Author Topic: Advice for weird financial situation...Mid 20s with $1MM+ of Real estate  (Read 12497 times)

ddm5

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Hi!

First, I want to thank this blog and its community for causing my life to take a complete 180.  A couple other things I absolutely couldn't have done without were the 4 Hour Work Week, Millionaire Fastlane, and Biggerpockets.com .  Six or seven months ago, I was a miserable, overworked office worker in my mid 20s.  I hated literally every aspect of my life, mostly because I was extremely time-poor and the job just plain sucked.

Since then, I started a company based online that now provides passive income with an investment of $50 a month for hosting.  I used the funds from this, when it was it the height of its success in Spring, plus the liquidation of the contributions to my retirement accounts (Roth, I've been saving since 18, although my original plan was the traditional deferred-life, retire at 65 BS) to purchase 20 units of real estate.  Including my personal residence, I am sitting at about 50% leverage, which I think is rather conservative.  I'm also lucky to be in the greatest rental market in the country, with gross monthly rents of 2-3% of the purchase price of my properties.  A typical property has gross rents of 3-4 times the PITI payment.

I no longer need to work.  I have cut my monthly recurring expenses to $500, not including my personal residence mortgage, which is $900.  I have some great plans for personal development and bringing up the areas of my life I neglected while I was a prisoner in a cube.  I plan on engaging in financially remunerative activity (but not employment with a boss) in about a year or 2, once I figure out what I want to do.  Til then, alot of my time will consist of long term travel.  I plan to start in the cheaper areas, such as Southeast Asia, but would like to see Western Europe eventually.

So I would like to hear thoughts on what my financial plan from here on should be.  Do I buy more leveraged properties?  Deleverage?  Invest in stocks/retirement accounts again?  I've been employed since I was 15, so not having a job makes me sort of nervous because it's so new.  I think with my stats that will seem ridiculous, but I want to ensure I never, ever *have* to work in some awful office again.

Income:

Gross Rent Receipts: $8675/mo
Internet Business: $2600-3600/mo  (this varies.  Back in Spring, it was hitting ungodly numbers.  50k+.  Hopefully this will happen again next Spring, but for now, this income is temporary and icing on the cake, in my mind)

Expenses:

Mortgage:  $900
Personal Survival (Food, Gas, Insurance, Utilities, Etc):  $500
Travel:  ?? This is highly variable.  I would guess that if I travel to a new country every month I'll spend $1000ish, but that's alot of traveling and may be excessive.
Rental Property Expenses: $3900 (this includes all mortgages, insurance, utilities, taxes, property mgmt, repairs, vacancy)

Mint says my net worth is approx 700k, with about 1.2 MM of assets.  I know rentals are sort of risky, and I've dealt with evictions and such in the past, but I like to assume that most people don't want to lose their home or be sued, I screen adequately, and I have 20 units so I am diversified.  I also have LLCs setup with umbrella insurance in the event of an accident/injury on the property.

Of this 700k NW, the only non real estate, non mortgage items are $10k left in my roth IRA in an index fund, a $30,000 student loan at 6.8%, and a paid off car worth $5k.  Some cash in a bank account too (I just finished buying property so I am low at the moment).

My first priority is to save a few thousand in my bank account for reserves in the event of some sort of real estate crisis.
After that, I am torn between paying off debt or expanding my budding RE empire.  My student loan interest is tax deductible at 6.8%, so an effective rate in the high 4's to mid 5's.  My mortgages, except for one, are in the low 4's and tax deductible, so not a whole lot of incentive there.  The one exception is a HELOC for $30k that's on a 15 year amortization plan at 6.25%, also tax deductible.  Killing this would save me $250 a month in payments, but that's still not a *horrible* interest rate considering the returns I am achieving from plowing money into these properties.

So if I let the low interest rate debt sit, do I just sock away money into a SEP-IRA or something, just like back when I had the office job?  Do I just basically pretend like I'm still working for the man, from a savings plan standpoint?

The other cool thing is, I get about $1000/mo in equity paydown from the mortgages, which will continue to increase.  I also get appreciation on 1.2 million dollars of assets.  Additionally, I can raise rent every year, which goes directly to my bottom line, while the mortgage payments stay roughly the same.  Still, I would like to diversify or possibly deleverage, but the rates are just so good I don't know what to do.

Even if I paid off all the mortgages, between property taxes, insurance, etc....I am still looking at a $2k-ish monthly expenditure to keep these houses.  So while a $6675 spread is a bit more relaxing than $4775, it's not huge to me.

By the way, I am in my mid-20s, single, male, no dependents, no consumer debt, in a low COL area in the US, and I'm extremely burnt out from corporate america, if any of that affects replies.

dragoncar

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Yeah I think the advice should be going the other way around.

surfhb

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Exactly!    How does a 25 year old become a self made millionaire in such a short time frame?   Impressive!   Considering you were just a miserable paper pushing smuck only months ago

What are the 1.2 in assets?    Are these properties which you owe on?   That's not an asset
« Last Edit: June 17, 2014, 11:41:00 PM by surfhb »

capital

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How are you planning on combining long-term travel with owning & maintaining 20 units? Does anyone manage your properties?

