Some questions about real estate investing

**james.hendrickson** · 11-30-2017, 09:02 AM

excellent post.

Moved to real estate forum.

**cologero** · 11-30-2017, 10:11 AM

Originally posted by james.hendrickson View Post

excellent post.

Moved to real estate forum.

Thanks for moving this James. My apologies for posting in the wrong forum originally.

**james.hendrickson** · 11-30-2017, 10:27 AM

Its a great topic.

By the way, have you checked out William Nickerson's How I Turned $1,000 into Five Million in Real Estate in My Spare Time?

I highly recommend that book.

**bjl584** · 11-30-2017, 10:49 AM

Originally posted by cologero View Post

Hello,

I've really taken an interest in learning about real estate this past year. I guess being 39 years old, I feel like I've wasted time not investing in assets that could generate some level of passive income for me in the near future (vs. my 401K and IRA's that will not be available until I'm in my 60's). I guess my goal would be to eventually have $1-$2K coming in each month in profit so I could at least cover the bulk of my bills?

I spoke with a friend who has a successful real estate business, but unfortunately felt like I wasn't getting advice as a friend...moreso advise on how I could start while he could make money off me. Let's just say, I felt a bit uncomfortable, so I decided to post here. Some questions off the top of my head are:
- How much cash is normally needed to begin?
- Is crowdfunding a good option? For example, my friends company pays investors 10% annually.
- Any books that are must reads? I just finished up Rich Dad Poor Dad and the The Millionaire Real Estate Investor
- Is it ever ok to buy a property with a friend or relative you trust?
- I have maybe $10K to invest or use as a downpayment on a rental, but is using that type of cash the right move? Does it always cost a lot of money to start up? I'm single and have time and energy to invest in the evenings and on weekends.
- Probably doesn't matter, but my background has been in Management, Operations, Client Services, and Sales at an executive level over the past 15 years.
- Are there other more realistic ways to generate passive income outside of real estate investing?

Maybe my questions aren't the right ones because, I don't know what I don't know...but I do know I am a very hard worker with drive and ambition. Unfortunately, I do not have any real estate mentors in the real world, so any feedback would be appreciated. Thank you in advance.

Spend a little time over at Bigger Pockets. They are all things real estate. You can listen to their podcasts or watch them on YouTube. I've learned a ton that way.

I'd recommend joining their forum and putting yourself out there. Guaranteed that someone in your area will reach out to you. Connect with them. Buy them lunch and pick their brains. Real Estate is often a local game. You need to learn your market inside and out. Having a mentor that is an expert in your market is invaluable.

Keep your $10K and keep building it for now. Before you do anything, spend some time learning as much as you can.

**cologero** · 11-30-2017, 12:52 PM

Thank you for the book reference James. I'll have to pick that one up! Also, thank you bjl584 for recommending Bigger Pockets. I never heard about it before and will certainly check it out too!

**amarowsky** · 12-04-2017, 09:19 AM

I 2nd the idea biggerpockets as a good jumping off point.

They do have a bunch of good information, however there is a TON of information there, and it can be daunting. There are wholesalers, flippers, commercial investors, BRRRR (buy, renovate, rent, refinance, repeat), and normal residential home renting.

So it can be a lot to look through, and frequently they are biased towards real estate investing over stock market investing. Which can lead to some group think there sometimes.

I like Clayton Morris's approach. He's on biggerpockets as well, but has a independent podcast that gives great information in detail regarding his strategy. It seems to be the one most aligned with my approach. I'd recommend looking into his archive and finding a few of the episodes and listen. It's very helpful for organizing what kind of RE investing you want to do.

His podcast is "investing in real estate with clayton morris". Consider it a more focus look at lower cost residential RE investing. Using the BRRRR method.

~I want to follow same path as you 1-2k monthly income. But I don't want to expand much beyond that. And I'd like to do it all via residential houses, as my preference. Maybe explore more later, but in my local area that is easy to understand (Michigan, metro detroit). I should be able to achieve this by owning 2 to 3 houses in the $60-80k range, once paid off.

