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Old 07-06-2017, 02:20 PM
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Default Thinking of Investing in Real Estate

My business has been doing pretty good over the last couple years(knock on wood) and am thinking of taking some of my money and putting it in real estate. Other than my home I don't own or know to much about real estate investing. My preference is to buy commercial, like a small strip mall of 4-8 units that is a little older type thing. But around here those seem to be few and far probably due to the economy and every one paying rent on time.

So then I thought about residential. Again I know nothing about having tenants, management, etc. My thinking for this was by the end of the year to buy 4 or 5 properties and rent them out.

Either way I go I was planning on paying cash for the real estate whether it be commercial or residential. But everyone keeps tell me to take out loans, and they keep saying cash flow, cash flow, cash flow. Which I get but why would I want to pay for the costs of a loan and the interest when I can just pay for it in cash?

So anyone who is in this field have any newbie advice for me, should I take out a loan or pay for it in cash. My reasoning for cash would be if I can't every get a renter I don't have to worry about the payments, just taxes and upkeep. But since I'm not in this field maybe I'm missing something. Thanks for any advice.
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Old 07-07-2017, 07:25 AM
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Loan vs cash is just like anything else. If the interest on the loan is less than the return you can get by investing the money somewhere else, then take the loan.
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Old 07-07-2017, 08:31 AM
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I have 3 rentals in northern California and manage my fathers 4 so the market is not like yours. If you can pay cash do it and like they say location is the key. I only deal in single family homes . Good luck
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Old 07-07-2017, 04:27 PM
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I think having a mortgage wins for these reasons:
1) In some states (IN for example) there is a property tax discount if you have a mortgage.
2) Loan interest rates are low right now
3) The interest you do pay is usually tax deductible (check to be sure)
4) You keep 80% of the house value free to invest in something else.
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Old 07-07-2017, 09:12 PM
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Quote:
Originally Posted by blb078 View Post
My business has been doing pretty good over the last couple years(knock on wood) and am thinking of taking some of my money and putting it in real estate. Other than my home I don't own or know to much about real estate investing. My preference is to buy commercial, like a small strip mall of 4-8 units that is a little older type thing. But around here those seem to be few and far probably due to the economy and every one paying rent on time.

So then I thought about residential. Again I know nothing about having tenants, management, etc. My thinking for this was by the end of the year to buy 4 or 5 properties and rent them out.

Either way I go I was planning on paying cash for the real estate whether it be commercial or residential. But everyone keeps tell me to take out loans, and they keep saying cash flow, cash flow, cash flow. Which I get but why would I want to pay for the costs of a loan and the interest when I can just pay for it in cash?

So anyone who is in this field have any newbie advice for me, should I take out a loan or pay for it in cash. My reasoning for cash would be if I can't every get a renter I don't have to worry about the payments, just taxes and upkeep. But since I'm not in this field maybe I'm missing something. Thanks for any advice.
Hey Brian,

I'm in the multifamily space, so I can speak to the fact that leveraging as much as you can and letting the performance gains of the income stream a building throws off drive up the value and keep your costs down. The goal is always to bring down your operating expenses while keeping your rents in line with the local marketplace.
Happy to chat via PM if you need advice!
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Old 07-08-2017, 11:51 AM
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I used to operate like the other members and it's a faster way to grow . I'm 67 and retired from contracting and real estate so I tend to be conservative now. And have been threw the ups and downs. And to damn old to start over. I' m sure they can give you outstanding advice. I do think in California real estate is one of the best ways to build wealth. Good luck to all of you in real estate it was fun to put together deals and I hope your all doing great.
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Old 07-08-2017, 01:42 PM
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I used to operate like the other members and it's a faster way to grow . I'm 67 and retired from contracting and real estate so I tend to be conservative now. And have been threw the ups and downs. And to damn old to start over. I' m sure they can give you outstanding advice. I do think in California real estate is one of the best ways to build wealth. Good luck to all of you in real estate it was fun to put together deals and I hope your all doing great.
Are you referring to financing instead of paying cash?
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Old 07-09-2017, 09:45 AM
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Yes I only buy with cash now I used to finance all my projects. It takes a lot of cash to build homes and buy property. I have seen big builders go broke when the market crashes or interest rates go up. I was building homes when Carter was president and was paying prime plus two for construction loans. I think I was paying about 18% for the loans. The rates now are crazy low now so if you want to finance a property now is the time.
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Old 07-12-2017, 09:04 AM
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It really depends on what you are trying to achieve from the rental. Are you looking for cash flow? Are you looking for long term money?

I don't need any money from my rentals so I have all of them on 15 year loans. This makes my payments quite high and sometimes I am even negative on the cash flow. I have 168 rentals. Tenants are a pain in the ass and will trash your stuff so you are constantly doing repairs.

I have one single family home that I bought for $67,500 WAY back in the day. I now have 4 years until it is paid off and it is now worth about $325,000. It is renting for about $1350 per month and my payment after about 5-6 refinances is $1410 per month. Some people will say I am stupid for being cash flow negative. However consider this.

Is the -$60 per month going to phase me - no. And sure I have to come out of pocket for repairs. However lets just say Over time I accumulated 10 off these. The tenants are paying for my mortgages pretty much. 10 x -60 would be $600 per month out of my pocket. After 15 years they are all paid off, and the rents increase every year. Once they are paid off I have 10 x $325,000 or $3.2 Mil in equity and bringing in about $1500 per month in rent x 10 = $15,000 per month.

That isn't a bad retirement plan.
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Old 07-12-2017, 09:47 AM
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Originally Posted by BigBadLambo View Post
It really depends on what you are trying to achieve from the rental. Are you looking for cash flow? Are you looking for long term money?

I don't need any money from my rentals so I have all of them on 15 year loans. This makes my payments quite high and sometimes I am even negative on the cash flow. I have 168 rentals. Tenants are a pain in the ass and will trash your stuff so you are constantly doing repairs.

I have one single family home that I bought for $67,500 WAY back in the day. I now have 4 years until it is paid off and it is now worth about $325,000. It is renting for about $1350 per month and my payment after about 5-6 refinances is $1410 per month. Some people will say I am stupid for being cash flow negative. However consider this.

Is the -$60 per month going to phase me - no. And sure I have to come out of pocket for repairs. However lets just say Over time I accumulated 10 off these. The tenants are paying for my mortgages pretty much. 10 x -60 would be $600 per month out of my pocket. After 15 years they are all paid off, and the rents increase every year. Once they are paid off I have 10 x $325,000 or $3.2 Mil in equity and bringing in about $1500 per month in rent x 10 = $15,000 per month.

That isn't a bad retirement plan.
Yea I understand that. But what do you do if you can't get a renter for 1-2-3 months ect.? And how did you accumulate 168 rentals? I'm assuming all of them do not have a mortgage on them???
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