Hi thanks for providing all the info for people looking to take a leap into this real estate industry

Just wondering your opinion on the following questions,

How much do you think is a good cushion of capital someone should have starting into this?

With the market currently doing better than years ago do you think now is a better time to be getting involved than in 2008 or in recent years?

If so is flipping better than renting or even long term value investing in prime locations and desirable pieces of land/real estate?

What do you think about markets in different countries? Is there better opportunities elsewhere?, if working within the US where would you say has the better markets east/west/north/south?

Wish you the best in your ventures and for a profitable year,
Thanks!

Personally, I'm not a fan of this one. You didn't provide a whole lot of information, but here are some assumptions I used to extrapolate the value of the investment:

- First, I always assume a management fee included in my analysis. While you may manage the project yourself, there are two reasons to analyze it as if you won't:

1. You never know when you might need to move far away or when something might change in your life keeping you from self-managing;

2. Even if you do the work yourself, you can't discount your own time. Your time is valuable, and you need to account for that.

- You didn't say what the expenses look like, but in general, assuming 45-55% of gross rent goes to expenses, vacancy and capex is generally accurate (probably accurate for 90% of small investments out there). So, I'm going to assume a 50% expense ratio, including vacancy and capex.

- You don't say if you're getting a loan or not. So, we'll run the numbers both ways.

Here is what the numbers look like if you pay all cash:

http://imgur.com/QlG0d5I

Here is what the numbers look like with a typical investment loan (20 year, 5%, 20% down):

http://imgur.com/WWpMCs2

In general, I like to see a cap rate of at least 10% for a small investment (single family or small multi-unit), cash-on-cash return of at least 12%, and a debt-service coverage ratio of at least 1.6.

And these are minimums. Most of my investments get a cap rate of 12%, a cash-on-cash of 15% and a DSCR of at least 2.0.

This investment isn't achieving any of those metrics. And if you value the investment based on a 10% cap rate, it's only worth about $134K. That's the most I'd pay for it, if I were you.

I always recommend 6 months of living expenses, plus whatever you need to get the business going. That second number is going to depend on lots of things, including the specific business you'll be in (rehabbing, renting, single family, multi-units, etc), the location and how you'll be financing your deals. There's no one good answer to that question, but at a minimum, I'd have at least 6 months of living expenses saved, as it can take that long to get your first check.

In retrospect, 2008-2010 was probably the best market we'll see in our lifetime. If I'd have known, I'd have bought 100x as many properties as I did. In many parts of the country, rehabs were plentiful, land was cheap (wish I would have purchased and sat on as much land as I could have found) and rental deals were absolutely amazing.

These days, I feel there we're in a small bubble in some markets, so I would caution people to be a little more conservative and not invest money you can't afford to lose. There will be some corrections here and there in the next year or two (and longer-term with interest rate hikes), so investors are going to need to be able to react quickly should their market turn.

But, it's always a good time to buy real estate if you're buying smart and sticking to good fundamentals.

Flipping and rentals are two completely different business models. It's like asking whether you should own a car dealership or be a race car driver -- they both involve cars, but that's about the extent of the similarities.

Flipping is a job and it great for generating chunks of cash (that are taxed heavily). Rentals are great for semi-passive income, building wealth and shielding income from taxes.

Personally, I think the best plan is to flip house to make money and then use the cash you make to invest in rentals. To generalize (in case you don't like flipping or rentals), I suggest you make cash doing one thing and then plow that cash into semi-passive investments that grow and build wealth.

I no absolutely nothing about markets outside the US, and I'm not even going to venture a guess, as I'd just be making stuff up...

In the US, I think that if you stay away from the markets that got hit the hardest in 2008-2010 and then recovered the fastest in 2012-2013, you should be okay. In other words, stay away from Las Vegas, Phoenix, Atlanta, certain Florida markets, etc. Those markets may still have reasonably decent EV, but the variance could kill you.

I'm actually in VA. I'd love to see a few examples. Do you mind if I email you?

Absolutely...

Just want to thank you for taking time out of your day to address my questions, I appreciate the insight from someone whose had success in the business, I hope to find a method of investing in real estate which suits my personality but its always nice to hear from someone who has expierence, I'll be following your blog

Thanks again!

Awesome story man. Congrats on your success in such a short period of time.

Great thread!

Great thread, thanks for this.

J, what do you typically do w/ homes that have converted garages? Does it matter if the conversion was done w/ permits and adds to the living space square footage?

