don't know why, but I'm inclined today to post some real estate investing advice for anyone that wants it, and encourage others to also share. My investment strategy is well represented by my favorite car..... the NSX, its fully depreciated, appreciating, low maintenance, made of durable materials, dependable, and performs the same or better than when it was bought. does not give allot of headaches. and above all, don't want to sell it to buy something else.
I should get this out of the way first, that after nearly 10 years on this forum... I'm not fishing for business here.
This forum has provided me with many years of entertainment and is known to have a brilliant member base, There's allot of very experienced and knowledgeable real estate investors on this forum that can also advise in different strategies. If you own various properties please give advice and, state your experience level, if you don't own multiple properties then feel free to ask questions.
Selling property questions: Agent vs FSBO
An agent will get more money than a private sale every time, usually enough to make up for most of the commission costs
Buyers do not like to meet current owners, psychologically prevents them for feeling like its their new home, same thing applies to cars.
Owners should never be home during showings.
Buyers that look for private sales are bargain shoppers, theirs a reason... FSBO'S get allot of attention, they are assumed to be cheaper..
the cheapest homes I buy are all FSBO'S.
Whom to not take investment advice from:
Realtor's that do not own their own multiple properties are not investors.
I flip properties too sometimes but, Flippers are not "investors". Flippers: flip inventory, just like car dealers. flipping advice is great as well and many people make a great living, do not mix flipping advise with real estate "investing" advice. investments you set up to pay you forever, unlike flipping
contractors are also not investors it is a completely different business.
if they don't hold properties and rent them they are not real estate investors.
Now onto my very unconventional real estate advice for today's typical hermit crab owners that like to find a new shell every 2-3 years
Buy as many investment properties as you can and never sell unless you have to.
There's nothing wrong with being a renter, anyone can choose to rent their personal residence in 2-3 year lease increments for two great reasons,
1- needs change, jobs change, opportunities change, kids grow and multiply, in laws and parents get old and move in and out, brothers and sisters become dependents.....
2- most people do not own homes for more than a few years at a time anyway and thus spend more money in buying and and selling costs than actual equity gained.
Selling properties is expensive... most people don't know that a property has to appreciate by 10% just for the owner to break even when they want to sell due to transfer costs and buying& selling costs... people think just because they have equity they made money but don't realize their just getting back what their putting in most of the time.
anyone who owns and has to move, should consider renting the house out, if it will cover the mortgage, and just buy a second home, once there is a lease in place on the existing home, anyone can finance the new home as a regular primary occupancy with normal down payments, they can continue to do that every couple of years as their needs change, the government allows anyone to have up to four mortgages in their personal name. Even if someone loses a couple hundred dollars a month, that's still good because its very likely they may be gaining thousands in debt reduction and tax benefits per year... so whats wrong with someone else paying off a couple hundred thousand dollar mortgage in your name at only a cost of a couple hundred dollars a month. Plus as rents increase with inflation that monthly loss will end within 2-3 years but the benefits will continue eventually leading to monthly profits. even the monthly loss for 1-2 years is still less than the cost of selling. everyone should stay familiar with the payoff schedule and call the accountant to look at the overall 5 year gains and benefits or loses and see keeping it may be a great investment over selling the home even if not immediate apparent
Never ever refinance cash out for spending money or to buy toys, if anyone does then they are wasting their retirement money.
Only refinance to buy more investment property or get a much lower rate.
When it comes to luxury homes they are way cheaper to rent than own.
ex: a 500k home financed will run 4k a month with taxes and insurance while it can be rented for 3k with no maintenance or updating
ex: a 1M home can be financed for 8k a month or it can be rented for 5k practically half.
Basically anyone can be a renter while still reaping all the benefits of home ownership by buying rental properties that will eventually pay-themselves off and provide a retirement income. Because people that buy homes only to sell them a few years later have absolutely no benefit and run the risk of having to sell in up and down economic changes due to job loss or an inability to pay. If a tennant loses their job or has heath issues its not that big of a they just wait a few months till lease end and move into a cheaper place, if that happens as an owner that person is likely screwed and the repossession will put them into years of financial mayhem.
there is never a wrong time to sell or buy as long as somone is buying properties that pay for themselves
Real estate never depreciates in the long run it only temporarily loses value which is irrelevant in the long run, if its not for sale, it has not lost value.
