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Hey everyone!

I've been doing my due diligence before I start investing.

It seems as though most people want to find properties which main criteria being that the property has positive cash flow.

One book I've been reading makes the claim that "Cash Flow Sucks!" mainly the point being that positive cash flow is a very slow way to building wealth through REI.

Basically the concept is that if you have a property that is generating... lets say 500 dollars a month, after all expenses.

That’s 6,000 dollars a year of extra income for you. Now the problem is that, this money is considered taxable by the IRS. Also, in areas that have a high probability of positive cash flow, you often sacrifice being in a highly appreciating market.

So, if you are only focused on positive cash flow, you will be paying the IRS a good chunk of your money, and you will be short changing yourself on appreciation.

According to this book, appreciation is the best vehicle for wealth building in REI. This is mainly due to the use of leverage.

Let's say that you have a 500,000 dollar property and you put down 100,000 for a 5:1 LTV.

If that property appreciates 5% then you have 25,000 dollars of new equity, which is a 25% return on your investment of 100,000. And this money is not taxable, and you can also later do a 1031 tax deferred exchange and eliminate your capital gains on that specific property.

Also, this effect is compounded if you want to take you new equity and cash out refinance and use that as a down payment on a new property, and simply keep that cycle going.

So instead of getting a few hundred dollars a month, you can get a 25% or greater return by using leverage and then utilize your new equity to make down payments on new properties.

As long as you can make these properties break even, or even maybe a little negative in cash flow, as long as you can float it, you have a higher likelihood of making much more money over time than simply focusing on positive cash flow.

What's everyone's take on this perspective?

Thanks!
-Sean

ericsupreme,

Hey good to see you on the forum!

I'm a "noob" myself, and I'm looking to get started ASAP in investment properties. I've recently closed on my first Condo (owner occupied) and I'm feeding my brain in order to minimize my mistakes when I start moving.

Even though you are discouraged right now I just wanted to let you know that I think it's cool that you are actually out there making it happen.

Failure is the only way to success. If you want to succeed you have to fail first. Almost everyone eventually learns to walk, but in the process you fall down many many times, but when you are that young, you don’t know that you should feel discouraged, in fact you don't even know what "discouraged" is!

It's social conditioning and comparison that leads to these feelings, don't let them get you down. Just try and realize that if you want to succeed you will succeed, no matter how many temporary set backs you experience.

I'm rooting for you! You're gonna make it big!
-Sean

I'm pretty new to the game, and I have been talking with the mortgage broker who recently helped me finance my recent condo purchase.

I was discussing financing for investment properties and she told me that due to the sub-prime situation, that all investment properties would need at least 20% down. She also said that "The days of the 10% or 0% down are pretty much over for quite some time."

What do you folks think about this?

Is she being an alarmist, is she confused, or is she right and the days of 0% and 10% down loans are over?

Denski,

Hey! Nice see ya here!

I'm also a recent college grad (2 years ago.)

I'm new to the REI game as well, but anxious to get started.

I wish you nothing but success!
-Sean

all cash,

Good point!

And that's why I'm here! Better to learn by asking questions than to incur the time/cost associated with making the mistake yourself!

I appreciate your "grey hair" insight, it means a lot to me that you folks would take time out of your day to help give back to the REI community.

Thanks!

noobdog,

Thanks again!

I want to make sure I understand what you are saying.

In the example with the 13k to 50k in two years time are you saying that was a bad investment period, or just a bad investment for a beginning investor?

Because obviousally an ROI of almost 400% is a great deal!

Are you saying that it was not a good idea because you'd have to be negative cash for 2 years waiting for the ROI to actually happen?

noobdog and clayburgett,

Thanks for the warm welcoming!

I'm excited to learn as much as I can about REI and I really thank you guys for your help!

fosters,

Thanks for your reply!! It seems I have a bit to learn about financing, construction and how that factors into your overall ROI. But hey! That's why we're here right?

I'm here with an open and flexible mind!

fosters,

Thanks for the reply!

That’s great news about your acquaintance! I hope he is doing well!

