All Forum Posts by: Ryan Fox

Hi Allen,

This is likely the route we will be taking. We're going to do a renovation on our home, which we bought as a foreclosure, and look to access equity that route. I have been researching the heck out of the BRRRR method and it seems like the best way to go. It's a win-win for us (renovated house, capital to invest). My grandfather is a real estate developer and does mostly very large projects with private lenders, however, he has agreed to do the Rehab for whatever our first project is, to teach me the process. Very lucky as I've heard that finding a good contractor usually makes or breaks the deal. In this economy, we are just waiting patiently for things to settle down. The last thing we want to do is rush our first project. Hopefully, it will be the first of many!

A bit late but, thank you for the reply. Good luck out there!

Ryan Fox

@Brit F. we are actually looking to build a portfolio of over 10 units and planned on using leverage for all, then paying down the mortgages with renters money one by one. The plan was 20% down on about a 100k peppery with 5k in cash reserves before down payment and saving 10% for vacancies, expenses, and repairs. We understand with one home that could be a risk but with a diversified portfolio do you still see that as over leveraged?

what’s your take on borrowing?

side note: our first couple we were thinking of putting a larger down payment (30%) for a larger cushion. 

@Brit F.

Thank you for your reply. My wife and I have crunched a lot of numbers since this post and we are going to be doing exactly as you suggested. We will contribute up to her match and that money, in 20 years, will actually be pivotal for some plans we have.

At our rate of savings we should be able to have ten 100k units in about 15 years (probably less time).

I appreciate the other suggestions and I am sure down the road we will look at other places to put our money, since I can't predict whether we will want to take on more real estate investments than that. However, we are excited to get started quickly. A friend of mine recently said, "Treat your money like they are your employees. Never have them just idling by; just get them started working on something."

For us, pulling the trigger on the first rental will be a huge psychological move.

Doing the research we estimate for a 100k unit, leveraged at 25%, we should be able to take home about $200 / month. How do you feel about that estimate? 

I'm 38, my wife is 36. We just had a baby 5 months ago and purchased our first home 2 years ago. Due to many factors, including a career change and zero financial literacy or savings we got a late start and are now thinking about 1. Life when our daughter goes to college and, 2. Retirement expenses.

We lucked out on our house in that we got an incredible deal on a refurbished foreclosure in a top neighborhood, so instant equity. We got the house for 510k, have a mortgage of 480k, but the house would easily sell for 600k, according to comps and expert opinions (I know a developer and two real estate agents). Even luckier, my grandfather (The developer) is going to replace all of our windows and put new siding on the house as a gift (The windows and siding are quite ugly, so assume the appraisal will only go up from there).

The house is a mother-daughter type setup and when baby was on the way we knew we needed to act fast to start saving for babysitter and retirement, so grandpa turned the lower level into a proper 1 bedroom apartment which we now rent. We net 1600 / month for that, mortgage is 3600 included and PITI is 2200 (taxes are very high in NY). We would like to take over the entire house in about 5 years, once we need more space (although we are willing to push this back to make the numbers work).

So here's the heart of the question (Thank you for making it this far). With this rental income, our income, and two side gigs I have (tutoring and playing music) we are easily able to save 3k / month and we don't know where we should invest it.

Two months ago we built up our emergency fund, then dipped into it for a dental emergency (thank god we had it), and now it's back to where it needs to be. So now we are ready to invest.

Our goals: As I said, I'm 38, been teaching for 5 years, and want to retire in 25 years. In about 18 years, when my daughter goes to college, I would like my wife, who makes 70k / year, to be able to work at a school so we have the same days / summers off and we can spend more time together and even travel. That would require her taking about a 40k pay cut. We would definitely put a renter back in place to help with that. Also, by then my income will be higher so that will be very doable.