A lot of people on those sites constantly expand and leverage, expand and leverage, and so on.... I think that is too aggressive for my style. I'd like to buy (leverage 1 house) aggressively pay off, and then leverage another 1 at a time. Much slower, but closer to my level of risk tolerance. I figure I'll need 20k to start, and finance the balance being around $50k, so ~$70k per house in my area, to yield 950$ - 1200$/month in rent.

His easy calculation to guess what you'll need / earn is multiply the monthly rent by 60% (40% is to account to vacancy, property management cost, some repairs, and taxes).

So if you rent for 1k, $600 should be your take home after costs, then subtract what ever you need to finance it, and the left over will be your cash flow profit. Part of that 600 will be equity, which can also be seen as some profit. Kind of a good general calculation to see if a house will calculate to be profitable.

I hope some of this random information I gave you helps (pending on what angle in RE investing you want to move ahead with).

**Gailete** · 12-10-2017, 07:50 AM

One of the mentors you could use is a bank manager that you get to know. Banks when loaning out money for investment properties expect a bigger downpayment. It is almost 15 years since we bought ours, but I don't think crowd funding would work with the bank as that would be seen as loans you are responaible for, since you could use the money any way you wanted as long as you paid the people back. 10% is a rather big amount to be paying on a real estate loan.

We didn't go into RE to be flipping places, but to have another source of income in our later years. We have that property almost paid off as we took out a 15 year mortgage, plus after paying for all the repairs etc. we took out another 15 year loan to pay that back to our own account. One of those loans should be saying goodbye in 2 months and the other in about 5 months. Then the excess that we don't need for yearly expenses on the property will go on our mortgage.

You need to know what kind of porperty that you want to be buying and how long you want to hold it and why you want to hold it if you do. Do you want to be a landlord? Pain in the neck at times with tenants who are behind on their rent wanting you to hop to at 6AM because the furnace isn't working. They feel entitled whether they are doing what they agreed to or not.

**thomaspastoral** · 01-25-2018, 10:34 PM

Have to agree that you need mentors in doing such investing in this kind of field. It wouldn't bother you if you have to get one in order to help you out in doing something out of the ordinary when it comes to your properties. Real Estate investment seems to be risky at times, but when you would do something out of the ordinary, and follow the trends, plus follow and listen in to your mentors, then that would definitely help you out for the long run.

**Fishindude77** · 01-26-2018, 07:16 AM

Real estate is a great way to generate some additional income and makes a nice addition to anyone's portfolio. I net about $60-65K annually on my real estate investments which is farm ground and a commercial rental.

You have a good plan and good intentions, but with only $10K saved to invest in real estate you are going to be very limited on what you can do.

What are you thinking when you say real estate?
Single family homes
Apartments or condos
Commercial or industrial rentals
Farmland

**msomnipotent** · 01-26-2018, 07:26 AM

From my experience, it is never a good idea to get friends and/or family involved. We purchased a cottage with my sister's family and my parents. We had all verbally agreed on conditions set (someone wasn't allowed, and a limit on guests) and of course some people changed their minds and now everyone is fighting. We also can't agree on what fixes and upgrades need to be done, and we had originally planned on renting it out a few times during the summer. Now my parents refuse to have it rented. My sister agreed that we would sell it later on to pay for college costs for our kids, and of course now she plans on keeping it in the family so the next generation can fight over it. My parents even planned in their will that their part would go to my other sisters, just to complicate things. Lucky for us, the attorney said it wasn't legally possible due to the way the title was written.

**disneysteve** · 01-26-2018, 07:39 AM

What a mess, msomnipotent. I hope you're able to extricate yourself from that somehow.

I've heard so many stories like this over the years. I agree that you should not even consider deals like this. There are far too many things that can go wrong, and the more people involved, the worse it can get.

**TexasHusker** · 01-26-2018, 09:58 AM

Any sort of cooperative investment holding with friends or family is essentially a partnership.

There is certainly nothing wrong with partnerships - Microsoft and Apple turned out to be pretty decent companies.

The problem is, when folks go into business with very different goals, values, risk tolerances, and skill sets, it is a recipe for failure from the beginning.