You have enough money that you're probably set for lifeó so what goal would expanding your real estate empire serve? That's the first question to ask. Something like "preserving a beautiful historical neighborhood" or "building a new walkable/bikeable/transit-oriented neighborhood with reasonably-size affordable homes in a city that lacks them" would be good answers, from my point of view. Not "making more money."

ddm5

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Yeah I think the advice should be going the other way around.

Haha, maybe I'm just a worrywort

Exactly!    How does a 25 year old become a self made millionaire in such a short time frame?   Impressive!   Considering you were just a miserable paper pushing smuck only months ago

What are the 1.2 in assets?    Are these properties which you owe on?   That's not an asset

Your description is very accurate.  I basically had my back against a wall...I absolutely HAD to change my life...and it turns out I'm pretty resourceful when allowed to run free instead of being constrained by corporatism.  I started affiliate marketing from scratch, with no prior knowledge of anything computer related, lost alot of money, then hit the jackpot with a profitable campaign and scaled the hell out of it.  I also had probably 70k in IRA contributions to play with. I'm proud to say not a single penny came from friends or family.  I have 1.2 MM in assets versus 500k in liabilities.

How are you planning on combining long-term travel with owning & maintaining 20 units? Does anyone manage your properties?

You have enough money that you're probably set for lifeó so what goal would expanding your real estate empire serve? That's the first question to ask. Something like "preserving a beautiful historical neighborhood" or "building a new walkable/bikeable/transit-oriented neighborhood with reasonably-size affordable homes in a city that lacks them" would be good answers, from my point of view. Not "making more money."

I've had a PM since day 1 since I knew I wanted to design my lifestyle so money comes in passively (thanks 4HWW).  Occasionally I will answer an email, that's about it.  I really like your idea of mindful investing.  Until now, it's basically been me biting and clawing to escape the office...I hadn't even considered that type of thing and will see if I can generate some ideas there. 

Making more money isn't a priority, since this is quite alot.  But reducing my risk exposure probably is.  However, it just doesn't make much sense to me to pay down a tax deductible low interest rate.  Maybe I should max out tax-deferred retirement accounts in stock, and use the money in an emergency if the whole rental business goes to hell?  I hope after a few months of this, I will be less in survival mode and more in the investing responsibly mindset.  This has all been quite a whirlwind.

wtjbatman

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Why would all 20 of your properties go to hell at once? Is a meteorite going to hit Indiana?

You seem stressed out by your sudden wealth. I understand that burden, and am even willing to relieve you of some of that stress. I accept personal checks written out to "wtjbatman" or "Cash".

surfhb

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Personally I think the key is simplicity and everyone's definition is different.   

Populate every tax advantage vehicle possible then move onto taxable    I think your income bars you from opening a ROTH sadly.     Again simplicity is key....a simple 2 or 3 fund approach with a Total Market and Total Bond index funds is really all you need.    Have you visited the Boglehead Wiki?  My advice would be to ask this same question on that forum too.    You'll get some good advice but it's up to you to understand the ins and outs of investing and how simple it can be. 

Again read and understand the wiki and the merits of passive, low cost index fund investing.   Read the books listed there.    It changed the way I looked at investing and Wall St.   I feel blessed to have discovered such a  "AH HA Moment" at this point in my life!!    I feel sorry for others who feel investing is just too complicated for them....I really do ;)

Btw....I agree....paying down your low interest debt at your age make no sense.    Put your money to work for you.    The lowest avg return for a 30 year period for the market was 6% from the late 20s into WWII.   The highest was 12% from the 50s into the 80s.    That's positive!

Congrats!   You did it!  :)

Use the BH wiki to understand investing and use this site to learn how to live a balanced life.   Oh! Read Your Money Or Your Life...it's good stuff.
« Last Edit: June 18, 2014, 01:35:36 AM by surfhb »

bluecheeze

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Pretty cool story.

One thing that stuck out to me was the lack of cash "liquid" funds.  I would personally carry a 6month's worth amount in a cash account before quitting.  I know it is not very probable for all apartments to go to hell at once, but I would just want to know I could cover most situations with cash.  Also handy incase you get hurt on one of your trips- a quick 10k medical bill is not unheard of depending on insurance. 

Again I would personally just get the emergency fund, put the rest in low cost index funds and figure out a fun way to quit the job.  I think still maxing a ROTH is good because you can always take out of it penalty free (not earnings).

Congrats on the business!

Thedudeabides

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Congrats!

This would be my advice:

1) write a blog/book on how you were able to go from a cubicle to retired in seven months
2) promote it using the skills you learned with affiliate marketing
3) sell the heck out of the book and become an internet celebrity
4) enjoy the perks of free travel for speaking engagements, etc.

Just kidding. Or am I? I would definitely read that book/blog!

