Real Estate and Property Management

Daquan

Daquan

BuSo Pro
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Let me preface this by saying I've never talked to anyone who does this nor have I read about it. This is coming right off the dome.

I'm thinking about physical products, physical businesses. And real estate is something I see a lot of people talking about, but I don't get it in terms of how the money works out. Let me type out my thought process so you can see how I'm thinking and I'm sure someone can correct it.

Let's play with just one property for simplicity.

You get a loan for $100,000. You buy a $80k home and put $20k into fixing it up and bringing it up to the standards of the neighbors. Now you have no monies but you have tenants.

Let's say the mortgage is $700 a month for 30 years (I didn't do any math, just making up numbers). You are able to turn around and rent it for $900 a month. This means that you are profiting $200 a month before any other expenses. I can get this concept and how it could scale.

Except eventually you'll have a month or two here and there where you don't have a tenant. There went your profit. Someone moves out and you clean. Things break and you fix it. You end up hiring a property manager after you have enough homes and paying him $40k a year.

I just don't see how this pans out. Breaking even seems to be a lucky scenario.

There must be something with just owning the asset, even if it's not liquid or there's a lien on it. I can imagine that you could build up to 20 homes, keep breaking even, and then sell the whole operation to someone who's playing with 200 homes. It'd be like flipping a website. THEN you'd make your profit?

Like I'm saying, where is the ROI coming from?
 
I currently have 1 rental home - its pretty much what you've said. You'll have some profits every month, but you have to reinvest in the home for maintenance. I've discussed this with about a dozen people who are also in the real estate market, in specifically single-family rentals.

You make your money back after you've paid for the home or when you sell it - equity is built up in the home and over 10 yrs so, you'll have a nice portion of the mortgage paid off, and hopefully the value has appreciated.

It was explained like this to me: You have a home that pays itself off, and you might make a little money on it, while keeping it up to date, and ensuring that everything is being maintained properly. In 15/30yrs (however long your loan term is), you will own that home outright and it'll become an asset rather than a liability and your net worth will go up since you own that home free and clear. At that point, you can either sell it, keep renting it, or do whatever you want with it.

I have wanted to sell many times, because of the fact that "im breaking even" on the home, but many investors have told me that if your breaking even, your doing well and to keep it! Odd concept to wrap my head around, but real estate is a Long term investment, unless you found a smoking deal and can flip and pull out within a short time period. From my understanding, ROI comes after the home has been paid off, or you have Refinanced and lowered your monthly payment more, where you can then pocket more (rather than $200 profit, $600/month after 10 yrs).

On the "flip" side :tongue:, if you want to flip homes, thats a whole other ball game. I know about 3-4 people who flip homes for a living and have spoken to them in depth about this. Many flippers use cold hard cash to buy homes at rock bottom prices. They renovate/update with more Cash, and then flip it within 2 months. If you ask me, that is where the real money is at in the real estate business. ROI is rather good in the flipping market if you have cheap contractors and cheap labor that is coordinated and scheduled well. The less you own the flipper, the more you make. Profits are ridiculous if you can find the right homes in the right location.

Hope that helps!
 
Yes, flipping is what I wanted to get into in 2007 when I bought my first run-down property. Unfortunately while I got it for a good price it was a good price at the height of the housing market. So, I still own the goddamned thing and am renting it out to tenants and keeping it updated and basically breaking even. Have about £40K of equity in it right now though which is pretty good. Property is a very cash heavy business and I would like to get into flipping but I would't do it again without a bankroll of about £500K to work with.

There are numerous projects where I am (UK) that I could get my teeth into but in order to:

-buy the property (has to be cash because most serious refurbs are unmortgageable)
-buy all the materials
-pay the workers
-pay the bills on the house while refurbing
-not run out of cash while you're trying to sell it

You need a LOT of liquid cash or some fucking clever financing. Personally I find it too stressful to run a project like that while worrying about cash flow at the same time. So to make a long story short if you know how to refurb and project manage a flipping project AND have the cash; it can be a great way to make some serious bank. I grew up in the construction industry so the knowledge bit is fine I just need my bankroll. The first million is always the hardest :wink:.

However, if you don't know what you're doing it can also be a great way to LOSE all of your bank :wink:. But thats the thing isn't it? If it were easy everyone would do it and the bigger the risk the bigger the reward.
 
Hard money lending is another option for flippers, if you can find some private investors or hard-money lenders you can borrow a good chunk of cash to do all that @RiverStyx mentioned above. But your rate is going to be 28%-30% on the money you borrowed. Like he mentioned above, "if it were easy, everyone would be doing it."
 
This is so interesting. Ive always thought it would be sooo cool to be a landlady.
 
I mean yeah of course people do it, people do a lot of shitty jobs for money. The thing is because of the reasons stated above you don't really see an income from it- its more a matter of breaking even so you don't really feel like you're being compensated for your time, it just seems like work you have to do and don't get paid for.

I suppose if you can see the long term benefit: having a house paid off by someone else in 20years time then its fine. But, in all seriousness, paying out of your own pocket for surprise repairs, chasing tenants for late rent and listening to them bitch and moan, and also having to pay the mortgage and all bills yourself if they move out and you can't find a tenant for a few month; all for basically no pay, really really blows.

One year I lost over £3K on my rental, this year its fine though, lots of ups and downs and far too much stress for my taste.
 
True.. I didn't mean to make it sound like I think it's easy or anything. Thanks for sharing your experiences. The idea of it is cool but in reality it sounds like a whole lot of headaches too haha
 
If you were to go into it run the numbers and see if you can afford a management company. I think if I could hire other people for 10% commission to take care of it then it'd be fine as an investment.
 
