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This thread has made me go back and read some of my favorite paragraphs from investing books. Know your history or be doomed to repeat it.
From Random Walk Down Wallstreet by Burton Makiel: Should We Have Known the Dangers? Fraud aside, we should have known better. We should have known that investments in transforming technologies have often proved unrewarding for investors. In the 1850s, the railroad was widely expected to greatly increase the efficiency of communications and commerce. It certainly did so, but it did not justify the prices of railroad stocks, which rose to enormous speculative heights before collapsing in August 1857. A century later, airlines and television manufacturers transformed our country, but most of the early investors lost their shirts. The key to investing is not how much an industry will affect society or even how much it will grow, but rather its ability to make and sustain profits. And history tells us that eventually all excessively exuberant markets succumb to the laws of gravity. The consistent losers in the market, from my personal experience, are those who are unable to resist being swept up in some kind of tulip-bulb craze. It is not hard, really, to make money in the market. As we shall see later, an investor who simply buys and holds a broad-based portfolio of stocks can make reasonably generous long-run returns. What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges. Sent from my SM-N986U using Tapatalk |
Originally Posted by marcal
(Post 3173943)
Read "The Richest Man in Babylon".
Simple timeless investment and finance advice and practices.
Originally Posted by Trip7
(Post 3174269)
Agreed on FOMO. I'd even take it alittle further and say irrational exuberance. Similar to the excitement over the internet in 1999, investors are paying nosebleed prices for EV ideas that have generated little to no revenues while having an A&M style bonfire with cash burn. Some ideas will emerge winners, but majority will fail. Definitely a different investing style(some may call it speculation not investing) that can yield eyewatering(happy or sad), life changing results.
As far as a side hustle, there will be plenty of mom & pop businesses for sale in the next decade as boomers retire. Those businesses in the $1 million - $5 million price range can often be acquired with SBA financing for 90% of the purchase price. The key is having competent management, so that you are an owner of the business, not the manager. "Work ON your business, not IN your business" - Confucius AD 2020 |
Originally Posted by mispoken
(Post 3174203)
i love tegridy’s goals; not stalking ARCOS like the dude that just got his 9th GS has been, is what I seek as well.
This thread is great, but I would hate for it to turn into a “hot stock tip” thread. We all know how that ends. The EV stocks that are being listed are ones I follow as well, and often trade contracts on. Please be advised, these aren’t for the faint of heart and require a very high pain threshold. We found a 3/2/2 single family house built in 2003 that had foundation problems. It was only suitable for investors as there was NO WAY this house would pass inspection. The After Repair Value (ARV) based on neighborhood comps was $210,000. We purchased the house from a wholesaler for $152,500 using a private money loan. The lender agreed to 75% of ARV for a max loan amount of $157,500 at 8% interest only. We had to be prequalified for a post rehab conventional refi to get the private money loan. 152,500 Purchase +5,344 Private money closing cost (points, title ins, survey, appraisal, etc.) +25,000 Repairs (8,000 foundation, 4,500 plumbing, 4,000 flooring, 4,500 paint and drywall, 500 roof repair, 1,000 lighting, 2,500 misc) ------------- =182,844 invested -157,500 private money loan ------------- =25,344 Private money cash to close +5,825 holding cost (interest, taxes & insurance during rehab) -5,980 cash back after traditional refi (80% LTV @ 4% for 30 yrs) -------------- =25,189 total cash out of pocket 210,000 Appraised Value -168,000 traditional 30 yr loan -25,189 cash out of pocket =16,811 equity capture on the rehab After a 4 months to rehab, rent and refinance the ROI for cash out of pocket was 67% (16,811 gain / 25,189 cash invested) Here is the ongoing investment: $1,525 Monthly Rent -1,214 PITIH (Principal, Interest, Taxes, Insurance & HOA) ------------ = $311 monthly cash flow Annual cash flow is $3,732 or 15.8% of the amount invested. -with 1 month vacancy cash flow is $2,207 or 8.7% (neighborhood average is closer to 1/2 month) -we escrow $1,100 per year in reserves for roof, HVAC and maintenance which eats up 1/3 to 1/2 of the cash flow Additional aspects to consider: -Principal reduction on the loan is $3,000 per year, which is an additional 11.9% (3,000 / 25,189) ROI -Appreciation is expected to be 3% annually ($6,000) in the neighborhood. This is an additional 23.8% return on the cash invested. Our year 5 target value is $240,000. We have the following three options. 1) Sell for 240,000 - $20,000 closing costs - $152,000 loan payoff = $68,000 (plus a few thousand from cash flow - expenses) That is a 170% gain over 5 years. 2) Refinance with a new loan at 75% LTV = $25,000 cash out PLUS keep the house with $400 monthly cash flow (Rent increases, but so does the loan payment, taxes and insurance) 3) Do nothing and keep the higher cash flow. Assuming rents have increased with inflation, we are now collecting $225 more per month. $1,750 vs $1,525 |
Originally Posted by Gunfighter
(Post 3174394)
Here is a non "hot stock tip" case study for the Side Hustle crowd. My college age daughter wanted to invest in RE like mom and dad, so I figured the best way to teach her was the hands on approach. I hadn't bought an investment house since new hire days, so this was kind of fun for me too.