Your idea of contributing to a tax deferred account and using the money in case of an emergency is a good one. You may want to talk to an accountant about a solo 401k. For a sole member LLC you can contribute $17,500/year plus company contributions of 20% of earnings with a maximum contribution of $52,000 I believe. This would have the benefit of lowering your tax burden and the money could grow tax deferred. Plans offer the ability to take loans of $50k of 50% whichever is less. You don't have to invest in passive investments either. You have the ability to invest in other businesses.

AlanStache

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wow!

Definitely would work on some highly liquid emergency funds.

wrt paying down debt:  Sounds like you are in a position to worry less about absolute dollars and more about how you want to live your life.  If having less debt would help you sleep-go for it.  FIRE is about options and the option to not do the financially optimal thing is there for you.

That said you need to look at and understand the details of why you would contribute to tax advantaged funds that will be harder to access for the next 40 years.  yes roth pipe line and you can barrow from a 401k.  Just saying the standard assumption of "max out tax advantaged funds" might be worth questioning here, you might do better paying the tax and keeping money less locked up.  The details of this are way above me - just question the standard assumptions they dont really apply to you any more :-)

arebelspy

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As a long time landlord, I love that your expenses are 45% of your gross receipts - shows you're probably not forgetting/underestimating something, and your numbers are fairly accurate.  So many come in with 30% expenses and are in for a shock later.

One question though...

You note that
Quote
I'm also lucky to be in the greatest rental market in the country, with gross monthly rents of 2-3% of the purchase price of my properties.

Yet you're only collecting gross rents of 8675/mo on 1.2MM of RE.

That's a rent to price ratio of only 0.7% - under the 1% rule, and WELL under your 2-3% rule claim...

So something is off in those numbers (rents are way lower than they should be, or your estimate of the value is way overinflated).

The other option I can see is, if your numbers are accurate, you've vastly improved the value of the properties to where it's probably not worth holding them, but selling and reinvesting in properties that will get a 2-3% gross rent to purchase price ratio.  For example you sell them and invest in something getting 2.1% instead of 0.7% and suddenly triple your gross rents.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Foster

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Cool story, I'd be interested in hearing more, particularly how you learned yourself real estate/prop management while working full time.

Check out the bogleheads forum, they're very good at diversifying risk over there.

Numbers Man

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ddm5 - I'm still trying to wrap my brain around the 50% leverage statement. If you're leveraged 50% on 1.2 million in real estate that means you had $600k sitting around while in your mid twenties. How did you accumulate that much dough?

arebelspy

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ddm5 - I'm still trying to wrap my brain around the 50% leverage statement. If you're leveraged 50% on 1.2 million in real estate that means you had $600k sitting around while in your mid twenties. How did you accumulate that much dough?

he probably created equity via buying below market and rehabbing.   He also had the online business bringing in tons of cash to purchase the real estate and fund the rehabs.  Likely he put down way less than 50% of current value, but that's the LTV now based on current price.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Johnny Aloha

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Congrats on your success!  What a story.

The only thing I would recommend is to consider a personal umbrella insurance policy, if you don't already have one.  It's cheap, and it's a business expense.

J Boogie

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Exactly!    How does a 25 year old become a self made millionaire in such a short time frame?   Impressive!   Considering you were just a miserable paper pushing smuck only months ago

What are the 1.2 in assets?    Are these properties which you owe on?   That's not an asset

From a balance sheet perspective, he's exactly right in classifying his leveraged property worth $1.2m as an asset.  I don't remember too much from my accounting classes, but I do remember that assets - liabilities = equity.

As long as we're ball busting, the word I'd object to is millionaire.  I think we're dealing with a garden variety hundred thousandaire ;)

ddm5

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Pretty cool story.

One thing that stuck out to me was the lack of cash "liquid" funds.  I would personally carry a 6month's worth amount in a cash account before quitting.  I know it is not very probable for all apartments to go to hell at once, but I would just want to know I could cover most situations with cash.  Also handy incase you get hurt on one of your trips- a quick 10k medical bill is not unheard of depending on insurance. 

Again I would personally just get the emergency fund, put the rest in low cost index funds and figure out a fun way to quit the job.  I think still maxing a ROTH is good because you can always take out of it penalty free (not earnings).

Congrats on the business!

Too late!  I quit already.  Thanks for the tip on the ROTH.

Congrats!

This would be my advice:

1) write a blog/book on how you were able to go from a cubicle to retired in seven months
2) promote it using the skills you learned with affiliate marketing
3) sell the heck out of the book and become an internet celebrity
4) enjoy the perks of free travel for speaking engagements, etc.

Just kidding. Or am I? I would definitely read that book/blog!




I've thought about this, since this would be very easy for me to do.  I also like to write as a hobby.  However, I don't know how I'd handle the kind of attention, or if that's really what I want.  I'm a pretty private person and I don't like being in the limelight.  It would definitely be a lucrative venture, though.

As a long time landlord, I love that your expenses are 45% of your gross receipts - shows you're probably not forgetting/underestimating something, and your numbers are fairly accurate.  So many come in with 30% expenses and are in for a shock later.



