Quote from @John Morgan:
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Quote from @John Morgan:
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Quote from @John Morgan:
I’d say 50% if someone is willing to give themselves 10 years slowly buying and holding. Most people need to hit home runs with no work. Those who are willing to do the work and slowly grow over time will crush it if they give themselves 10 years.
I have been slowly buying and holding for 15 years and for the most part, the theory doesn't hold up. Sure a few properties doubled in value but at about the same pace as inflation which is less than the stock market plus, the cash they return has not changed in 15 years as the increase in rent is negated by the increase in property taxes, hoa and maintenance on an aging house. I just sold a condo because the HOA has increased faster than rents can keep up and I'm selling a home because its age is becoming a liabilbity despite being paid off. They don't teach you that in the books. I'm beginning to think nobody making these comments has owned a house for 15 years or really crunched the numbers and compared it to the stock market or 20 years of maxing out a 401k with employer matching.
I know someone who go a late start in his 401k and also purchased a house during the lowest point in the recession. His house has tripled but his 401k has around the same amount as his house has equity. Tell me you can do that today at these prices and rates?
I fully leverage so I’m only 20% into a house. Between principal pay down on my mortgage, monthly cash flow and appreciation, I’m making an internal rate of return around 80-120% on most of my properties off my small 20% down payments. And it’s all tax free. I don’t invest in condos due to HOA and special assessments fees. Sounds like you have too much money into yours. I put minimal down them recycle the equity to generate more cash flow. I’ve paid myself back every penny I put into RE. So it’s all infinite returns from here on out. Cash flow is about 13k/month net now for me. My 401k isn’t making that and will be taxed when I pull it out. So I’m bullish on RE over time. But I’ve only been doing this for 8 years buying and holding.
For those of us in the back of the class that were busy passing notes can you walk us through how you arrived at 80-120% a bit more in depth John?
Thanks!
I’m including 5% appreciation, principal pay down on the mortgage and monthly cash flow.
For example, I paid 100k for a house exactly 6 years ago that was turnkey and now rents for $1750/month in Arlington, TX. It cash flows $850/month after all my expenses. Approximately $380/month of my principal is being paid off my loan (by my tenant from rent). IT’s appreciating about $10,500/year. So if you add that all up it comes to $25,260 my net worth goes up each year. I’m all in for only 20k from my 20% down payment. So my internal rate of return when you factor in everything on this house is 126% ROI off my small 20k investment. This is just an average example from what I’m making off my rentals. Nothing fancy. I bought it off the MLS for retail price or a little under. But after about 3-5 years, these returns really go up big on average deals because market rent goes up and compound annual appreciation of 5% really adds up! And this doesn’t even talk about the cash flow from this being tax free due to depreciation and write offs. And I’ve done 4 cash out refis on properties with equity built up to buy 12 more cash flowing rental houses with zero out of pocket $. So after 3-5 years I like to harvest the equity in these to buy more houses for free which multiplies my cash flow. The key is to leverage and put as little down as possible on good high demand cash flowing rentals and wait. If you’re patient, these things will be cash cows after about 5 years or less. Unfortunately, most people aren’t patient to wait 5-10 years. They want to hit home runs today. For those people, I tell them to go invest in something else like crypto if they need to hit it big right away and retire. But for those who can wait 5-10 years to build legacy wealth from RE, I encourage them to jump in.
John thanks for taking the time to explain that in more detail, but sadly you've confused me a bit more. First you said you had a 80-120% IRR but in your last post you said you had a 126% ROI.
Those are two very different measurement; IRR being over the life of an investment and ROI being a snapshot in time. Both calculations have a return component and if you haven't sold the property or taken out a loan to access equity, you can't count the principal paydown or appreciation in your returns until those dollars hit your bank account.
Taking the info you've provided I've backed into an IRR of 65-80% for the property you described above, which is an AMAZING IRR you should be proud of. I only point his out not to be a male reproductive organ, but to say that REI is an exceptional path to wealth for so many ppl, especially if they have the patience, long term mindset, and willingness to put in the non glamorous work that you espouse, and we don't need to over hype it.
