Biz Lessons 2

just pulling a funny senpai i got u

Do you like people? I wasn't a big fan of them of them before and after managing 200 apartments I bet that even if you are a people person you will hate every single one of them after a while.

Does this mean you have no hope in real estate? No, it just means that you should use a property management company or focus on commercial real estate (though the cash required usually is much more). Keep in mind that no matter what you choose that order is the most important. Having an enforced set of thorough rules goes a long way.

One last general tip before we get into strategy is that real estate is all about location, location, location. Your first property should be in a familiar area with a consistent and appreciating area. Higher the incomes and the higher the quality of the tenants and lease holders. Remember it is a building and we don't fall in love with buildings. We fall for the money they generate for us!

We will spend the rest of this thread on strategy.

Most people will tell you they want to die a millionaire!
Well I want to die millions of dollars in debt!

Why? Because that is how capitalism works. Debt is just as important as cash. There are even tax benefits to leasing and taking on lots of debt. It makes little sense, but that's the playbook we are operating out of.

You bought your first property!
>our $225k example

What next?
Nothing. Yep nothing. You need the property to succeed first. We are back to the "good habits" phase I mentioned. You need to make your mortgage and other payments on time. You need the bank to trust you (and secretly start to love you). You need the property to run smooth, have great maintenance, look appealing. Hell it should look the best on the street. Why? Because we need to take pride in our investment. Because we love the building? No, because we are going to shake its foundation until it gives up all its cash! To do that you need good tenants and good tenants will pay more the best looking property on the block!

>buying a house
>not living in your office to save capital
>not renting to be able to follow the money
Stay poor, noobs.

Maybe for Biz lesson 3 I'll take about that subject of where should you live. My favorite example was one guy who bought a motel. He only did it because he wanted to live in the area and a run down motel was cheaper than buying a house.

>good tenants will pay more *for* the best looking property on the block!

>I'll *talk* about that subject of where should you live

How long do we wait?
Likely two years.
>wat

Yes, you need at least two years to establish your property in the eyes of the bank. You also need the time to build up principal and hopefully some small amount of property appreciation. Plus the time to make the place nice and pretty for the assessment. Assessment? Yes, we are going to need an estimated bank value of the property to get our next loan or to sell the building or roll into a bigger investment.

What are some things that kill new real estate investors in the first couple of years? Assuming you actually collect the rent the next biggest thing is maintenance and I'm not talking a bad toilet. Suddenly a new roof! Like a wild Pokemon appeared. Obviously a roof isn't a surprise and you do have a roof fund, right user! What about a window fund and a hot water fund? Etc. Things that we know last so many years obviously have to be replaced. It is very simple. New hot water heater $1000 estimated to last 10yrs, well we need to put a $100 away this year. Next year it goes up to $1050, then we put away $105 for this year and the $5 to make up for last year. Suddenly after two years you have a good amount of money in the maintenance account. We may still have to get a loan, especially for a roof, but our maintenance fund will be a good chunk of change in two years. All of which goes to the roof and then gets replaced as soon as we can.

Speaking of wild Pokemon... If you have to scramble to get a loan for a roof, then you are a bad investor. Any real estate book out there will tell you to get a nice thorough property inspection before you buy. Guess what they put on that report? You guessed it: estimated roof age/life. Does this mean you have to buy a super expensive property because it has a younger roof and windows? No, but it does require a little effort. Note: that property with the new roof requires the same planning, but a bad investor wouldn't be putting money away for a roof after they just had a new roof put on.

How do I pay for a roof? Well if you did your homework you would know that you bought a roof that was about to fail. 2 years is pretty short in roof years. But let us say you bought a roof that was 20yrs old with an estimated 30yr life. Two years later you put money away for a roof on an accelerated schedule, but it wouldn't cover if the roof went right now. Obviously you would have good insurance that would cover you in a storm, but that is beyond the scope of this topic. At 25yrs the roof fails and needs replaced. In five years you have enough in the maintenance fund for three quarters of a roof. However that is the whole maintenance fund, not just what is allocated to the roof. The roof portion if half of the roof, because you thought it would last another 5 years. What do you do?

You need a line of credit. This goes back to being thorough, patient, having good credit and planning well. Obviously any day to day maintenance should be kept in the maintenance fund, otherwise drain it all and use the credit line for the difference. If another emergency happens you will have extra credit because of all your planning. Until then you will pay off that line of credit as quick as possible.

This was a property inspection from the same property showing all the commissions and fees. Note the 14yr roof age.

Thats fucking retarded. What are you on about?

Equity + appreciation (if it happens , obviousely you buy assuming their is none) + money from rents you save (50% rule) = your next deal

In a good market you can turn a 600k multi family into a 4.2 million dollar one in 5 years and the only out of pocket for you was 20% down on the first one plus due dilligence