Yeah. it's pretty shocking how much of this stuff you actually have to buy to live off of it.  My goal was not just to break even every month, but have enough of a surplus that I could either continue to grow at a fast pace (I wouldn't be able to sit still with a stagnant income for the rest of my life) OR have enough in case I completely misjudged everything and needed to go in to damage control mode.  My property manager only charges 8% with no first month's rent fee, insurance and taxes are low, vacancy is pretty low, repairs are done below market rate.

Cool story, I'd be interested in hearing more, particularly how you learned yourself real estate/prop management while working full time.

Check out the bogleheads forum, they're very good at diversifying risk over there.

VERY, VERY little sleep.  I actually took a part time gig as a security guard at night so I could study the rental and internet marketing businesses.  I made $10/hr to mitigate the losses I experienced as a newbie.  It was extremely unhealthy and stressful, and also extremely temporary and worth it.  I posted on bogleheads once back before I started my business and got alot of flak about how I needed to be a good little employee and appease my masters to earn better pay to retire earlier.  It left a bad taste in my mouth, but maybe I'll give it another shot.  Some of my downpayments were amasses by using a strategy similar to, though more aggressive than, what they recommend, although the idea didn't come from them.  I had been putting some dough away in Vanguard funds since the age of 18.  All stock though, mostly small cap and international, no yucky bonds.  Now that I've cashed it out, it's nice I can clean it up a bit and follow a 2 or 3 fund model like MMM recommends, because it got pretty messy over the years.

ddm5 - I'm still trying to wrap my brain around the 50% leverage statement. If you're leveraged 50% on 1.2 million in real estate that means you had $600k sitting around while in your mid twenties. How did you accumulate that much dough?

he probably created equity via buying below market and rehabbing.   He also had the online business bringing in tons of cash to purchase the real estate and fund the rehabs.  Likely he put down way less than 50% of current value, but that's the LTV now based on current price.

Right you are, and I believe this answers your previous question as well.  I rehabbed them pretty extensively.  I am not a handyman, so I only purchased ones with easy cosmetic fixes.  These added an outsized amount of additional value, since the properties were the "black sheep" of decent areas, surrounded by much higher property values but looking so shoddy that they were everyone's last choice for a home.  In this way I avoided doing major work beyond my skill level.  Of course values are just estimates, but I am pretty confident in them, and it doesn't matter much to me because I plan on never selling unless Detroit 2.0 is on the horizon.

Congrats on your success!  What a story.

The only thing I would recommend is to consider a personal umbrella insurance policy, if you don't already have one.  It's cheap, and it's a business expense.

For sure!  It definitely helps me sleep better at night. It's 20 bucks a month for a 2 million dollar policy for me.  I have good tenants but most have kids, and kids are known for doing dumb shit.  Feels good knowing 1) I won't lose my life savings and 2) the tenant/whoever will get fixed up if anything goes down.

Exactly!    How does a 25 year old become a self made millionaire in such a short time frame?   Impressive!   Considering you were just a miserable paper pushing smuck only months ago

What are the 1.2 in assets?    Are these properties which you owe on?   That's not an asset

From a balance sheet perspective, he's exactly right in classifying his leveraged property worth $1.2m as an asset.  I don't remember too much from my accounting classes, but I do remember that assets - liabilities = equity.

As long as we're ball busting, the word I'd object to is millionaire.  I think we're dealing with a garden variety hundred thousandaire ;)

Haha, yeah, a couple more months of strong affiliate marketing and I probably could have been there.  I'm hoping it's a seasonal trend, and I'm going to restart my campaigns next Spring.  This is my first year, so I have no idea if that works.  Not counting on it.  Gonna take a couple years of appreciation to reach millionaire status.

Why would all 20 of your properties go to hell at once? Is a meteorite going to hit Indiana?

You seem stressed out by your sudden wealth. I understand that burden, and am even willing to relieve you of some of that stress. I accept personal checks written out to "wtjbatman" or "Cash".

Sitting here staring at the numbers, you're right, I guess I'm worried about nothing.  Strange to consider myself "wealthy."

Personally I think the key is simplicity and everyone's definition is different.   

Populate every tax advantage vehicle possible then move onto taxable    I think your income bars you from opening a ROTH sadly.     Again simplicity is key....a simple 2 or 3 fund approach with a Total Market and Total Bond index funds is really all you need.    Have you visited the Boglehead Wiki?  My advice would be to ask this same question on that forum too.    You'll get some good advice but it's up to you to understand the ins and outs of investing and how simple it can be. 


Btw....I agree....paying down your low interest debt at your age make no sense.    Put your money to work for you.    The lowest avg return for a 30 year period for the market was 6% from the late 20s into WWII.   The highest was 12% from the 50s into the 80s.    That's positive!

Congrats!   You did it!  :)

Use the BH wiki to understand investing and use this site to learn how to live a balanced life.   Oh! Read Your Money Or Your Life...it's good stuff.

