so if you have the money, yes, I'd invest in a 401k.

I'm only replying to the original post by @Michael L.  I didn't read the other responses as not to skew my thoughts.

There are several things here that you didn't give the time to develop.  In a vacuum, your post is dead on.  You only had one property, which isn't enough to see the power of real estate.

The first point is you forgot about appreciation.  Over time that property is going to be worth more.
You also forgot about the power of compounding.  In conjunction with appreciation, you eventually have enough to refinance, get your money back and repeat.  Buying a second property with the "same money" leads to an infinite return technically.
Also, you forgot about the tax benefits.  Based on your numbers, depreciation alone probably made those gains almost tax free.

Imagine this.  You buy a property, hold for 5 years, refinance and get your money back.  You repeat, except this time, it only takes 3 years.  Appreciation + cash flow on 2 properties allows you to buy a third property.  Rinse and Repeat except this time it's 2 years, then 18 months, then 12 months, before you know it you can buy a new property every few months with your cash flow alone.  Now, you're in a position where you can buy a 12-unit apartment and start the rinse and repeat cycle all over again with those property types.

With stocks, unless you sell, you can't use "cash flow" to buy new stocks, you have to use all seed money (dividends are taxable too).  If you sell the stock, you pay taxes, then you can reuse what's left.  Real estate lets you use most of what you have with little taxes (thanks to depreciation) or tax-free (thanks to refinancing).  1031 exchanges let you upgrade to larger properties without paying tax as well (in fairness, it's deferred, but indefinitely potentially).

That's why I invest in real estate because I believe it's far superior to stocks (just my opinion).  HOWEVER, I believe to truly be successful, you have to be passionate about real estate.  What you've done is only looked at the negative of real estate and the positive of the stock market.  That's not a jab at you by any means, but just based on your post, it sounds like you're just not passionate about real estate and are more interested in just parking your money somewhere, making a modest return and not having to spend any time on it, and that's fine.  There is nothing wrong with that if it makes you happy and it's what you're comfortable with.  I think the stock market is the best place for you and again, there is nothing wrong with that.

You could have just said from the beginning it was a friend of yours.  I don't understand why you had to say it was yourself.  A simple, this isn't me, but if it was, what advice would you have and everything would have been fine.

I'm curious as to what your need is.  I'm assuming that you net at least $10k Cash flow off these (probably more, but I'm trying to be safe) and also that you have a day job (because you said you weren't "retired").  If you only need a few $K more, just keep doing what you're doing and buy as cash flow alllows and you'll get there before 7 years. If you need $30k/month to live, that's a different story and I'd suggest what I'm sure others have (I haven't read all responses).  Start buying on leverage.  You don't necessarily need to refi, pull cash out, etc if your goal is 7 years, but if you did, you could easily accelerate your timeframe.

You have to make your lender aware. Never do it without letting your lender know. If you do, you greatly increase the chance your lender will call the loan if they find out. Some lenders will do it, others will not. Typically lenders do not give the same terms to an LLC as they do an individual, which is why most won't allow it. This is why it's not very smart (without clearing it with your lender) to quit-claim into an LLC after taking out a loan as an individual. Lenders also know people try and do this so if you think they don't occasionally check loans to individuals for investment purposes for that reason, you're mistaken.

Again, check with the lender.  If you get approval, you're good to go, if not, don't do it.

 Well, if 70% of the homes in the area are in that range, that means banks have a lot of loans in the size you want in that area so it "shouldn't" be a problem.  The next question is who you are working with.  If you're trying to go through Bank Of America and Wells Fargo and it's not your primary residence, you are going to have a problem.  Go to the smaller banks, the ones that don't operate outside of your state very often.

I'll add something from a different viewpoint.  A lot of good advice here and I'll forego my opinions on the actual situation and just say, EVERYONE gets discouraged, down in the dumps, excited, anxious, fearful, etc.  It all goes with real estate.  It's how you react to all that.  If you let discouragement take over and be the leading emotion, you'll always feel like you have an uphill battle.  Let the other positive emotions take center stage.  All of those emotions (good and bad) can be positive and healthy.  If real estate is truly a passion, keep at it!

Would you have the cash for the renovations?  I assume you want to buy and hold and after time you can refinance and pull it back out but you still need the cash for a certain period.  In my opinion private lending is risky when you're dependent on a refi coming through at a certain amount and private lenders are wary of that too.

And you didn't mention foundation before.  That's a deal killer for me.  Major foundation issues are the single most expensive thing that can come up (by far).  For me, I have run across some really good deals and walked immediately when I found out the foundation was bad (in other words it had to be fixed or the building was at risk).  I always go back to the seller and say fix the foundation and we'll talk again, but they never do.  There are far too many good deals out there to consider one with a major renovation needed and foundation problems.  Fixing the foundation could cost as much as the entire renovation doubling your potential to $100-$200k needed just to get to status quo.

 Yea, if banks had those requirements, 2007 probably never would have happened.