Things only have a "value" when they are bought or sold in between should be ignored, as long as it continues to perform as expected, it should retain the same "value" to the owner as when they bought it. Thus try to buy properties based on solid and strong performance. expensive homes are generally not good rental investments, the rents tank immediately in financial downturns. Middle class investments are predictably strong and do not dip much,thus most $1000-$2500 per unit rents never moved around much during the real estate bubble burst. Many rents actually increased since all of a sudden allot of previously affluent people joined the middle class rental pool. always try to buy/finance things that worst case scenario even if theirs a few bad years many can swing a couple hundred dollar loss per month each property. whats $1000-2000 a month loss to hold onto a retirement, its no different than being forced to save that money. it will count a tax deduction anyway not really costing as much as many think overall. and if somone watches the debt reduction and tax benefits its probably still making more money than its losing. be prepared and plan for the worst. hold on during tough times if someone survive the first market low, by the second time the market goes down they will have a ton of experience and equity in those old properties and be buying everything they can.
Closing statement: buy all the time, buy even more when its low. Sell high or sell low: if it's to buy even lower.
Lets look at the property bubble, people see values lower than they owe, and stop paying mortgages which causes prices to dip even lower, all they had to do was wait it out untill prices come back up rather than cause an epidemic, if you add up the overall costs of anyone who thought they where smart by giving up underwater debt to buy another house for cheaper they most likely spent more in costs of selling and buying than if they would have just stayed put and waited a few years, you can also add up the increased costs of interest afterwards with bad credit for many years. also add up the difficulty in finding high paying jobs due to bad credit screening. If someone cant afford to pay a mortgage on house they bought to live in, usually it can be rented for close to the mortgage amount to minimize the loss to a manageable amount until the economy or the owners situation changes and can move back into the house, preventing foreclosure.
I tell people this all the time: A rental property is almost like free money that someone else (tennant) is paying off an asset in your name eventually. Think of it as a reverse CD, its kind of like a 300k bank account that grandmother left in your name but she left in her will you have to go feed her cat and visit your nephew once a month for the next 10-15-20-30 years to eventually get the money.
therefore its almost irrelevant how much you pay for a investment property as long as it pays for itself because your not the one who will be paying for it any way.
Albert Einstein said "Inflation is the most powerful force in the universe"
what does that mean in real estate? many things.... when you finance the bank gives you a fixed amount, that debt becomes easier to pay as inflation rises. when you sign a mortgage that says you will pay double the original loan amount over the course of 30 years, you are not paying double in today's money, you will be paying that amount in 15-20-25 years after inflation makes the cost dwindle away.
Most people only look at the rental income net profit over their mortgage which is the smallest form of profit from properties: many think why should i buy a X00,000 house to only gain X00 a month and have to deal with a bunch of crap?
If you add up, inflation, appreciation, tax deductions, deflation of the debt and rental increases. they add up to many times more than the rental income.
a 500k investment property in 5 years has given you 92k in tax deductions, likely paid off another 50k in debt.... that's 142k gain already hopefully depending on where you are in market cycles appreciated another 50-100k (2-4% per year) and if you make 500 month year one and then 700 month year 2 and so on after 5 years you should have made 55k in rent profit over even a basic 75% mortgage. thus that's a 250-300k gain. pick and choose which ones of those happen depending on real estate cycles but at least 3 out of 4 are constant in any economy..