We found a 3/2/2 single family house built in 2003 that had foundation problems. It was only suitable for investors as there was NO WAY this house would pass inspection. The After Repair Value (ARV) based on neighborhood comps was $210,000. We purchased the house from a wholesaler for $152,500 using a private money loan. The lender agreed to 75% of ARV for a max loan amount of $157,500 at 8% interest only. We had to be prequalified for a post rehab conventional refi to get the private money loan. 152,500 Purchase +5,344 Private money closing cost (points, title ins, survey, appraisal, etc.) +25,000 Repairs (8,000 foundation, 4,500 plumbing, 4,000 flooring, 4,500 paint and drywall, 500 roof repair, 1,000 lighting, 2,500 misc) ------------- =182,844 invested -157,500 private money loan ------------- =25,344 Private money cash to close +5,825 holding cost (interest, taxes & insurance during rehab) -5,980 cash back after traditional refi (80% LTV @ 4% for 30 yrs) -------------- =25,189 total cash out of pocket 210,000 Appraised Value -168,000 traditional 30 yr loan -25,189 cash out of pocket =16,811 equity capture on the rehab After a 4 months to rehab, rent and refinance the ROI for cash out of pocket was 67% (16,811 gain / 25,189 cash invested) Here is the ongoing investment: $1,525 Monthly Rent -1,214 PITIH (Principal, Interest, Taxes, Insurance & HOA) ------------ = $311 monthly cash flow Annual cash flow is $3,732 or 15.8% of the amount invested. -with 1 month vacancy cash flow is $2,207 or 8.7% (neighborhood average is closer to 1/2 month) -we escrow $1,100 per year in reserves for roof, HVAC and maintenance which eats up 1/3 to 1/2 of the cash flow Additional aspects to consider: -Principal reduction on the loan is $3,000 per year, which is an additional 11.9% (3,000 / 25,189) ROI -Appreciation is expected to be 3% annually ($6,000) in the neighborhood. This is an additional 23.8% return on the cash invested. Our year 5 target value is $240,000. We have the following three options. 1) Sell for 240,000 - $20,000 closing costs - $152,000 loan payoff = $68,000 (plus a few thousand from cash flow - expenses) That is a 170% gain over 5 years. 2) Refinance with a new loan at 75% LTV = $25,000 cash out PLUS keep the house with $400 monthly cash flow (Rent increases, but so does the loan payment, taxes and insurance) 3) Do nothing and keep the higher cash flow. Assuming rents have increased with inflation, we are now collecting $225 more per month. $1,750 vs $1,525 Sent from my SM-N986U using Tapatalk |
Originally Posted by Trip7
(Post 3174403)
Very nice write up. Right up there with the best of Bigger Pockets write ups. Some of the comforts of Real Estate investing is there is no one on TV constantly telling you the price of your house every day and chances of your investment going to zero are low
Sent from my SM-N986U using Tapatalk It makes me wonder, for the RE folks out there, what types of returns do you see on an investment property? Is it better than 12-18% on an ANNUALIZED basis? |
Originally Posted by mispoken
(Post 3174433)
My exposure to RE is investing via private equity. I got hooked up with a dude that finances assisted living facilities in Michigan and Florida. It’s pretty straight forward, for a recapitalization it pays 12% and for a new build it pays 18%. I’m considered an equity shareholder but have zero interaction with any of it other than I wire the funds to the PERE company.
It makes me wonder, for the RE folks out there, what types of returns do you see on an investment property? Is it better than 12-18% on an ANNUALIZED basis? -My self storage and NNN investments are considerably better. (Right place, Right time, past results do not predict future returns, DYODD and plenty of other disclaimers) -As a passive investor in apartments, my returns are in line with your 12-18% range. Great returns, little work other than reading a PPM, wiring money and following financials. We are moving more of our portfolio in this direction as part of our estate planning. |
Dumb question, but how does one go from SFR to apartments? There are not many apartment complexes near where I live, so I can’t easily find an investment group. But I would like to get out of the single family residence business sooner rather than later.
One property is grossing a little better than 10% ROI (initial). It could be MUCH higher, but I would lose sleep at night raising the rent on an old fixed-income lady who has been there for 14 years...and says she wants to die there. Couldn’t ask for a better tenant, and I am not about to mess with karma. Another property is managed by someone else and is at 18% return on initial investment, but I bought it because I wanted the land, not the dwelling on it. If I can get 18%+ elsewhere without getting calls from the management company every time crap hits the fan, sign me up! (Then I could raze the dwelling and enjoy the property). |
Originally Posted by buckleyboy
(Post 3174493)
Dumb question, but how does one go from SFR to apartments? There are not many apartment complexes near where I live, so I can’t easily find an investment group. But I would like to get out of the single family residence business sooner rather than later.
One property is grossing a little better than 10% ROI (initial). It could be MUCH higher, but I would lose sleep at night raising the rent on an old fixed-income lady who has been there for 14 years...and says she wants to die there. Couldn’t ask for a better tenant, and I am not about to mess with karma. Another property is managed by someone else and is at 18% return on initial investment, but I bought it because I wanted the land, not the dwelling on it. If I can get 18%+ elsewhere without getting calls from the management company every time crap hits the fan, sign me up! (Then I could raze the dwelling and enjoy the property). |
Originally Posted by buckleyboy
(Post 3174493)
Dumb question, but how does one go from SFR to apartments? There are not many apartment complexes near where I live, so I can’t easily find an investment group. But I would like to get out of the single family residence business sooner rather than later.
One property is grossing a little better than 10% ROI (initial). It could be MUCH higher, but I would lose sleep at night raising the rent on an old fixed-income lady who has been there for 14 years...and says she wants to die there. Couldn’t ask for a better tenant, and I am not about to mess with karma. Another property is managed by someone else and is at 18% return on initial investment, but I bought it because I wanted the land, not the dwelling on it. If I can get 18%+ elsewhere without getting calls from the management company every time crap hits the fan, sign me up! (Then I could raze the dwelling and enjoy the property). Sent from my SM-N986U using Tapatalk |
Originally Posted by Trip7
(Post 3174312)
Benjamin Graham is somewhere smiling
Phil Fisher with Common Stocks and Uncommon Profits Warren Buffett has stated these two books are the foundation of good investing in stocks. I quite agree. |
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