MARTIN, Funny you should mention 1031 ex. This morning I started a thread in the Business section on 1031s. Take a look. I was curious if anyone has done anything other than Real Estate with a 1031. P.S. Good luck finding your property. Have you identified alternatives? Once the clock starts ticking you have 45 days to identify and 180 days to buy. TICK TOCK TICK TOCK.. If all fails and you cannot find a property in time you can always do a reverse 1031! (drop by the business section and give some input) PD
Martin, i'm in New Jersey. Just got finished with RDPD and readin RE riches by Dolf De Roos. I know its not an overnight thing, but i'm excited to getinvolved. I feel like I'm late though... i'm 28. I never thought I'd think that at 28. I do own my own home though. It's time to get cracking on rentals. I'm not so much into rehab, I'd rather use the cash for income opportunities first.
This is my first post and i just havent made my profile yet. I live in Orinda ( Bay area ). You sound like you really know what your doing and i have a young mind in need of molding. If you live near by, I would love to meet you and talk shop.
We just bought a house for $126K which will rent for $1200/mo. Based on the formula, this is an 11% CAP. Does the CAP formula take repairs into account? This one is brand new so repairs should be minimal.
Bob, Your rental rate per year is $ 14.400. Here is the break down to calculate CAPS: I will do the easy one there is much more complicated versions with debt service etc. Yearly gross income $ 14,400 - 5% vacancy $ 720 Gross: $ 13,680 Expenses: property tax ($ 2500 estimate) insurance: ($1200 estimate) trash: ($200 estimate) water ($500 estimate) repairs: ($1500 estimate) total expenses: $ 5,900 estimate (use the correct numbers) NOI (Net Operating Income) $ 7.780 Now take the NOI and divide it by your purchase price and at $ 120,000 your CAP is 6.5% Not the greatest but lets face it, if you bought in a good neighborhood a house at the right price and you cover your debt service with a mortgage below 6.5% you are netting some cash. If you buy good enough you should be able to clear more money down the road. Rents will increase while your house value increases as well and you don't do anything. As I said, not for the fast cash!
Fil183, I am on the exact other side of the Country. Miami Florida. Will be in San Francisco for the Pebble Beach thing. You are on the right track. You have read the books and you now know how to calculate. Get involved in real estate. Its not as glamorous as stock markets but you can not lsoe a fortune in a day either. It is the old school of investing. Just always make sure your investments make sense. Here is a word you do not hear often and rarely see those properties lately! You may want to split your efforts. Rehab and flipping may be a great way to go if you have handy people that work reasonably. Understand the permitting process at your building department. Talk to the inspectors to understand why they are strict. It helped me a lot when they explained why certain things have to be done 200% secure. Use earned money to buy your first properties but keep on working. See your personal holdings as only a fall-back if one month you are not making the money. It took me 5-7 years to make it past the point of no more worries. I started from scratch as well and can assure you the sky is the limit! My wifes biz is taking off now since she is well respected in the market and is not even invited to be a guest speaker at a German International Real Estate seminar. Understand though, nothing comes over night. You have to learn and earn. Funny its almost the same word, yet so different and yet so much connected. I think I will use that in my book. Martin "So you decided to become rich!" Read those books.
When your book comes out, let me know. I will add it to my collection of great real estate books i have collected thus far.
THX Martin... water & trash are paid by the renter as part of the utilities. The house will have no repairs because it's brand new. With our last rent house, we put a clause in the agreement stating any repairs under $100 were the responsibility of the lessee... and none of our renters ever baulked at it. So my adjusted CAP is 8%. We actually put 20% down on this house and got an interest rate of 5.25%. I really like the idea of having brand new property... very appealing from the renter's standpoint and less maintenance headaches for us. We're very pleased.
bob, per my handy dandy excel sheet your cap is 7.44% and your pretax ROI with a sale in year 5 is 16.14% with an after tax sum of $43,291 in your pocket. That is based on an appreciation rate of 3% which is conservative in my opinion. On a side note: If anyone wants to loan out money at rates like this I will take all you can give! I currently use my cash and a partners, but we split 50/50 so I give up a ton of profit. I can use other lending sources, but they charge between 15% to 18% and then whack you with 1% to 5% points up front. On my current deals I make about a 75% ROI using all cash. If I borrow I make about 175% to 225%, but the fees just kill me mentally!
