All Forum Posts by: Shane H.

I have one more attempt in me to explain why it's 5 percent to you but not someone else. And yes it comes back to the financing. 

so where you say that you could see the 5 percent return in the stock market, you're looking at cash for real estate. 

When someone finances it they're collecting cash flow, akin to a dividend. Of 5 percent. You're stopping there because you are paying cash. 

If the deal is financed there's way more happening. They paid 20k for a 100k property. they're earning 5 percent on the 20k COC. Additionally they're having tenants pay down the mortgage, so on a 20 year mortgage, they're earning an extra $200 a month in equity in the beginning. In 5 years they're warning $250 extra in equity, by the end of 20 years it's increased to over $500. $200/month Is an additional 12 percent of the $20,000! Because you're actually earning based on 100k instead of 20k... So while they're really only earning 2.4 percent on 100k, they only have 20k in the deal meaning the return is a whopping 17%. 12 in equity and 5 in COC... plus depreciation on the full $100k. In the later years of the loan the tenant is paying down the mortgage at over $500/month. I.e. 30%! Plus the 5 percent cash on cash. 35% return on that 20k after 15 years. If they've also found a way to tweak that number up to 7 or 8 instead of 5 it was well worth the wait... that's not including any appreciation on the property. If it appreciated 20k during that time. Thats an additional 20 percent over the life of the loan... now your stuck on the idea you only get equity if you sell, that's not true. Refinancing gives you that money.

Even without doing this over an over again, let's just do this once. 

Cash flow over the 20 years- $20k

Increase in value over 20 years 20k

Pay off of loan over 20 years 80k

down payment 20k

Total cash and equity $140,000

That's a total gain of 600% over the life of the mortgage. Or slightly over 10% per year consistently. 

Now if you waited the entire 20 years to refinance and do it again, you could buy 6 more with the same exact numbers. That's going to mean after 40 years $20,000 became 1 million. if you trust the stock market to give you 10.5 % returns for 40 years straight then you could do the same thing there. But in the real world that's an outrageous assumption, and you wouldn't wait 20 years to pay off the first property and then buy 6 more... if you contributed no other money, by year 8 you'd have the cash and equity to do it again. The next one would happen by year 5 probably. Until you're doing one every year. There are so many other options too. Refinance after 5 years back to a 20 year payment plan adds an extra 5 percent of cash flow. Now you're at your 10 % bench mark, or if they've found a way to reduce a few costs to bring the original number to 7 percent they're at 12. And I'm still confident the majority are finding ways to show 7 or 8 on that number. We aren't all using the exact same assumptions when running the numbers. 

In the BRRRR model you're not selling to get your money back, you're refinancing. So you take tax free equity from your property, meaning appreciation is important. It's something you're missing out on as a cash buyer. As I pointed out before, people aren't buying for 5 percent returns, they're doing things differently than you to get higher returns from the same properties.

How do they retire without money?  Everyone is welcome to their opinion, but there might be 1 in a million real estate investors who aren't doing it for the money. You'll have that person who is doing it to rehab the city they love or whatever, but they likely already are incredibly wealthy. If not they still need to make money in order to keep going. It's called real estate investing for a reason. Otherwise it would be real estate hobbying!

 Are the pending at 5 percent though? Who offers asking price? And maybe they have an option to increase those returns. Like I do snow removal, so when I look at snow removal costs on a commercial property I immediately adjust it to my rates and know that the RE company is going to pay my snow removal company for that service which means I'm increasing profits of that business as well. Just one example. Any contractor is going to have a way lower maintenance expense than joe Schmoe. By taking on the rental repairs you're increasing your other companies book of business. Knock a few thousand off the price, pick up some profits in your repair business. Find a better quote on insurance. Get the taxes reduced. Next thing you know that 5 percent you're running is 11 for someone else... 

 I find the Dave Ramsey show quite entertaining. I listen often. Some things he says are daft. I've heard him tell people to sell cash flowing assets to pay off their primary residence. That's insane. He doesn't bother asking how that asset is performing. I'd agree if it's got a 4 percent return... maybe... there's a huge difference between avoiding debt until the home is payed off and getting rid of a performing asset to pay off a liability like your personal residence...

I don't think very many people are buying these properties that you keep asking who's buying them... that's why a broker is sending them to you... because they are sitting on the market... 

you are obviously looking at better cash flow paying the 300. You could flip it too and invest the 100k then dump $2500 on the loans and be done in 2 years... I personally wouldnt drag them around for the 30 years the government payment plan suggests. When you had the option of paying them in 3 minutes. But 2 years isn't awful. Even 5 if you're disciplined... 