We have two competing ideas, although they are not mutually exclusive. 1. We max out our 401ks (She already maxed what her company matches) while we have this renter and go the typical and "easy" and "safe" route of saving money. But doing the math that makes it so my wife will be able to take a pay cut in 20 years however there would likely be no traveling. And once we are both not working things will be even tighter. This way would leave about 1M in our 401ks by retirement.

2. While we have the renter below us, leverage 4 - 5 single family homes in the 100k range (Put 25k down for each house), use the rental income to pay off the mortgages, and in 20 years have 4 - 5 fully paid off rental properties. As I mentioned, we are saving about 3k / month so this can happen quite fast. Perhaps even more homes than that. 

To me the latter seems to work best for our goals. We would have great cash flow from the paid off properties so my wife could take the lower paying job and the houses would be our source of income in retirement.

Thank you for reading this. I am sure there will be a lot of great comments and suggestions about how exactly to move forward with either process but before getting into that can you just let me know whether you think "401k" or "houses" is the winner for this scenario? I also realize asking this question in the BP forum will likely yield more "houses" responses but the members here always have such great insight.

@Tony Kim

Unfortunately I'm just under the requirement for being an accredited investor so, for now, those ideas are shelved.

How do you feel about a strategy with a larger down payment on less rental properties?

Given two options, 50% down payment on rental property vs. invest in CF it always seems that the rental property wins out.

Perhaps you should understand our (my wife and I) financial goals: We just rented out the lower-level of our home and will do so for the next 7 years. With the money we save, from the renter, we want to (1) find a way to make supplemental income so when we expand our family to both levels of our home the lack of rent doesn't hit too hard and, (2) have something we can count on to help us in retirement.

Thanks for the info and your time!

@Tony Kim

Thank you for the response. Hoping you can clarify a couple of more questions...

- Regarding expenses - great insight, thank you.

- Regarding over-leveraging - hadn't thought of that, thank you.

- After mortgages are paid, however, you now own four homes that you didn't pay for and will now be producing significant income (assuming you hold for 30 years... kind of need to make a lot of assumptions). I just don't see how I could pass on purchasing an asset with someone else's money.

- Regarding appreciation potential - Can you please elaborate or point me in the direction where I can learn more about tax benefits of CF? 

- Can you tell me which CF sites you have had success with?

- What about option C, the idea of "splitting the difference" where I purchase two homes instead of four and put down significant down payment for each? To me that would (1) increase monthly income and, (2) set myself up for two nice assets come retirement.

I realize this is an old thread but I have the same question as the OP and am still a bit unclear as to why a site like Fundrise or Realty Mogul would be more beneficial than purchasing a turnkey property, from a reputable company (so you don't have to deal with 2am phone calls about clogged sinks).

The main thing that makes me lean toward turnkeys is the fact that if you leverage using a mortgage you are having someone else purchase your equity.

I am weighing my options:

Option A: Invest 100k in a CF site (let's just say Fundrise since I've been looking at them) and maybe I get a 10% return (to make the numbers easier). That equates to $833 per month. I am unsure how that is taxed... Perhaps someone can let me know.

Option B: Put down 25k on four turnkey properties, each with an asking price of 100k. After all costs, management fees, PITI, that leaves about $200 per month (This is a specific example from a turnkey provider that I've been in contact with. The numbers may not be typical but they are there to help make the point).

How can option A be better? Option B has $800 / month in rent coming in (remember, it's 4 houses @ $200/month each) and after 30 years I will own four homes that may have appreciated in value and I only put 25k down on each. Also, once the mortgages are paid off each every home will be bringing in ~ $650 / month (In today's dollars). That's $2600 per month, or $31,200 per year, and my initial total investment was only 100k.

I'm 37 y/o and I can't see how option B isn't significantly better than option A... when I retire I will own four properties that each bring in significant rental income, and during that process I will be bringing in supplemental income from rentals.

Perhaps I am missing something and that is why I am here. I am new to investing (we purchased a two family home last year and live in it and how have extra income and are looking to grow our wealth and have some extra income coming in).

Thank you in advance for any replies!