OK, so you guys have convinced me I'm not crazy for thinking paying down a mortgage in the 4's is a waste.  That's good, because I like moving forward (investing in new opportunities) instead of cleaning up the past (paying down debt).  I'm just going to keep plugging along.

A style similar to the BH/MMM approach took care of a couple down payments, so it really does work.

wow!

Definitely would work on some highly liquid emergency funds.

wrt paying down debt:  Sounds like you are in a position to worry less about absolute dollars and more about how you want to live your life.  If having less debt would help you sleep-go for it.  FIRE is about options and the option to not do the financially optimal thing is there for you.

That said you need to look at and understand the details of why you would contribute to tax advantaged funds that will be harder to access for the next 40 years.  yes roth pipe line and you can barrow from a 401k.  Just saying the standard assumption of "max out tax advantaged funds" might be worth questioning here, you might do better paying the tax and keeping money less locked up.  The details of this are way above me - just question the standard assumptions they dont really apply to you any more :-)

That's what makes it kind of confusing...I had a really solid plan before this happened...now I'm in unknown territory..nice problem to have I guess!  Judging by how quickly I yanked money out of my retirement accounts to take advantage of new opportunities, and the ridiculous rate at which said opportunities present themselves lately, I think you're right, I'll just keep investing in real estate/businesses until it dries up.  As the market recovers, the window will close.  I can buy a 10-20% cap rate house that I can somewhat control, or I can entrust my funds to Wall St people like my former coworkers...I think I see the wisdom here.

gimp

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Uh yeah that's awesome. Maybe you should be the one giving other people advice. You might not have figured out what you want in life but you sure as fuck figured out how to fund it. "Money is the fuel for choices." Buying the worst properties in good neighborhoods and rehabbing them is definitely a good way to go.

Honestly the only two things I'd be worried about, if I were you, are:

- If you travel a lot, and don't look after your properties, that makes it easier for someone to take advantage of you. Perhaps popping in at least once a month, or once every two months, for several days is a good idea. Check out the houses, look at the books, that sort of thing.
- You're young, tons of money, not sure what you want in life. Same as before: watch out for people who want to take advantage of you. Keep living and looking poor.

arebelspy

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ddm5 - I'm still trying to wrap my brain around the 50% leverage statement. If you're leveraged 50% on 1.2 million in real estate that means you had $600k sitting around while in your mid twenties. How did you accumulate that much dough?

he probably created equity via buying below market and rehabbing.   He also had the online business bringing in tons of cash to purchase the real estate and fund the rehabs.  Likely he put down way less than 50% of current value, but that's the LTV now based on current price.

Right you are, and I believe this answers your previous question as well.  I rehabbed them pretty extensively.  I am not a handyman, so I only purchased ones with easy cosmetic fixes.  These added an outsized amount of additional value, since the properties were the "black sheep" of decent areas, surrounded by much higher property values but looking so shoddy that they were everyone's last choice for a home.  In this way I avoided doing major work beyond my skill level.  Of course values are just estimates, but I am pretty confident in them, and it doesn't matter much to me because I plan on never selling unless Detroit 2.0 is on the horizon.

No, it doesn't.  :)

I knew you were adding value based on my answer to Numbers Man, but I purposefully posted my question to make you think.

Again:
One question though...

You note that
Quote
I'm also lucky to be in the greatest rental market in the country, with gross monthly rents of 2-3% of the purchase price of my properties.

Yet you're only collecting gross rents of 8675/mo on 1.2MM of RE.

That's a rent to price ratio of only 0.7% - under the 1% rule, and WELL under your 2-3% rule claim...

So something is off in those numbers (rents are way lower than they should be, or your estimate of the value is way overinflated).

The other option I can see is, if your numbers are accurate, you've vastly improved the value of the properties to where it's probably not worth holding them, but selling and reinvesting in properties that will get a 2-3% gross rent to purchase price ratio.  For example you sell them and invest in something getting 2.1% instead of 0.7% and suddenly triple your gross rents.

Either you need to raise your rents, your estimate of value is wrong, or you need to sell.

Your gross rents should be 2-3% of your all-in costs.  If that is the case, and yet your gross rents are 0.7% of your estimated value, that means you're saying your estimated value is 3x your all-in cost. That means your LTV should be 33% at most, and that's if you put nothing down.  If you put money down, and made your value 3x or more your all-in cost, you should have under 33% LTV.

Unless you're doing cash out refis for MORE than you put in the properties.  In which case again, you should probably sell.

I'm not posting this because I'm confused - I'm posting it because there's something you need to consider.

Think about it.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

ch12

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Uh yeah that's awesome. Maybe you should be the one giving other people advice. You might not have figured out what you want in life but you sure as fuck figured out how to fund it. "Money is the fuel for choices." Buying the worst properties in good neighborhoods and rehabbing them is definitely a good way to go.

