All Forum Posts by: Ryan J Bruun

@Katie Hoffman

For me the best way to figure out how much you can expect in rent is to look at how much people are actually charging. Go to places where landlords advertise contracts like Craigslist, Facebook Marketplace, Trulia, or Hotpads. Also, Realtor.com has a cool Rental app that lists rentals available. Look up your area and see what similar places are renting for just to give yourself an estimate of what you can expect to charge.

@Nathan Smith

I’ve just recently started my college career so I can relate to what you’re feeling. IMO the real value of college is not really the technical skills that you can learn (like a lot of people have said, you can learn these things through YouTube or from books at the library, etc.) The reason I came to college is because twofold: first of all, college is a kind of training wheels for the real world- I can manage myself for the first time without any supervision, make decisions with money, live on my own, etc. If I make poor decisions, there are consequences (eg I miss a class or get a bad grade) but they aren’t horrible consequences (eg. losing my job or house, being homeless, going hungry, etc.) I can learn general adult skills without a lot of pressure.

Secondly, college gives me the opportunity to expand my mental capacity. You can learn technical skills from YouTube or books, but college requires you to interact and respond with ideas, evaluating them, analyzing them, and coming up with creative support/refutations/qualifications. Although the idea you're responding to might not be important to you, by interacting with the idea you're teaching your brain important mental habits. While understanding American history or basic physics might not help your REI, the ability to think critically and maturely will be crucial.

So, even if you don’t want a degree, I would say participate in some class or learning program that requires you to do more than just receive information from an instructor. This could be an online class, some kind of club, an online community, or a trade school. Just pick something that makes you use your brain. After all, in the real world, you won’t be given ideal properties on a silver platter.

@Will Fraser Thanks so much for your actionable advice! Are there any other ways wannabe investors can provide value to seasoned investors besides finding deals? 

I've heard repeatedly that the best way to get started in real estate is to find a mentor to show you the ropes, and I've heard that the best way to find a mentor is to offer them some kind of value. One of the ways to do this that requires time and not capital is finding deals as a Bird Dog. I'd love to do this one day, but first I need to know what essential skills and knowledge a bird dog needs to have. That way I wouldn't be wasting an investor's time with stupid questions when I first approached them. For those who have had bird dogs in the past, what did you expect of them, and what did they do that made them truly worthy of your time?

@Greg Scott Sobering but true. The idea that my life can be affected so easily by things outside of my control serves as motivation to make the most out of what is inside my sphere of control. I could lose my job at anytime, but instead of trying to make it impossible for my employer to fire me, I budget, save, and invest so that the effects of unemployment would be less debilitating. One of the things that I love about the REI community is the entrenched belief that we can make a difference in our lives through our actions. Since I can't control the world around me, I'd rather focus on making best decisions I can about what I can control, so that when something hairy does pop up, I have a solid foundation from which to respond.

I've realized that the biggest factor that is helping me to limit the amount that I spend is the fact that I don't have a car. Of course, without a car, I don't have to pay for gas, insurance, and repairs, which is a boon for a guy making less than a grand a month. But it goes beyond that. I live at least six blocks from the nearest grocery store, which means that, on foot, it takes me almost 20 minutes to get there. By the time I do my shopping and get back, the trip has taken an entire hour of my life. On the walk back I have to carry my groceries, which is uncomfortable, tiring, and annoying. If it's cold out, I'm cold. If it's hot, I'm hot. If it rains, I get wet and most likely my groceries do, too. 

But I'm not complaining. In fact, I think that I'm lucky. Because of my situation, it's physically difficult for me to spend money. That, combined with a Scrooge-like aversion to spending, and I find I spend so little that the pittance I make at my part-time job is enough to cover my expenses- and then some. A couple of years ago, I never would have thought that I could be content and even happy living a budgeted lifestyle. Now, budgeting is part of my lifestyle. 

This time of my life has taught me something: it's not how much you make, but how much you spend that determines whether or not you're financially stable. If you have control of your spending, then the amount of money you make can be enough, no matter how low it is. And one of the ways to control your spending is to just make it hard to spend money. For me, the difficulty is involuntary. Once I decide to take the (minor) plunge and purchase a bike, I'll have to create other, voluntary obstacles that make it possible for me to control my spending. 

If there's anybody on Biggerpockets that feels like they need a high income to be able to be financially stable, I hope you see this post and realize that YOU control your life, not your paycheck. If you're like me and you're just starting out life, and you don't have the best paying job or the best situation, realize that the ability to change your life lies inside of you. Make the commitment to improve, and stick to it. 

@Frank Jiang

Thank you so much for your extremely informative replies. I read through your longer post six or seven times and its starting to make sense to me. I agree with your statement that if Rf is just adjusting for inflation then it's a pointless metric- I could just subtract 2% from my gross return. I definitely got Rf and Opportunity Cost confused there, so thanks for setting me straight. 

Your spreadsheet at the end (even if it is oversimplified) opened my eyes to the power of using private equity in your investments, although I imagine it comes with its own risks. It almost seems to me like you're calculating cash-on-cash, and just showing the steps that got you there. Even so, very enlightening.

Your reply prompted me to do some more learning about WACC and I came up with a couple more questions. For starters, how would a potential investor go about determining their required rate of return for a piece of real estate? Unlike the stock market, there isn't a great way to quantify risk in real estate. Would it be reasonable to assume that private investor's required rate of return would be equal to the opportunity cost of investing in the stock market (7%), or whatever other investments that particular investor may be considering?

@Scott Jensen I hear what you're saying. I think that maybe the metric could be modified a bit to make it applicable to the individual investor. Instead of the cost of equity representing the required rate of return that a potential partner would require, it could be substituted for the risk-free return that could be achieved on an individual's cash. For example, if you could get a risk free return of 10% on your cash over the next year in some investment or another, then the real estate investment would have to provide a return that accounts for this. I understand this is straying into the territory of discount rate, but I think that the WACC formula itself puts the investor in the right mindset of being aware of the cost of debt and the opportunity cost of any cash spent on the deal. 

I'm currently learning about the Weighted Cost of Capital (WACC). From what I understand, it is a formula used to determine the true cost (in percentage terms) of financing an investment when using both debt and equity. It is used mostly in the context of corporate investment decisions to determine whether or not a potential investment can provide a significant enough return to account for how much it costs to finance it. But does it apply to real estate investing? Could it help an investor to decide whether or not a property is worth considering?

Every community has its biases, for or against certain ideas, actions, or lifestyles. In political groups, religions, demographics, and other communities, these biases are sometimes easy to spot, and sometimes difficult to detect without scrutiny. I believe that the real estate investing community, while united in a financial activity, gathers a certain group of people who all share similar personal traits. And, as a fairly tight-knit community, this group of people may assume a range of assumptions and biases.