I would like to start buying and holding to secure our wealth. My wife is willing to do most of the leg work. I’m not sure where to start with this. Most of the information is geared more towards the no down payments and horrible credit. Any advice? Good literature? Etc… Thanks.
I Make Almost $1,000,000 Per Year and Have Great Credit - Where Do I Start?
You’ve got so many options, in your position, it’s hard to know where to start.
However, I do know exactly where you should start.
The first thing is to determine your time available, along with your willingness/ability to delegate everyday items to others, including professional property management.
The next thing is the risk level, you’re willing to absorb.
After that, you look for investments that reflect your time available, and the risk level.
The next issue, is your ability to analyze a deal. You should NOT buy anything, until you’ve analyzed 100 deals. That’s a LOT of deals, and takes time, because there might not be 100 deals to analyze at any one time. Don’t short-change yourself. You WILL find obvious deals as you progress through the data sheets. Don’t stop analyzing. After you’ve plowed through those operating statements, you’ll see there’s a potential, steal-deal every month, and it’s just a matter of selecting which steal you want to pursue.
So, once you’ve waded through those 100 operating data sheets, you’ll have a thorough understanding and familiarity with what ‘should’ be happening with a given project; recognizing all sorts of under-performing properties, and MORE importantly WHY they’re under-performing.
Why look for under-performing properties? Maybe you shouldn’t. These usually require more time and involvement to make work.
Notwithstanding, that’s where you make the big bucks; by forcing appreciation (forcing performance), and literally creating equity out of thin air.
This could mean either increasing the rents, or lowering expenses, or both. Either way, the value goes up, and you make money.
Otherwise, you can buy pretty, perfectly-performing properties and park your money for years, if that’s what suits you. This only requires finding a commercial broker (preferably one who owns/partners in the kind of real estate you want to buy). He won’t be competition to you, but will have critical insight as to what makes a deal, or not.
And if you’ve completed the 100-data sheet analysis exercise, you’ll be able to synthesize what you know, with what the agent tells you, and make incredibly sophisticated and informed decisions and negotiations.
However, after analyzing a 100 data sheets, nothing educates you faster and more efficiently, than actually owning an investment property.
That said, I would recommend (this is the way I started), buying a low-budget rental, in a working class neighborhood, and managing it yourself for a time. You’re likely not to make a dime, after spending your time and money fixing, cleaning, renting, and managing it, but the practical experience will give you insight that you can’t get any other way.
Once you’ve determined what you want to buy, based on your time constraints, etc., go find an owner of what you want to invest in, and pick his brain. Ask him how he found the deal; determined value; how he negotiated the purchase, and how he manages his building …or whom manages it, and why.
Investors LOVE talking with other investors about their projects. It’s like asking them to show pictures of their kids.
Again, once you’ve learned how to evaluate numbers and recognize opportunities, your ability to negotiate from a position of strength, and confidence, will be unstoppable.
So, analyze a hundred deals. It makes no difference what size, location, or price. Just start crunching numbers and become an expert analyst.
Here’s a link to what I used to analyze deals, before I bought my first apartment building. It has all the basics.
Hope that helps.
P.S. You might want to consider this real estate analysis software. It’s very similar to what I paid several thousand for back in 1986. You can get all jiggy with it, and create all sorts of scenarios and ‘what if’ situations, to help you figure out which way to go on a given deal.
Javipa, thank you so much for the info. I know it seems like I could be a troll, but I really appreciate the time you took to give me that advice.
I also saw something about Wholesaling. I was wondering if I let them do the leg work and I only had to pay them $5000 per deal, it seems like a bargain for me. I’m not sure how I’d even get hooked up with a wholesaler.
Also, are there people that would handle the purchasing and the renovations for me and take a % of the profit? If so, what is the industry standard? And where would I find someone like that?
Thanks a lot for your help on this!
Though I agree with Javipa about learning how to analyze feasibility, I do not think you need to look at 100 deals to know if one will work.
There are a few questions you would need to know the answers before you proceed. Here are a few that come to mind:
How much am I willing to invest, monthly and in a lump sum?
What are my investment goals? Long term value appreciation, income stream generation, portfolio expansion, financing retirement or generating present income?
Will I need bank financing to meet these goals? Can I qualify for a loan based on my credit score vs. debt to income ratio (i.e. a $1M income is great unless your expenses total $999,000.)