Honestly the only two things I'd be worried about, if I were you, are:

- If you travel a lot, and don't look after your properties, that makes it easier for someone to take advantage of you. Perhaps popping in at least once a month, or once every two months, for several days is a good idea. Check out the houses, look at the books, that sort of thing.
- You're young, tons of money, not sure what you want in life. Same as before: watch out for people who want to take advantage of you. Keep living and looking poor.

+1

I'd love to invest in real estate, and I'm not handyman either, which has been holding me back. Looks like it is a pretty lucrative skill set, though.

arebelspy

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Uh yeah that's awesome. Maybe you should be the one giving other people advice. You might not have figured out what you want in life but you sure as fuck figured out how to fund it. "Money is the fuel for choices." Buying the worst properties in good neighborhoods and rehabbing them is definitely a good way to go.

Honestly the only two things I'd be worried about, if I were you, are:

- If you travel a lot, and don't look after your properties, that makes it easier for someone to take advantage of you. Perhaps popping in at least once a month, or once every two months, for several days is a good idea. Check out the houses, look at the books, that sort of thing.
- You're young, tons of money, not sure what you want in life. Same as before: watch out for people who want to take advantage of you. Keep living and looking poor.

+1

I'd love to invest in real estate, and I'm not handyman either, which has been holding me back. Looks like it is a pretty lucrative skill set, though.

You don't have to be handy.  I own a number of rentals, and have done a number of flips, and I'm not handy at all, hire out all the work.

And as OP said:
Quote
I am not a handyman, so I only purchased ones with easy cosmetic fixes. 

Don't let that stop you from investing in real estate!
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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hexdexorex

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Congrats on timing the swing back up in the real estate market perfectly. I missed the boat in Miami a couple years ago because I let my lack of desire to be a landlord get in the way of an obviously underpriced market.

Personally I would keep getting into your market if its really 2-3% per month. Otherwise I would put the extra cash into the stock market where you can let earnings grow taxed differed. At some point the rents in your area should drop though - investors will catch on and buy a ton of apartments or build apartments till rent comes down.
« Last Edit: June 18, 2014, 07:16:04 PM by hexdexorex »

Foster

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Can you talk a bit about affiliate marketing?

I looked into it a few years ago but it seems to be over saturated with gurus and thousands of people that think they can earn $50/hour in their parents basement. However, you've clearly found a way to make it work.

How did you educate yourself about it, would you recommend others to learn it, do you consider yourself the needle in the haystack (millions of people try it and fail), ect.

Thanks!

DollarBill

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I've always thought that most places restrict free thought. If you speak out it's frowned upon. I need a free thought kind of atmosphere. I can't believe I lasted 22 yrs in the military...but I'm in a good place because of the sacrifice. 
« Last Edit: June 19, 2014, 07:14:12 PM by DollarBill »

SpicyMcHaggus

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Though I'm sure it was part of your plan not to share this, inquiring minds want to know where you think the best rental market in the US is.  I'm curious as to the size of units you are renting for an average of $430 / month.

Perhaps you can PM me to discuss ?  I am trying to build a portfolio of rental properties to live off the income, but I'm being hammered by high property taxes. We are near 3% of assessed value annually here.

arebelspy

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inquiring minds want to know where you think the best rental market in the US is.

OP is investing in his local market because there's opportunity there.  That doesn't mean it is the best market.  It may be, or may not.  Based on the sheer number of markets, it seems unlikely.  But there is opportunity pretty much everywhere, and lots of good markets.

The "best" market is a misnomer.  Best according to what criteria?  Different people are in different markets for different reasons.

You have to define your goals, and what you're looking for in a rental, and then look for markets that offer that.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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SpicyMcHaggus

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... is rather conservative.  I'm also lucky to be in the greatest rental market in the country, with gross monthly rents of 2-3% of the purchase price of my properties.  A typical property has gross rents of 3-4 times the PITI payment.
...

He does claim it is. I would just like to know where, as my own rental market sucks for landlords. I own a duplex and have rented one full unit and the extra room in my unit, and it still barely pays for itself.  The whole house might make $300 / month if fully rented. Taxes here are horrible. I frequently see opportunities pop up where the home is a great deal, but the taxes make it a net loss.

arebelspy

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... is rather conservative.  I'm also lucky to be in the greatest rental market in the country, with gross monthly rents of 2-3% of the purchase price of my properties.  A typical property has gross rents of 3-4 times the PITI payment.
...

He does claim it is. I would just like to know where, as my own rental market sucks for landlords. I own a duplex and have rented one full unit and the extra room in my unit, and it still barely pays for itself.  The whole house might make $300 / month if fully rented. Taxes here are horrible. I frequently see opportunities pop up where the home is a great deal, but the taxes make it a net loss.

Based on his numbers, I'd guess the Midwest.  But again, it's the greatest rental market for him.  Someone with completely different criteria will want to be in a completely different market.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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SpicyMcHaggus

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I am also in the Midwest (Milwaukee).
Seems that taxes here are awful. Minneapolis, Chicago, etc. they all have high property taxes. California is lower.

Johnny Aloha

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I am also in the Midwest (Milwaukee).
Seems that taxes here are awful. Minneapolis, Chicago, etc. they all have high property taxes. California is lower.

