Just wondering what people do with the extra cashflow.
I hold a portion as “reserves” (like for a bad furnace, A/C, roof, water heater, etc.) and reinvest the rest into more property.
I am not a good example because I don’t distinguish what money I am spending from the real estate except in my records. My lifestyle is way below my income anyway. My wife and I both work. We live in Houston where the cost of living is low. I make 6 figures and she makes almost as much as I do. Our living expenses, everything from mortgage to dry-cleaning, is handled from my wife’s check. My whole check and any rental income goes to extra things. We invest some and we spend some. We went to Hawaii this summer (stayed at the Ko’Olina resort), we have nicer cars than we deserve, we put in a home theatre last year. I put in our swimming pool cash. My son participates in the sport of fencing; we took him to several tournaments across the country this year. We buy the extras with it. We probably don’t live any differently than anybody else, we just don’t finance things like vacations, appliances, and cars.
The main thing I am doing is learning the business. I am only doing as many houses as I can handle and still work. One day I am going to take the extra money I have and buy enough houses to cover my living expenses and quit. I met with a team (real state agent, mortgage broker, CPA, lawyer) to discuss just that last month. We are looking at about $2million worth of (Houston) houses. That will cover our expenses and some for buffer. We are having a problem now because the suggestion came back to do an apartment complex instead of houses. I don’t know apartments.
bluemoon, It appears that you have a great deal of financial freedom currently. Congratulations on that! You say that the suggestion of apartments came up and that you don’t know apartments. The general line of wisdom is to do what you know. Work within your comfort zone. As you become more expierenced in that zone you will gain comfort in other zones. So if you are comfortable with Single Family Residences currently then begin there. Spend your free time learning about Apartments. Once you have enough knowledge about apartments that you are comfortable enough to try it you can rebalance your portfolio. Either buying an apartment to add to your holdings or possibly selling some SFR to exchange into an apartment.
I don’t know apartments either. I know the rules change when it comes to financing and valuation. The other item that changes is that is more of a"cummunal" living and that can and does change the dynamic of the interaction of the tenants. I would suggest finding books on the subject. I would also suggest joining a local REI Club and talk to members that are already investing in Apartments. Find other investors that are willing to mentor you.
The most important thing is are in you interested in Apartments? If you want to purchase apartments then set your goals and the path will show itself. However, you won’t know where you are going if you don’t pick a destination. Sounds like you are on your way, you just need to refine your path.
My strategy is to divide and conquer - 1/3 reinvested, 1/3 saved - repairs emergencies, 1/3 invest. … I think I need another 1/3 for “other”
It appears that you have a great deal of financial freedom currentlyNot really. If I quit my job or my wife quits her’s we are back to watching where we spend every penny. I make a lot of money…I am not rich. There is a difference. Enough real estate to cover my expenses will make me rich. That is my goal.
I got my team from my local REI club. They suggested that if I try to do this with houses I will work my self harder than my present job. But everything I learn about apartments I don’t like. The liability, the valuations, the marketing.
I make a lot of money...I am not rich.Understood. I was referring the ability to use your income "as you wish." There are plenty of people that make lots of money that are not "rich." Most of my income is account for before I receive it. It doesn't matter if you make $10,000/year or $100,000/year. You must invest it if you want to grow your wealth. And of course, the most important, you must spend less than you make!
You seem to have that part down. I do think that you will be able to make more money for “less work” in apartments. Especially if you are managing them all yourself. Do you have a grasp on what decides the value of an apartment? That IMO is the first step. Once you have that, go to www.irem.org There you can find a professional property management company that can help you manage your apartment(s). Perhaps managing your own real estate is what you want to do. Personally, I prefer to have someone else manage it so I can concentrate on other things.
I would do the same for SFR. Let someone else manage it. This will cost you, but you build that into the deal. Find deals that will cash flow even if you outsource the management and then you can continue to work and worry much less (you can’t forget about them) about the properties and more on finding more deals. Regardless of whether you manage or have it manage you will have to still manage the properties. The question is would you rather manage your Property Manager or the 100 tenants? I will pick the PM. If he screws up you may have some recourse.
My personal opinion, the liablity is a little more, but you can manage that with insurance and other legal protections. The valuations are actually easier. What cash flow does the property provide. With SFR you have to deal with comps and “Well it is well taken care of so I want full price.” With apartments it is what cash flow will it provide based on the NOI. Marketing I think would be about evened out. You have 100 SFR or you have 1 100 unit building. Either way you need 100 tenants. They way you market just changes.
Another advantage to apartments. You can convert them to Condo’s in the future and sell them off. Or you can convert them (if appropriate for the area) to timeshares and make a real killing. However, I wouldn’t suggest the time-share thing unless you REALLY know what you are doing.
On that note, I have noticed that MANY apartment complexes in Vegas are being converted to time-shares. It used to be that you were molested by people on the street trying to pass out offers for free women. These have been toned down and now your are molested by offers of free shows for a 2 hours presentation.
I personally reinvest in other properties. If I did not have 5 kids I would say Hawaii,Fuji and hot rods! On the other hand I live life very humble I do not want them to think they have a silver spoon in there mouth! So I give my oldest two a allowance of $1,000.00 each a month in a children’s checking account they then write checks for there share of the Mortgage, Insurance, Groceries and so on they pay 1/7th of all outgoing expenses! Leaving them with 60-70 per month to do what they want with. They told me they wanted an allowance to learn about money so now they shall learn!!! LOL :devil: <–THATS ME EVIL DAD!!
GREAT IDEA about the allowance for your kids. In my opinion, the fastest way to ruin a kid’s future (or anyone’s future) is to GIVE them a bunch of money. I have thought alot about what to do with the money after it’s made. How much is enough? How much should you share with your kids? To me, the entire point to life is the challenge. Take that away from the kids by giving them everything and you’re destroyed their life.
I went to the OREIA convention and attended Loral Langemeier’s presentation. She has apparently acquired $159 million worth of real estate in only a few years. However, she has used “field partners” to accomplish this and therefore only gets about 1/4 of the profits. I really enjoy listening to her and admire her accomplishments, but I wonder whether this is the best way to wealth or if a person would be ahead to do fewer deals and keep all the profits. She claims that her net monthly income is about $100,000. In my area, you can achieve this monthly income with about $30 million worth of real estate. Again, how much is enough? Something to think about!
Right now my kids all get $1,000.00 a month that they think they are spending on bills I call it the get out of my house fund! that when when they finish High School and go off to College (yeah right) they get the money if they do not go to College it will go directly to a mortgage company as a down payment
I do not want them to think they have a silver spoon in there mouthI don’t know about that. I will probably screw my kid up, but I don’t think that keeping them from money helps raise them. The reason I make my money is so my kid can live well. What is more important is to teach him to be industrious. Donald Trump was a third generation entrepreneur. He grew up with a silver spoon in his mouth attending military schools and having nice things given to him. He started his company by buying a $6million 1200 unit apartment complex with his father. You can’t learn how to deal with money if you never have any. Having money and not living well is being a miser. I think a more healthy way to raise a kid is to let him enjoy the money his family makes, teach him how to make his own, and let him know that his place in life is to make enough money that he lives that life all the time. If you teach him how to eat butter sandwiches, he may develop a taste for it and not need to work very hard. I want my kid to develop a taste for first class flights and caviar (I haven’t) so that he will work hard to be able to afford these nice things.
I go to church in a lower income neighborhood in Houston. I like the minister, but my son also is able to learn, through his church friends that life is not all good. If he takes the easy way out, he will be living the life of these kids and not the one he grew up in.