How involved do I want to be? Wholesaling and flipping properties is very time intensive. The more you hire out help, the smaller your profit. Buy and hold properties require day to day management which can be farmed out to a property management company or another willing family member. Triple net properties (i.e. commercial investments) are the least time consuming but have a slower rate of return but are very stable investments.
IMO, if you are looking to invest now to fund retirement later, then building a stable portfolio of income producing properties will meet that goal. The question is not so much as what kind of properties but of how much money do I have to put into investment. Answer that and you will have momentum and direction.
I would be willing to invest approximately $30,000 to 50,000 per month. Starting w/ a lump sum of $100,000 or $150,000 for the 1st buy and hold. We may do a buy hold and cash out refinance at 50-60%? Not sure what makes sense here, but I’d like the cash flow to be substantial enough to cover any issues and maybe even a property manager.
My goal is to have $20,000 per month income from real estate. Right now my expenses are around $16,000 per month, so at 20k, I would continue to save the difference and put it in to more houses.
I’m ok with not maximizing profits from a purchase by trading money for a professional’s time. I’m more interested in the cash flow. Obviously I’d like to make the most possible, but my time is pretty valuable and I think it would make more sense to focus on what makes me money right now and let someone else find the investments… This is why I mentioned wholesaling… not doing the prospecting, but investing in the people that are finding the properties. I have some contractors in my family, so they could help out w/ rehab advice, etc… I’d like the wholesaler to have an estimate of the repairs though.
Seems like anything, where if you have the right team (wholesaler, contractors, lawyers, property managers, etc), it’s integral in your success…
Wholesaling is NOT the same thing as “investing” in real estate. Wholesaling is merchandizing real estate.
You can wholesale real estate to make money to invest in income property, but otherwise, these are two different animals.
One of the whale wholesalers here in Southern California, does both. He wholesales about nine deals, and takes the profits to buy the tenth deal.
Most people I know that wholesale, are doing ‘that,’ because they don’t have (enough) cash to invest in real estate in the first place.
Lack of cash is evidently ‘not’ your issue.
Yours is that you don’t yet fully understand how to determine a deal, much less negotiate one from a position of sophistication.
BTW, you need to be your own expert real estate analyzer. Otherwise, sellers and agents lie to get you to sign the dotted line. And if you don’t know better, you’ll end up being taken to the cleaners.
The only way I know to overcome this, and insulate myself from overstatements, understatements, assumptions, and outright deception, is to know how to analyze numbers and interpret them better than anyone else. That’s why they call me a professional investor.
This is not a hobby for me. I don’t treat it like a hobby.
The ones that do, like the ones that just look at a half dozen deals, and think they know what they’re looking at, become the motivated, desperate sellers I buy from.
If you just want to eventually become your very own motivated seller, then just bypass the analysis practice I advise, and plow ahead. Why not? You’ve got plenty of money to blow on bad decisions, right?
BTW, consider the source of any advice you hear. Take with a grain of salt, anything offered by someone who isn’t currently invested in what you want to invest in. That includes the well-intentioned, real estate brokers, friends, forum posters, and your barber. Just saying.
===> I don’t recommend wholesaling in your case.
That’s for those with no money.
You might consider becoming a lender, or hard money source.
That still requires analyzing, understanding, and interpreting operating data statements, but most everything else can be delegated and/or handled by professionals, including a note servicer.
Javipa, thank you for your input. I’m not trying to discount what you say in any way. I was trying to figure out a way to invest in real estate with other people’s knowledge by incentivizing them to pick good properties (perhaps by giving them a % of the profit… or hiring a wholesaler that’s good and continuing to give them repeat business if they pick good deals). Almost like a stock broker and then giving them a cut for picking good stocks. I’d rather have real estate that is in my name, then stocks (as I’m sure a lot of people on this forum would prefer).
I do realize I need to study real estate before I get in to it, this post was my first step. But I also realize, people have been doing this for years and have a lot of properties (like you), and I could use their expertise instead of going in it as a rookie and getting eaten up. I know if a rookie came in to my industry they’d feel like a tin cutout in a shooting gallery…
Your initial stated goal was:
“I would like to start buying and holding to secure our wealth.”
That’s one thing. Then you twisted in this:
“My [other] goal is to have $20,000 per month income from real estate.”
That’s a whole nother thing.