Interesting, because Milwaukee seems to be a profitable market for a large number of people.  Maybe you are buying in the wrong (less profitable) areas of Milwaukee.  I've looked at deals in the $25-35k range, less than $5k rehab, that will rent for $900/month.

A possible partner just picked up a portfolio of 19 units in Milwaukee.  Cash on cash return will be about 40%, after accounting for vacancy, maint, PM, etc.

arebelspy

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I am also in the Midwest (Milwaukee).
Seems that taxes here are awful. Minneapolis, Chicago, etc. they all have high property taxes. California is lower.

Taxes are merely one expense.  If you cash flow great after the taxes, who cares if they're high compared to some other place that has proportionally lower taxes but much worse cash flow in other aspects?

Ohio, Michigan, Indiana are all states I've looked into in the Midwest (depending on your definition of Midwest) that I'd invest in if I had the right team in place.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

arebelspy

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I am also in the Midwest (Milwaukee).
Seems that taxes here are awful. Minneapolis, Chicago, etc. they all have high property taxes. California is lower.

Interesting, because Milwaukee seems to be a profitable market for a large number of people.  Maybe you are buying in the wrong (less profitable) areas of Milwaukee.  I've looked at deals in the $25-35k range, less than $5k rehab, that will rent for $900/month.

A possible partner just picked up a portfolio of 19 units in Milwaukee.  Cash on cash return will be about 40%, after accounting for vacancy, maint, PM, etc.

This was posted as I was typing the previous response, and is a great example of what I mean.  The taxes may be high in that 25-35k deal, but you'll still get a great return, so why worry about the "high" taxes?

Just my thoughts on it.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

ch12

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Taxes are merely one expense.  If you cash flow great after the taxes, who cares if they're high compared to some other place that has proportionally lower taxes but much worse cash flow in other aspects?

Ohio, Michigan, Indiana are all states I've looked into in the Midwest (depending on your definition of Midwest) that I'd invest in if I had the right team in place.

Are those states particularly attractive in price to rent ratios/cash flow positive?
I am also in the Midwest (Milwaukee).
Seems that taxes here are awful. Minneapolis, Chicago, etc. they all have high property taxes. California is lower.

Interesting, because Milwaukee seems to be a profitable market for a large number of people.  Maybe you are buying in the wrong (less profitable) areas of Milwaukee.  I've looked at deals in the $25-35k range, less than $5k rehab, that will rent for $900/month.

A possible partner just picked up a portfolio of 19 units in Milwaukee.  Cash on cash return will be about 40%, after accounting for vacancy, maint, PM, etc.

This was posted as I was typing the previous response, and is a great example of what I mean.  The taxes may be high in that 25-35k deal, but you'll still get a great return, so why worry about the "high" taxes?

I'm guilty of believing the efficient market hypothesis. There's a significant housing shortage where I am (Madison, WI), so I had thought that people had already snapped up any available units that were reasonably priced. I may need to go scouting for small rental units...

arebelspy

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Taxes are merely one expense.  If you cash flow great after the taxes, who cares if they're high compared to some other place that has proportionally lower taxes but much worse cash flow in other aspects?

Ohio, Michigan, Indiana are all states I've looked into in the Midwest (depending on your definition of Midwest) that I'd invest in if I had the right team in place.

Are those states particularly attractive in price to rent ratios/cash flow positive?

They can offer some bargains.


I'm guilty of believing the efficient market hypothesis. There's a significant housing shortage where I am (Madison, WI), so I had thought that people had already snapped up any available units that were reasonably priced. I may need to go scouting for small rental units...

I believe in the EMH as well.  However the market becomes efficient over time, not instantly.

Clearly sometimes the market is inefficient and priced wrong (real estate too high in 2006, too low in 2011, stocks clearly were not priced correctly in early 2009, and you could have made a bundle from it being inefficient at the time due to investor psychology), but EMH will correct those mispricings and cause reversion to the mean.

Real estate is an example of a place where it's easier to find bargains than the stock market due to the inefficiencies of the market - transaction costs and the time it takes is much different than in the stock market, which have almost no frictional costs.

That will allow you to find a bargain at times that you might otherwise not in a market where inefficiencies are corrected much quicker.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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SpicyMcHaggus

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I am also in the Midwest (Milwaukee).
Seems that taxes here are awful. Minneapolis, Chicago, etc. they all have high property taxes. California is lower.

Interesting, because Milwaukee seems to be a profitable market for a large number of people.  Maybe you are buying in the wrong (less profitable) areas of Milwaukee.  I've looked at deals in the $25-35k range, less than $5k rehab, that will rent for $900/month.

A possible partner just picked up a portfolio of 19 units in Milwaukee.  Cash on cash return will be about 40%, after accounting for vacancy, maint, PM, etc.