For anyone that wants to be a millionaire, even for the smallest and laziest basic investor I have two strategies:
Strategy 1: someone buy's/finance's a 100k single family rental every year, after 15 years they have purchased $1,500,000 in houses, they likely owe around 1M, and the houses are worth around 2M they collect around 10k a month in income so now they a millionaire..... wait another 15 years they owe 500k, their houses are worth 4M they collect 20k a month income, their worth 3.5M. if they died than their kids are now worth the 3.5M
Strategy 2: "the reverse millionaire" someone borrows $1.2M to buy a $1M rental building that loses $1000 a month after all mortgage and expenses.. sounds like a bad idea right? but is it?. So he keep's a normal middle class 40k a year job. Sounds like he's not getting rich....... he pays the $1000 a month out of pocket. after 1-2 years thanks to rental increases he no longer is losing money every month..... Fast forward 15 years. he lost $24k during first 2 years the property is now worth conservatively $1.750,000, he owes about $650K, he now has $1.1M in equity. It does not stop there... he has received 37k per year in tax deductions so he actually kept about 10k more per year in his pocket after taxes from his day job (150k over 15 years). after property started to break even in year 2 the rents continue to climb by year 6k year 3, 12k year 4, 18k year 5, 24k year 6, ect ect.... creating monthly profit eventually profiting around 550k over 15 years. by year 16 he's making 84k a year from monthly profits since he's still paying the mortage. wait another 15 years, he owes zero, the property is worth 3.5M he have no mortgage now so he likely profits $250k+ a year
either of those 2 strategies aren't too bad after all. Even if the results are only half those potential numbers that's still better off than 99% of the population. Either way after each deal and experience it gets easier, whether its 3rd 100k house at a time, or the 3rd 1M building with each experience you become a better buyer or manager.
Now after those basic understandings, there are multipliers to increase all these long or short term benefits,
Multiplier 1: Buying dilapidated houses or buildings and fix them up to start off with lower cost and more equity from day one
Multiplier 2: Buying in specific areas where property values in general are going up faster than usual
Multiplier 3: Buying in areas where you know about other developments that will increase property values.
Multiplier 4: Buying in low economic times
Multiplier 5: on larger scale developments the subject development can actually increase the values in the area around thus increasing overall value.
there are even more multipliers in commercial properties since somone can strategically attract higher end national tenants (anchor tenants) that attract higher rents from normal shops that benefit from the walk in traffic or overflow from the anchor tenants. (this is just a basic explanation)
The more of these multipliers someone can include in their strategies the more massive and unimaginable the profits can become.
I like to envision investments in 5 and 10 year increments even though I intend on keeping forever and passing onto my kids. usually if the 5 year potential profit predictions look good to me than that's all i need to know.
another word of caution there's allot of money to be made in super low priced area's (under 75k per house or under 50k per unit apartments), but be warned the profits are all monthly, and the long term values rarely increase, financing is hard to get, the labor and involvement is intensive, and the maintenance and replacement costs are generally higher than the worth of the homes. everyone i know that has grown in the super cheap per unit values has eventually traded up to more middle class price range type holdings that have more future value and and have replacement costs relative to their values and are less labor intensive.
where to invest: I like to say someone should imagine themselves in dyer circumstances, could they live where they invest? if not than they should not buy where thier not be willing to live, or they will be operating out of thier element and it will be tough, and they may not be able understand the elements that affect those areas and may make bad decisions.
Ethics: Very important... besides moral reasons.... I like to say its very easy to "make" money.... the real question is can u keep it? if someone is doing illegal things than its very likely they and their easy money will soon be parted by attorneys. I also think that the majority of the flashy Jones's in society are temporary millionaires, probably 3/4 of the people that are popping bottles and driving new Ferrari's are on the 2-5 year millionaire plan, meaning their doing something illegal and will soon be gone, or scenario 2 is they just made their first million and they think money will just keep flowing in.... I like to ask people I meet a question which is " how many self made millionaires do you know that have been millionaires for the past 20 years?" the answer is usually none, people come and go. If someone really wants to build wealth they should build it in a fashion that they can keep it and make it work for them, if someone creates a cash business to skimp on taxes than it will be virtually impossible to ever put that money to work for them. They will have to endlessly spend it on rims and bottles, Gucci and anything else shiny and of no future value..