I've got a question as well. Sorry to the originator of this topic, but i thought i'd throw a question out into the open since we're on the topic of real estate. I'm 22 years old, and should have $200k saved up in 4 years. Now i can either A) buy one house outright and rent it out, no debt...or.....B) Use that 200k as downpayment on 8 or so houses, and use the income generated to pay of the mortage. With A) i'll have an actual income right away since the house will be all payed for. And with B) I'll have 8 homes, but will be stuck with making payments and almost no profit for years on end. Which is best? I don't like debts. And i hate paying interest (even with low rates). In the end, and on a 30 year loan, you'd have spent twice as much on purchasing the home than you would have if you purchased the property outright. Would owning one home outright be better than owning multiple homes and having a loan/debt hang over your head? Thanks.
some of it is comfort level. If you hate debt then maybe you shouldn't borrow. But if you run the numbers and leverage your money you will always be ahead to borrow. You'll go from a 8% return to a 15 or 20% easily just by borrowing. And you aren't paying the interest...the renter is. You also get equity in 8 homes as well as appreciation in price and positive cashflow. Maybe a compromise is in order. Put $50k down on 4 houses. Lots of equity, larger cashflow, less debt. Your roi will be lower, but its a tradeoff. Also depends on your ability to borrow.
15%. Seems investors are happing parking money in something that pays them 15%. If I can take that cash and go make 75% on it and pay back the 15% that leaves 60% for me which is really infinite as I have zero money in the deal. What would be nice is to avoid the in and out of money. Just borrow straight out year at a time at 15% or something. As it works now I get cash, buy property, fix it, sell it/rent it whatever...then owe my partner back his cash. I'd rather have someone say here is $100K. I don't want to hear from you til end of year and I expect $115K at that time.
i agree with buying investmetn property.. but in new england especially in the boston area the prices are not realistic.. For instance my family has close to 500 units in the new england area... but they paid very little for them.. like 10k a unit 15-20 years ago when know there going for over 100k.. how much is a 3 family in a not so good area worth???? honestly I would not buy anything rite know..the appreciation is not there. A crappy 3 family in todays market is worth mabey 300-400k.. with a 3,000 dollar a month cash flow..for that price is does not make sense. thats why I feel that unless you find a really good deal and the numbers work...stay away from it. so people just buy for the hell of it..those peoples properties are usually up for auction after a few years.. I think you should stick with rehabing and developing until the prices level off in the real estate market.
Multi-Units is what my family is trying to get into but we know very little on the subject. Any advice on where i can go to get started? It seems like the best bet at these prices. The only affordable housing is going to be appartments and condos.
hehe. I'm 16 and i'm reading books on entrepeneurship and investing. I figgured i should start early so i know more than most when the time comes
Don't count on those millions just yet...you're getting in just as the cycle of rising rates is just beginning. Rising rates is the death knell for the market, just depends how far and how fast; a bubble has formed in the US housing market as liquidity was injected into the system and people took their former stock investments, cashed them in in the market bust, and bought real estate. Bubbles deflate, and it's painful for all. I suggest you read the Economist...really good at tracking these trends and a quality mag.
This is an interesting thread. Here in Los Angeles, real estate is really hot, and has been for quite a while. Some say the prices for habitational properties are really ballooned and the bubble is expected to pop in the later part of this year. Several clients I work with have been selling since the beginning of the year. However, several have been buying like crazy too. The really hot investment i have seen is condo development. There is a shortage of new condos here in l.a./especially west l.a.. The insurance market has opened up to provide the developer with the liability cvrge, and the consumer demand is definitely there. Several projects are selling out before construction is completed. .