My earlier advice about knowing how to analyze deals remains.
However, I’ll cut to the chase. Go buy some apartments. Forget the single family route. That’s itchy slow, and with $150K you can buy a $1M dollar apartment building, even if it means getting the seller to carry back 10 or 20 percent.
On one of my very first apartment deals (30 units), the seller carried 70%, and I borrowed 30%. I made over $250K in profits in twenty-four months. I invested about $50,000. Not a bad return.
However, I had experience managing property; I had spent the time analyzing deals using that form (and some software) I showed you; and familiarized myself with my farm area. As a result, I was able to recognize this deal from 60,000 feet.
As a result, I was the first bird to catch that worm.
In fact I was so quick, the seller called me the next day wanting to back out of the deal. Why? Because he got calls from competing buyers offering him twice as much money. So solly.
Well, long story short, the seller offered me thousands of dollars to back out of the deal. I refused. I closed. I made a quarter million dollar profit in 24/mos.
Can you do this? Yes, if you prepare yourself, and are willing to be patient for ‘that’ kind of deal. Do these come every day? Nope. Do they come every six months? Yep. Do they come if you’re not looking for deals every day, and showing up first? Nope. Can you use bird dogs? Absolutely. Can you prospect for your own deals without having to spend an extraordinary amount of time? Absolutely.
Meantime, the more hooks you have in the water, and the larger your pond is (farm area), the more choices and deals you can find and invest in.
That all said…
Buying single family rentals is NOT the route I would take for cash flow, unless I was willing to invest in enormously low-end properties with 2-3% rent/price ratios, and then I’m talking management intensive rentals. However, if my wife was comfortable carrying a gun to collect rents, and evict deadbeats, or I was looking for a quicker way out of my marriage, then maybe this would be an option… ???
With your resources, don’t fiddle with houses to create cash flow.
Put it this way… Half your rents on an average rental house will go to overhead, including vacancy, management, and maintenance, and repairs. It just will. Anyone who says otherwise, is donating their time to the cause, at some point.
So, you’ll have to work backwards here. How many rental houses will you have to own, to net $20,000/mo?
Just for giggles let’s try and see on this conventional deal:
$80,000 Fugly rental sales price (1.25% rent/price ratio).
<$16,000> Fugly rental down payment.
$64,000 Fugly rental financing balance (30 years at 6.5%)
(Assuming you want to leverage yourself)
$ 404 Fugly rental loan payment
$ 1,000 Fugly rental income per month
<$ 500> Fugly rental expense (everything)
$ 500 Fugly rental NOI (net operating income)
<$ 404> Fugly rental loan payment (principal/interest)
$ 96 Fugly rental cash flow (assuming no hiccups, vandalism, skips, deadbeats, acts of god, and perpetual rainbows of love hover over you)
So, $20,000/mo divided by an average of $96/mo in no-hiccup cash flow comes to 208. That means you would need to own at least two hundred and eight fugly, hiccup-free, rental units, in order to net $20,000/mo.
It can be done. My uncle did exactly this from 1965 to 1981. By the time he was done, he was worth $15M in equity.
What he told me, “Jay, buy apartments. It’s a much faster way to make a million, than buying houses.”
So, I just relay to you what a multimillionaire real estate investor told me.
So instead, focus on buying 200 apartment units with say $96/mo a door in net cash flow, and you’ll do this MUCH faster and more elegantly, and with more help than you’d ever experience with single family houses.
That approach will kill more than two birds with one stone.
Start analyzing deals for practice, so that you’ll recognize which properties you don’t want, and which ones you’ll move heaven and earth to get to first.
Hope that’s helpful.
Javipa, just a heads up… I really appreciate the advice. I purchased some information about apartment / multifamily investments over the weekend. I also spoke with one of my friends that owns a few multi-property units. He said a similar thing to you.
I’m definitely going to get my feet wet on some level in the near future. Thanks again.
You’re quite welcome. I’m glad you bought some training. I’ve got a shelf full of courses on apartment investing (mostly creative financing, of course), but I dug out a gem from each one, and if nothing else, it kept me inspired and focused.
Meantime, there’s no better training than doing.
One thing I would add, that comes from watching some investors with more money than sense, attempt to do, and that’s allow themselves to become impatient, and make really dumb buying decisions.
Having a lot of cash makes other investor wanna-bees really lazy about their analysis, and/or allows them to indulge in stupid buying criteria.