You said that he was in a more precarious financial situation than I am right now.

Do you happen to know how he was able to secure 20 plots of land and have enough capital to build on these plots?

I'd be interested to understand how that was done.

At the moment I don't know a whole lot about construction; however, I bet if you put together a good team of knowledgeable people it could work.

I would just assume a very large sum of money for 20 plots of land in the Seattle area + having to build and paying the monthly bills associated with the loan.

Any insight/other suggestions would be incredible.

Thanks again!
-Sean

r2d2,

I've been lurking here for the past week or so and I've really enjoyed your posts.

I completely agree that you must first believe before you can achieve. You can have all the knowledge in the world and be the smartest person alive; however, if you do not believe you can do something, you simply won't.

If you don't believe you can do something, yet you find yourself compelled to do it anyhow. A great way to start changing your beliefs is through the usage of affirmations (repeating a positive phrase to yourself over and over again.) Which is exactly what I think you were talking about by repeating "I am a multimillionaire real estate investor."

When constructing affirmations it is extremely important to phrase them in the present-tense. For example, you do NOT want to say "I WILL be a multimillionaire real estate investor." That kind of future-tense affirmation will not work nearly as effectively. You must begin to believe that you already ARE a multimillionaire investor.

The Law of Attraction states that "like attracts like."

Basically that means if you are not thinking like a multimillionaire real estate investor then that type of lifestyle or "energy" will not be attracted to you. In order to attract the correct "energy" you must already be thinking like a multimillionaire real estate investor.

There are tons of great books on this subject.

Some include:
-Think and Grow Rich
-You Were Born Rich
-The Science of Getting Rich
-The Master Key System
-The Secret (also a movie www.thesecret.tv)

Most of the books are about getting rich as you can probably guess by the titles. But they all use the same principals of "The Law of Attraction" as their underlying message.

You can use "The Law of Attraction" to attract more than just money, but money can be a great marketing tool :).

Really what they help you do is become successful, and successful can be whatever you define it to be. Earl Nightingale defines success as "A progressive realization of a worthy ideal." I like that one.

Anyhow, if you are interested in some of the science behind "The Law of Attraction" I've included some links below to a lecture put on by Bruce Lipton, he has a book called The Biology of Belief and he tries to explain from a cellular standpoint why belief is so important to getting what we want.

The video is in two parts and is a little over 2 hours long. (But it's a good watch.)

the new biology - where mind and matter meet 1 of 2

http://video.google.com/videoplay?docid=-8982208321500875373&q=the+new+biology&hl=en

the new biology - where mind and matter meet 2 of 2

http://video.google.com/videoplay?docid=-2637636539837098620&q=the+new+biology&hl=en

I AM A MULTIMILLIONAIRE INVESTOR!! :)
-Sean

Hey everyone,

My name is Sean, I'm 24 years old, and live in the greater Seattle area. I'm a recent college grad as of just about 2 years ago, and currently working in sales for a local software company.

Real estate investing has always caught my eye and I'm in the process of researching the subject and really mapping out my first steps.

My first condo will close on the 15th of this month (Not specifically an investment property, I will be living there.) But I would like to invest in other properties as well as my primary residence.

Obviously I would eventually like to quit my job and peruse real estate investing full time.

My preferences at this point are apartment complexes or single family homes with the goal of generating cash flow.

I will have 50k equity in my condo and another 30k approximately in other "investments" (Park and pray mutual funds.)

As I already have a decent amount of capital, I was hoping to get some recommendations on what you folks would do for a first time investor's money.

Right now I don't think that I can realistically get positive cash flow in the Seattle area so I might have to take the "not in your own backyard approach."

Also, I know that due diligence is extremely important in finding a deal that will be profitable. How do you folks conduct your due diligence?

I'm enrolling in my local REI club and I'm really anxious to just get my feet wet and start moving!

I've been "lurking" in this forum for about a week now and I have to say I'm really grateful that something like this exists to support all us "noobs" out there.

Thanks for all your help!
-Sean