This is something I have quite a bit of knowledge in. I bought my first property in 2003. At that point in time I was told from a local investor that I should expect to get roughly 1% of my buying price each month. So, a $50,000 place should get me roughly $500.00 a month. As others mentioned above this scenario was a 15-20 year plan. Starting in roughly 2009 when the economy tanked it was possible to get places and make 2-2 1/2 %. I bought many places for 30 grand, put 10-15 grand into them and rented them for $1,000 a month. You are able to really push forward and pay things off when you can get a couple like this.

I really started to make money then. Owning real estate is a business and like anything else the more you do it the better you get. I have plenty of horror stories from early on where I bought a property and had to max a CC just to get money to fix it up.

Anyone that is looking to buy their first property it would be wise to expect to spend twice as much as you think fixing it up and plan for it to take twice as long as you think to get the work done.

I always looked at renting homes as a second (part-time) job. It just wasn't going to payoff until years later. Luckily, years later are approaching now and we're finally reaping some of the rewards.

If anyone has any questions let me know and I'll be more than happy to answer any.
 
@bamafan How many homes do you have right now if you dont mind me asking. I have 1 rent home and starting to convert my basement into an ADU to rent it out, since its empty and not in use at all! I'm considering getting into some more rental homes, but the profits are only there when homes start getting paid off, etc like you mentioned above. I'd be interested in hearing from someone who does it full time.
 
red_devil010 said:
@bamafan How many homes do you have right now if you dont mind me asking. I have 1 rent home and starting to convert my basement into an ADU to rent it out, since its empty and not in use at all! I'm considering getting into some more rental homes, but the profits are only there when homes start getting paid off, etc like you mentioned above. I'd be interested in hearing from someone who does it full time.
Click to expand...

We have well over a hundred units now. One thing we did after we got going was buy duplexes/quads, etc. It became nice having multiple properties in one location. That's also nice when you have a full time handy man. Keeps drive time down. Any specific questions you're curious about?
 
I figured you were into Duplexes,Tri & quads. I have a couple friends who will only buy duplexes and up in order to maintain positive cash-flow monthly. I read about someone doing this on wickedfire too a while back, im curious if you guys have any relation? Im in the middle of deciding what to do with my rental home as it doesn't bring any positive income monthly, just breaking even on the mortgage. I have a long term tenant who has been in there for 3 yrs now and is up renewal. Im considering raising the rent $100 and sign another 3 yr contract. The rent seems to be fair, and probably a little low for the area, would you recommend raising yearly a certain percentage (3% a year) or just a flat rate and have them sign another 3yr lease. We're happy with them thus far, but we had to put quite a bit of money into maintaining the property (new fence, boiler, deck, garage door opener, bathroom updates, etc). Thats the only downside that i've seen so far. Any thoughts, recommendations, from a seasoned pro would be SUPER helpful :smile:
 
This is the industry that the agency I currently work for does SEO and PPC for. We have small clients but the ROI these fools make on PPC alone is truly insane.
 
1. Can you borrow against the property and turn that equity into another property? If you have 40k of equity in it now that should be enough for another property and thus gets you another $500/month.
2. I don't use a percentage increase. I just guage it based on similar properties in the area. Had I done that when the market fell in 09 I would have lost out on money in 2010-2012. What seemed to happen then was people that used to own homes, lost their homes because of economy but got back on their feet, gotten their good paying job back and thus pushed the prices of decent rentals up. Homes that were renting for $800/mo were renting for a grand. i am kind of generalizing here so if I need to clarify let me know.

3. I am not the guy on wickedfire but do know that thread. I was tempted numerous times to respond but just didn't have the time.

4. If I have a good tenant I'm more apt to sign them for a little less. Especially, if they are going to sign a three year lease. The few dollars you might make raising the rent is liable to run them off. With that said, don't let them live there for nothing. You might pull some comps in the area, show them what they are going for and then settle $25 under (or something like that).

Hope all that's clear. On the phone and sometimes I get some run-ons when I'm on the phone.
 
Sorry red_devil. Got you confused with other guy that said he had 40k equity.

In any case, the way to get ahead (at least for me) was getting enough money built up in the properties to be able to borrow against them. Then use that money to buy another. Loans are tougher to come by now but if you're serious about it I'd find a small town bank and use them. They're easier to work with and you aren't just a credit score and debt to income candidate to them. I used a large, national bank when I first started and my loan was sold three times in the first year. Really sucks when you have to track down where to send your check to.

Again, all this is just my experience.
 
awesome info @bamafan I do have some heavy equity in my current home right now (upwords to 150k from the last numbers i saw), and we even got as far as getting qualified for a HELOC, but never ended doing it.

As for raising the rent, you made some good points. I will do the market research to see what the costs are in the area. I truly dont want to scare them off by raising it to much, but like you said, no one lives for free. and this isnt section 8 housing or anything.

I'm curious about something, i have a friend who is in the rental market and he seems to be doing exceptionally well with "Oxford houses". Have you heard anything about this? He's raving about how well he's doing and is trying to convert as many of his rental properties in oxford homes. they all need 4-5 bedrooms or something like that to be accepted into the program.
 
Sorry for delay in responding. Was trying to finish up my CC9 info.

Funny thing... when I first read the "oxford houses" you mentioned above, I thought, "is he talking about the half-way houses?" Because I was unsure I went and googled it. It looks as thought people are renting those.

For the record, I don't know anything about that but based on the quick scan it seems to be worth looking into. I'd heard of "Oxford houses" in a college class. I was a Soc and Psych major so it was a topic we went over a few times.
 
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