For example, buying pride of ownership projects. Those are great for parking money. Meantime, there’s making money, protecting money, and even parking money. I prefer making it.
Go for it!
I agree that multi-family is going to be a great way to get steady cash flow. You might as well jump in with a larger apartment building - though I bet your lender is going to require a property manager (which I also think is a good idea.)
Another concept would be along your line of fix-and-flip properties. You said that you have some contractors in your family. Well, if you are willing to partner with them (we are talking written contract here). You could be the investor side and they could be the renovator with perhaps a 50% split or so in the profits. This could be a way to generate additional investment income while helping out your family as well.
I know this is an old thread however I had a question for Javipa. Regarding SFH why are your costs 500 per month in repairs and vacancies? Are you in a slow rent market? Where I live aside form the occasional large repair like fixing a broken heating system etc how do you figure such a large repair budget?
Where I work my repairs on the average SFH total around 1,000 per year or so and vacancies are of course inevitable however my property manager is pretty good at finding long term tenants. Of course some properties perform better then others and admittedly if I had the type of salary as the OP apartments would be my first stop however for the average Joe out there who has some money for investing but not particularly wealthy wouldn’t SFH be a good place to start?
Not sure how it would help you to announce on a public venue of your income and credit other than stroking your ego. And if it were true, I don’t think a seven figure income earner would want advice from this type of format, even though many of us are capable (yet wonder how one can live on such a tight budge).
Perhaps you need to look in a direction that many of us who are higher achievers look; to first insulate oneself from frivolous lawsuits and attacks when the public realizes one has assets and income to attach…that would be leaning about trust law and the benefits of operation inside a trust or holding an asset in a trust.
Many of the ‘characters’ written about in The Creatures of Jekyll Island and their heirs likely own nothing and control everything inside trusts…(not to mention, they likely do not advertise their high income and good credit on forums online). You have a big house with a pool in the back yard…someone has an accident in the pool; the pool is in a trust, separate from the trust that holds the house…their family claimant can take the pool but not the house.
This is over simplifying but you are seeking advice…not giving any…just an opinion…keep details of your success out of a public forum and start protecting what you have earned.
Financial Planning, Trust Planning, and the like…that is where I would be directing you if I were consulting you and you asked me this question.
Hope this helps.
By investing in my home building company?
By seriously, down payment on a hotel?
Sorry about taking so long to respond… Maybe you’ve found answers already, I don’t know.
I always assume 50% of the retail rents go to overhead. That doesn’t mean you’ll spend 50% this year, or even next year. But that means you put money away for emergent and long-term maintenance and repairs.
For example, you won’t replace an $8,000 roof every year, but you will be putting money away for this item, by funding a replacement/reserve account; anticipating that repair in a few years.
Then there’s a/c compressor replacements, exterior paint, various appliance replacements, etc. Where’s that money going to come from, if you haven’t been funding your replacement/reserve account?
Of course, you’ll hear some brag that last year’s expenses were only $1k. Fine. That was last year. Over the next five years, as the exterior paint begins to looks like crap, and it costs $3,000 to repaint, he’ll be caught flat-footed, because he didn’t squirrel away that extra money for paint.
Add in necessary reserves to fix the pool, replace the pool pump/filter, install a new water heater, replace a stolen compressor, roll in a new lawn, rebuild a fence, and perhaps replace the driveway, and the list goes on.
The 50% rule is a conservative safety net, that gives you a stable, realistic view of your project’s performance. This includes SFH’s.
Frankly, singe family investing on a onesy-twosy scale is enormously risky. Especially for those who buy wrong, and/or don’t know to account for the 50% rule in their financing and negotiations.
Of course, the ones that really ignore this 50% rule, are the ones buying relatively newer houses. They’ve got newer roofs, plumbing systems, and what not, including good paint jobs, and so the major replacement items don’t materialize for fifteen years, and sometimes not until after the investor has sold the investment.
So, it’s the next owner whom gets all that joy to pay for, and of course, he negotiates a lower price in the process. Wait! The new owner wants you to install a new roof, replace the driveway, pool filter, and the fence? That’s gonna cost $20,000! Yeah, but look, you saved $1,333 every year, by not doing those things, over the last fifteen years!
Somebody’s gonna pay, somehow, at some point, to maintain that house. Just figure it’s gonna be you.