Any partnership should have �limited� partners who invest but have very limited say, and a general partner who has ALMOST ALL of the say. All of these items have to be clearly memorialized before the venture is hatched.

I�ve had two different partnerships blow up so I speak from a bit of experience unfortunately.

**Smallsteps** · 03-07-2018, 06:40 PM

Ok can someone give advice for my situation
I have a home in a city on the other side of the state we live in. I have had my daughter and son in law paying the house payment and staying there for the last 4 years. it was always where they had planned to move after my son in law finished his degree and then i would rent out house.
well they seem to be hesitant to move.... I am not sure how his job search is going i have asked so many times it is uncomfortable now. Part of the reason we bought a second home on the opposite side of state was because we thought they were moving this way and our other grown children live here.
while I am not exactly losing money ......I know I could rent it for twice( Zillow estimates 2.5x) what they are paying and to make it worse they seem to get later and later each month with depositing the money in my account. I have had to remind them for the last 3 months. I am really concerned that if they do move they will not be able to rent somewhere with their lack of responsibility to make on time payments.
is there a nice way to address this without causing hurt/ anger?

**TexasHusker** · 03-08-2018, 08:35 AM

You are in a very difficult position, because "business" has become convoluted with "family."

If you own a home, even if it is your own home, it is your business: It is a huge asset, and as the owner/borrower, you are constantly preserving that asset. If it is your own home, it is a business without income, but you still have to manage it like a business.

When you own a home to rent it, it is also a business: You mind it, manage it, plus you receive income for it.

In your case, the business/investment is under-performing because you are renting it for approximately 40 percent of the current rental rates (a 60% discount). That means you are subsidizing the housing for your daughter and son-in-law.

Your daughter and son-in-law have no motive to do anything different because 1) They are living on the cheap, at your expense, and 2) They can pay you whenever they desire. That is a pretty good deal for them, not such a good deal for you.

The decision is ultimately yours as to whether or not you wish to continue to subsidize their housing. It could be that you can easily afford it, they need the help, and that's that. If that is the case, I wouldn't say another word about it and continue as you were. Consider it a gift to your daughter and grandchildren that you adore. Of course, they will likely never appreciate the gift, but that's beside the point really.

If you feel that the arrangement needs to change, you have several options:

1. You can be upfront about the whole deal and say "I will need fair market for rent starting on August 1 (pick your month). Your father and I count on this income for our needs, so we need to get the correct amount, and it will need to be on time, or you will need to do something else."

I don't recommend this approach. Even though you would be 100 percent right, in family situations, you often "win the battle" but "lose the war." Are you prepared not to see your grand kids again? Are you prepared for no more Thanksgiving and Christmas visits? That will be the likely outcome if you take this approach. Not fair, but that's the way it is.

2. You can be more stealthy and accomplish your objective. "Guys, your dad and I need to sell that home you are living in because dad has an investment he really needs the money for. So you have 1 year to figure out another arrangement - we wanted to give you plenty of heads up."

There might still be a few hard feelings, but this way it's not a personal confrontation. In fact, solicit their help with the transaction! Tell them that you are going to sell "by owner" and you will pay them 3% of the sales price for their efforts in getting the place in shape, showing it, etc.

This will help provide some down payment help to them for their own home purchase at some point, and they will have more "buy in" in helping you sell it and get top dollar.

If you handle this delicately, you can accomplish everything you want:

1. Get $$$ out of the home.
2. Help them get into a house near you.
3. Grand kids will be a lot closer.

Now, if you ever "blow your cover" and talk about how they haven't paid you on time, they are paying you less than market, etc., then all bets are off. You will have to be stealthy and not mention those things. Stick with the "company line" that "me and your dad need to sell the house to do XYZ".

FINALLY, the fact that they have paid you late isn't going to affect their credit or ability to rent another home, UNLESS YOU ARE DUMB ENOUGH TO REPORT THOSE LATE PAYMENTS TO THE BANK OR FUTURE LANDLORD WHEN THEY ASK.

Good luck!

Some questions about real estate investing