Another phrase I like to say is "coma money" meaning if the owner falls into coma, how much do the investments make them? are they manageable? will they still be there when they fall out of a coma? if not than is it really an investment? investments should be set up to manage themselves should anything happen the investments should be safe and managed.
I should get this out of the way first, that after nearly 10 years on this forum... I'm not fishing for business here.
This forum has provided me with many years of entertainment and is known to have a brilliant member base, There's allot of very experienced and knowledgeable real estate investors on this forum that can also advise in different strategies. If you own various properties please give advice and, state your experience level, if you don't own multiple properties then feel free to ask questions.
Selling property questions: Agent vs FSBO
An agent will get more money than a private sale every time, usually enough to make up for most of the commission costs
Buyers do not like to meet current owners, psychologically prevents them for feeling like its their new home, same thing applies to cars.
Owners should never be home during showings.
Buyers that look for private sales are bargain shoppers, theirs a reason... FSBO'S get allot of attention, they are assumed to be cheaper..
the cheapest homes I buy are all FSBO'S.
Whom to not take investment advice from:
Realtor's that do not own their own multiple properties are not investors.
I flip properties too sometimes but, Flippers are not "investors". Flippers: flip inventory, just like car dealers. flipping advice is great as well and many people make a great living, do not mix flipping advise with real estate "investing" advice. investments you set up to pay you forever, unlike flipping
contractors are also not investors it is a completely different business.
if they don't hold properties and rent them they are not real estate investors.
Now onto my very unconventional real estate advice for today's typical hermit crab owners that like to find a new shell every 2-3 years
Buy as many investment properties as you can and never sell unless you have to.
There's nothing wrong with being a renter, anyone can choose to rent their personal residence in 2-3 year lease increments for two great reasons,
1- needs change, jobs change, opportunities change, kids grow and multiply, in laws and parents get old and move in and out, brothers and sisters become dependents.....
2- most people do not own homes for more than a few years at a time anyway and thus spend more money in buying and and selling costs than actual equity gained.
Selling properties is expensive... most people don't know that a property has to appreciate by 10% just for the owner to break even when they want to sell due to transfer costs and buying& selling costs... people think just because they have equity they made money but don't realize their just getting back what their putting in most of the time.
anyone who owns and has to move, should consider renting the house out, if it will cover the mortgage, and just buy a second home, once there is a lease in place on the existing home, anyone can finance the new home as a regular primary occupancy with normal down payments, they can continue to do that every couple of years as their needs change, the government allows anyone to have up to four mortgages in their personal name. Even if someone loses a couple hundred dollars a month, that's still good because its very likely they may be gaining thousands in debt reduction and tax benefits per year... so whats wrong with someone else paying off a couple hundred thousand dollar mortgage in your name at only a cost of a couple hundred dollars a month. Plus as rents increase with inflation that monthly loss will end within 2-3 years but the benefits will continue eventually leading to monthly profits. even the monthly loss for 1-2 years is still less than the cost of selling. everyone should stay familiar with the payoff schedule and call the accountant to look at the overall 5 year gains and benefits or loses and see keeping it may be a great investment over selling the home even if not immediate apparent
Never ever refinance cash out for spending money or to buy toys, if anyone does then they are wasting their retirement money.
Only refinance to buy more investment property or get a much lower rate.
When it comes to luxury homes they are way cheaper to rent than own.
ex: a 500k home financed will run 4k a month with taxes and insurance while it can be rented for 3k with no maintenance or updating
ex: a 1M home can be financed for 8k a month or it can be rented for 5k practically half.
Basically anyone can be a renter while still reaping all the benefits of home ownership by buying rental properties that will eventually pay-themselves off and provide a retirement income. Because people that buy homes only to sell them a few years later have absolutely no benefit and run the risk of having to sell in up and down economic changes due to job loss or an inability to pay. If a tennant loses their job or has heath issues its not that big of a they just wait a few months till lease end and move into a cheaper place, if that happens as an owner that person is likely screwed and the repossession will put them into years of financial mayhem.
there is never a wrong time to sell or buy as long as somone is buying properties that pay for themselves
Real estate never depreciates in the long run it only temporarily loses value which is irrelevant in the long run, if its not for sale, it has not lost value.