No doubt you can find properties at 30k each, I don't think your $900/month estimate is accurate.  I own a duplex with a 3br on the bottom that is not in the hood, and it only draws $700. Any higher and I would be pricing it out of the market range.
I'm new to the rental game, and the properties you are speaking of are in the 'hood'. I simply don't want to deal with the problems associated with that.

arebelspy

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I am also in the Midwest (Milwaukee).
Seems that taxes here are awful. Minneapolis, Chicago, etc. they all have high property taxes. California is lower.

Interesting, because Milwaukee seems to be a profitable market for a large number of people.  Maybe you are buying in the wrong (less profitable) areas of Milwaukee.  I've looked at deals in the $25-35k range, less than $5k rehab, that will rent for $900/month.

A possible partner just picked up a portfolio of 19 units in Milwaukee.  Cash on cash return will be about 40%, after accounting for vacancy, maint, PM, etc.

No doubt you can find properties at 30k each, I don't think your $900/month estimate is accurate.  I own a duplex with a 3br on the bottom that is not in the hood, and it only draws $700. Any higher and I would be pricing it out of the market range.
I'm new to the rental game, and the properties you are speaking of are in the 'hood'. I simply don't want to deal with the problems associated with that.

A duplex will typically get less per unit than a SFR.  And if you're buying them in warzones, you won't get that rent.  I'm betting JA is talking abot decent homes in decent areas that will rent for $900, that typically sell for 50k.. now your challenge is to find them for 30k.  :)

(In other words, don't buy cheap homes at market value in shitty areas for the high rent, and don't buy better homes in good areas, because it'll cost a lot more, but find a deal on the good homes and buy them below market.)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
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Johnny Aloha

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A duplex will typically get less per unit than a SFR.  And if you're buying them in warzones, you won't get that rent.  I'm betting JA is talking abot decent homes in decent areas that will rent for $900, that typically sell for 50k.. now your challenge is to find them for 30k.  :)

(In other words, don't buy cheap homes at market value in shitty areas for the high rent, and don't buy better homes in good areas, because it'll cost a lot more, but find a deal on the good homes and buy them below market.)

Exactly. 

SpicyMcHaggus

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I'm not trying to be contentious. In my experience ( 2 years looking, owned 2 houses, looked at near 100 ), if you find something that isn't WarZone for $30-35k, you're looking at severe structural damage. Folding basement walls, active mold, burst plumbing, etc. I've seen all of these. By the time you're ready to rent, you're in it another $20k for repairs. And I'm a DIY'er.

I simply don't think that MKE is all that great for rentals. It seems a place with higher purchase price and lower taxes would be better.

arebelspy

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I'm not trying to be contentious. In my experience ( 2 years looking, owned 2 houses, looked at near 100 ), if you find something that isn't WarZone for $30-35k, you're looking at severe structural damage. Folding basement walls, active mold, burst plumbing, etc. I've seen all of these. By the time you're ready to rent, you're in it another $20k for repairs. And I'm a DIY'er.

I simply don't think that MKE is all that great for rentals. It seems a place with higher purchase price and lower taxes would be better.

I don't know anything about that market, but I will just say there are opportunities pretty much anywhere.  If that market isn't doing it for you, find a better one that fits your criteria.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

ch12

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Taxes are merely one expense.  If you cash flow great after the taxes, who cares if they're high compared to some other place that has proportionally lower taxes but much worse cash flow in other aspects?

Ohio, Michigan, Indiana are all states I've looked into in the Midwest (depending on your definition of Midwest) that I'd invest in if I had the right team in place.

Are those states particularly attractive in price to rent ratios/cash flow positive?

They can offer some bargains.


I'm guilty of believing the efficient market hypothesis. There's a significant housing shortage where I am (Madison, WI), so I had thought that people had already snapped up any available units that were reasonably priced. I may need to go scouting for small rental units...

I believe in the EMH as well.  However the market becomes efficient over time, not instantly.
That will allow you to find a bargain at times that you might otherwise not in a market where inefficiencies are corrected much quicker.
I was reading your reply on the other thread about whether or not it's possible to find cheap homes with relatively high rents. http://forum.mrmoneymustache.com/real-estate-and-landlording/40k-houses-with-$700month-rents/

I'm actually from a northern suburb of Indianapolis, and I currently live in Madison, Wisconsin. After reading your initial reply, I went to Zillow to scout houses within a few miles of me. I'm in a relatively central location; another upside is that I'm only a few miles away a major employer in this small city, and the major reason why Dane County even hits the #9 high tech spot in the US. http://www.citylab.com/work/2013/10/americas-top-25-high-tech-hotspots/7335/ Places here are selling for 80k-110k for places that will get $900-$1100 in rent. It's not as dramatic as 40k for $700/month, but it's still substantially better than I thought the market would be.

I also poked around my hometown, and it looks like I can get sub-100k homes in nice areas that will yield $1100 in rent a month.

The guy in Ohio on the other thread totally wowed me, and he made me aware that there are huge bargains. I'll be on the lookout for them.

arebelspy

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Good.  Keep learning the market so you'll start to see what's normal market price and when to jump on a deal.  Way to take the first step. :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.