I'm a bit crazy about my finances so something I would do is draw up 2 financial statements one each way and see which one is rather look at. Throw presumed incomes and expenses from both scenarios, and the assets and liabilities. and I would also run the numbers through loan and investment calculators that you can download on your phone. Use different time frames and different options. See what you feel best about!

The car was a great decision. No brainer for me. The student loans are super tempting to pay back slowly and keep the cash flow. You'd be giving them a full 100k on that payment plan, albeit in inflated dollars over 30 years. investing your money and paying $1000/month pays it off in about 5 years and saves you something like $45,000 of interest. Which is probably about what you'd  bring in from your real estate. So you would net 0 for cash flow but gain equity in your property while aggressively paying down your debt. After 5 years you would pick up that $1000 in cash flow. 

No problem. Now to be clear I play with my charges to try to make it fair to the customer. Like if I'm sweeping ten feet of sidewalk and applying salt I don't actually charge the sidewalk fee just the ice melt. I had an account with 400 feet of sidewalk that had to be charged every time because it was time consuming.  If you're hiring a professional thwy should be paying attention to the weather. If it's 34 degrees going up to 45 and there's a dusting I let them go. If it's 25 dropping to 0 it's got to be cleared so it doesn't turn to ice. An honest and professional company should automatically make those determinations. You can make sure your contract gives you the say. Like some customers are on demand for salt. The issue there is the price. Customers who let me make the determination are paying me to run the spreader on a lot I've just plowed or a sidewalk I've just shoveled. I'm on scene. They're paying for material and a little bit if time. If they do on demand and call me out after I'm done and gone I have to charge them for travelling there. Better to have a guy you can trust than one on a leash! Haha

I think everyone here saying they don't do it for the money is nuts. Do what makes you happy. Etc etc. What makes me happy requires money. I work for the money to pay for the things that make me happy. And no it's not fancy cars and diamond rings. I can't fly away to hang out on a beach, or hike mountains, or cruise around on a yacht without money. Those things make me happy. And yeah I realize there's a handful of people who made careers doing things like that but it's not practical. Killing myself to build my business and investments for a few years so I can enjoy those things later is well worth it. To the person who asked if your family and friends are on board. If they are not on board, they are not on board. They can get lost. (Spouse and child are a bit different, you can't spring it on a spouse, they should have known already if it was the plan, if you just decided now then it's not your decision to make alone.) Friends and family should support you. If they can't they're not worth your time in my not so humble opinion. 

Is a bird in hand really worth 2 in the bush? I believe so. You are in an awesome position to be debt free AND have a down payment on your first income property, AND you are on track to a million in your retirement account. The most important question is whether you will stay motivated without the anvil of the debt looming overhead... if the answer is unequivocally yes, then I would knock that debt out and breathe a short sigh of relief. .Many members of this site don't like to plan for the worst case scenario but I do. 

worst case scenario, a year from now the economy takes a big hit. I dont know maybe bernie sanders got elected. You lose your job and get kicked out.

would you prefer to have:

a: $65,000 of debt. No job. A large sinking real estate and  sinking stock portfolio with let's call it $15,000 a year of rental income. (Assuming 15% cash on cash on your 100k) 1250/month - 550 payments = $700 cash flow.

or

b: 0 debt. No job. A small sinking real estate portfolio and sinking stock portfolio. Same 15 percent gives you COC of $6750 or $562 cash flow.

theoretically the numbers say scenario 1 is better. But  which scenarios feels better and is more secure? Sometimes percentages get the better of us. We just compared 15% to 5% and found a cash flow difference if $138. If the difference were $2,000 I would obviously suggest otherwise but you're unlikely to find that big if a difference in my opinion. So in the disaster scenario if you lost everything or had to dip into stocks your exposure is much more limited. You could take a cheap job to get by until you found a better one. And not worry about having your car repossessed. You could drive uber or deliver pizza to get by.

I run a full time business that changes by the season. Snow removal in the winter. Refrigerated truck repair in the summer. It's feast or famon.  A few years ago I had $70k in debt. The famons were rough. Putting $5 of gas in to get to a job to make $75 so I could take the $75 to buy a part for another job to make $300 so I could pay on my loans. Man was that miserable. I just came out of this year's famon. During my low debt famon period I bought a small piece of land I wanted, a truck that the opportunity jumped out at me, and an engagement ring. All with little fear, since I don't have the anvil looming. I paid $5,750 cash for the property it nets $600/yr land lease. I literally improved my cash flow during the famon! I bought the ring on credit that will be paid off next month when the feast is strong. 5 years ago I would go eat at my mother's house because I couldn't afford food during the famon. Shaving a few thousand of payments off has worked miracles.