Things only have a "value" when they are bought or sold in between should be ignored, as long as it continues to perform as expected, it should retain the same "value" to the owner as when they bought it. Thus try to buy properties based on solid and strong performance. expensive homes are generally not good rental investments, the rents tank immediately in financial downturns. Middle class investments are predictably strong and do not dip much,thus most $1000-$2500 per unit rents never moved around much during the real estate bubble burst. Many rents actually increased since all of a sudden allot of previously affluent people joined the middle class rental pool. always try to buy/finance things that worst case scenario even if theirs a few bad years many can swing a couple hundred dollar loss per month each property. whats $1000-2000 a month loss to hold onto a retirement, its no different than being forced to save that money. it will count a tax deduction anyway not really costing as much as many think overall. and if somone watches the debt reduction and tax benefits its probably still making more money than its losing. be prepared and plan for the worst. hold on during tough times if someone survive the first market low, by the second time the market goes down they will have a ton of experience and equity in those old properties and be buying everything they can.
Closing statement: buy all the time, buy even more when its low. Sell high or sell low: if it's to buy even lower.
Lets look at the property bubble, people see values lower than they owe, and stop paying mortgages which causes prices to dip even lower, all they had to do was wait it out untill prices come back up rather than cause an epidemic, if you add up the overall costs of anyone who thought they where smart by giving up underwater debt to buy another house for cheaper they most likely spent more in costs of selling and buying than if they would have just stayed put and waited a few years, you can also add up the increased costs of interest afterwards with bad credit for many years. also add up the difficulty in finding high paying jobs due to bad credit screening. If someone cant afford to pay a mortgage on house they bought to live in, usually it can be rented for close to the mortgage amount to minimize the loss to a manageable amount until the economy or the owners situation changes and can move back into the house, preventing foreclosure.
I tell people this all the time: A rental property is almost like free money that someone else (tennant) is paying off an asset in your name eventually. Think of it as a reverse CD, its kind of like a 300k bank account that grandmother left in your name but she left in her will you have to go feed her cat and visit your nephew once a month for the next 10-15-20-30 years to eventually get the money.
therefore its almost irrelevant how much you pay for a investment property as long as it pays for itself because your not the one who will be paying for it any way.
Albert Einstein said "Inflation is the most powerful force in the universe"
what does that mean in real estate? many things.... when you finance the bank gives you a fixed amount, that debt becomes easier to pay as inflation rises. when you sign a mortgage that says you will pay double the original loan amount over the course of 30 years, you are not paying double in today's money, you will be paying that amount in 15-20-25 years after inflation makes the cost dwindle away.
Most people only look at the rental income net profit over their mortgage which is the smallest form of profit from properties: many think why should i buy a X00,000 house to only gain X00 a month and have to deal with a bunch of crap?
If you add up, inflation, appreciation, tax deductions, deflation of the debt and rental increases. they add up to many times more than the rental income.
a 500k investment property in 5 years has given you 92k in tax deductions, likely paid off another 50k in debt.... that's 142k gain already hopefully depending on where you are in market cycles appreciated another 50-100k (2-4% per year) and if you make 500 month year one and then 700 month year 2 and so on after 5 years you should have made 55k in rent profit over even a basic 75% mortgage. thus that's a 250-300k gain. pick and choose which ones of those happen depending on real estate cycles but at least 3 out of 4 are constant in any economy..
For anyone that wants to be a millionaire, even for the smallest and laziest basic investor I have two strategies:
Strategy 1: someone buy's/finance's a 100k single family rental every year, after 15 years they have purchased $1,500,000 in houses, they likely owe around 1M, and the houses are worth around 2M they collect around 10k a month in income so now they a millionaire..... wait another 15 years they owe 500k, their houses are worth 4M they collect 20k a month income, their worth 3.5M. if they died than their kids are now worth the 3.5M
Strategy 2: "the reverse millionaire" someone borrows $1.2M to buy a $1M rental building that loses $1000 a month after all mortgage and expenses.. sounds like a bad idea right? but is it?. So he keep's a normal middle class 40k a year job. Sounds like he's not getting rich....... he pays the $1000 a month out of pocket. after 1-2 years thanks to rental increases he no longer is losing money every month..... Fast forward 15 years. he lost $24k during first 2 years the property is now worth conservatively $1.750,000, he owes about $650K, he now has $1.1M in equity. It does not stop there... he has received 37k per year in tax deductions so he actually kept about 10k more per year in his pocket after taxes from his day job (150k over 15 years). after property started to break even in year 2 the rents continue to climb by year 6k year 3, 12k year 4, 18k year 5, 24k year 6, ect ect.... creating monthly profit eventually profiting around 550k over 15 years. by year 16 he's making 84k a year from monthly profits since he's still paying the mortage. wait another 15 years, he owes zero, the property is worth 3.5M he have no mortgage now so he likely profits $250k+ a year
either of those 2 strategies aren't too bad after all. Even if the results are only half those potential numbers that's still better off than 99% of the population. Either way after each deal and experience it gets easier, whether its 3rd 100k house at a time, or the 3rd 1M building with each experience you become a better buyer or manager.
Now after those basic understandings, there are multipliers to increase all these long or short term benefits,
Multiplier 1: Buying dilapidated houses or buildings and fix them up to start off with lower cost and more equity from day one
Multiplier 2: Buying in specific areas where property values in general are going up faster than usual
Multiplier 3: Buying in areas where you know about other developments that will increase property values.
Multiplier 4: Buying in low economic times
Multiplier 5: on larger scale developments the subject development can actually increase the values in the area around thus increasing overall value.
there are even more multipliers in commercial properties since somone can strategically attract higher end national tenants (anchor tenants) that attract higher rents from normal shops that benefit from the walk in traffic or overflow from the anchor tenants. (this is just a basic explanation)
The more of these multipliers someone can include in their strategies the more massive and unimaginable the profits can become.
I like to envision investments in 5 and 10 year increments even though I intend on keeping forever and passing onto my kids. usually if the 5 year potential profit predictions look good to me than that's all i need to know.
another word of caution there's allot of money to be made in super low priced area's (under 75k per house or under 50k per unit apartments), but be warned the profits are all monthly, and the long term values rarely increase, financing is hard to get, the labor and involvement is intensive, and the maintenance and replacement costs are generally higher than the worth of the homes. everyone i know that has grown in the super cheap per unit values has eventually traded up to more middle class price range type holdings that have more future value and and have replacement costs relative to their values and are less labor intensive.
where to invest: I like to say someone should imagine themselves in dyer circumstances, could they live where they invest? if not than they should not buy where thier not be willing to live, or they will be operating out of thier element and it will be tough, and they may not be able understand the elements that affect those areas and may make bad decisions.
Ethics: Very important... besides moral reasons.... I like to say its very easy to "make" money.... the real question is can u keep it? if someone is doing illegal things than its very likely they and their easy money will soon be parted by attorneys. I also think that the majority of the flashy Jones's in society are temporary millionaires, probably 3/4 of the people that are popping bottles and driving new Ferrari's are on the 2-5 year millionaire plan, meaning their doing something illegal and will soon be gone, or scenario 2 is they just made their first million and they think money will just keep flowing in.... I like to ask people I meet a question which is " how many self made millionaires do you know that have been millionaires for the past 20 years?" the answer is usually none, people come and go. If someone really wants to build wealth they should build it in a fashion that they can keep it and make it work for them, if someone creates a cash business to skimp on taxes than it will be virtually impossible to ever put that money to work for them. They will have to endlessly spend it on rims and bottles, Gucci and anything else shiny and of no future value..
Another phrase I like to say is "coma money" meaning if the owner falls into coma, how much do the investments make them? are they manageable? will they still be there when they fall out of a coma? if not than is it really an investment? investments should be set up to manage themselves should anything happen the investments should be safe and managed.
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