Personally, I hate garage conversions and my hunch is they should be turned back to garages, but I wonder if there are ever times that the conversion adds to the value of the home.

I've only run across two conversions on houses I've actually purchased. On the first, the extra space was much needed, and added much more value than the one-car garage would have. The renovation was done very poorly, so we decide to just rip open the walls, pull permits and essentially start over. This way, we could assure the buyer that the work was done legally, and it looked much better when we were finished than when we started.

Here are BEFORE and AFTER pics...

On the second, we converted it back to a 2-car garage, as it was clear that added more value than the extra living space.

In general, I'd recommend running the comps both ways (as a garage and as extra living space) and see which one wins out -- but, either way, I highly recommend ensuring that the work is done legally and is up to code. Even if the work was done before you came along, non-permitted work can give you a bad reputation...and in this business, reputation is everything.

Thanks for the feedback. Makes sense.

The house I'm currently looking at is very small for the general area so perhaps the conversion makes sense to keep (as much as I hate it aesthetically).

Hello AcesUp,
Curious if you've ever felt the desire or need to hold on to any of your flips to rent out, or to rehab a property with the intention of holding it.

We do hold some as rentals, though as the market continues to go up, I often decide that I'd rather take the money and run rather than get monthly cashflow, and then sell after a year or two.

That said, this year, we're planning to buy several to hold longer-term, and we're also planning to jump into some larger multi-unit deals (50-150 units), which we'll either keep for cashflow or flip.

AcesUp, I PM'd you. No problem if you don't want to answer, just wanted to let you know.

I never notice my PMs...sorry!

Just responded to everyone who has PMed me over the past few days...

What format are the digital books in? What DRM restrictions are there? Will it work on a tablet and PC for example?

Books are straight PDF. No digital restrictions -- they'll work on anything that can display PDF...

Files are typically sent zipped...but I can provide them without compression and/or via direct download link for those who want them on a tablet.

A bit of self-promotion, but...

If anyone is interested in listening, I was featured on the BiggerPockets Podcast (one of the most popular business and investing podcasts in the world) today:

http://www.biggerpockets.com/renewsb...-spec-j-scott/

I just found this thread and it's really interesting, ty a lot for sharing all your infos.
Just a quick questions
- Minumum "bankroll" required?
- (related to the first one) if you were starting out, what kind of property you would looking for?

Ty again

That's a hard question to answer and will depend on a lot of things:

- Where you are investing
- The types of property you're investing in
- What your financial situation is (how easy would it be for you to borrow)
- Do you have access to friends/family with money
- What is your level of risk

While paying cash is the easiest way to do things (obviously), the returns tend to be smaller (higher ROI with leverage in many cases) and obviously most people don't have cash to buy and sell houses. But, if you wanted to go the all-cash route, look at what houses in your area are selling for, and that's about how much you need.

If you have friends/family/professional acquaintances with money to lend/invest, you may be able to go the opposite extreme and invest with absolutely none of your own money. This is what a lot of experienced investors do. In fact, I haven't used my own cash for investing in quite a while -- I pay 10-12% interest to my lenders, and everyone wins.

Generally speaking though, you'll be looking at getting secured loans (using the property as collateral) and will be required/expected to put in 20% of the total cost yourself. So, if you want to buy a house for $100K and put in $50K in rehab, you'll be looking at having to come up with $30K yourself, with the other $120K borrowed from a private lender (someone you know), hard money lender (the equivalent of a loan shark in the real estate world), or small, local bank that lends to investors. Btw, while I call the hard money lenders "loan sharks," in reality, they offer a great service to new investors and if you can find great deals, they are often the place to start.

Lastly, one of my favorite options is partnering with an experienced investor. If you can find a great deal, there are lots of investors who would be happy to put in the money and do the work -- they'll keep a substantial portion of the profits (50-80%) and you'll get a percentage of the profits (20-50%) for finding the deal. This is often a great way to get mentored as well -- I've mentored a couple people who have brought me deals. Again, it's a win/win all around.

I'm a fan of lower-end houses in solid blue collar areas. I'm talking about areas where your neighbors have owned their houses for 50 years, take pride in their neighborhoods, everyone knows one another and everyone keeps up their house/yard pretty well.

The benefits of these types of neighborhoods:

- Prices are towards the bottom of the cost scale
- These are the areas where a lot of first-time homebuyers will be looking, so when you go to sell, you'll have a good buyer market
- Neighbors tend to be very protective of their neighborhood and will "keep an eye" on your house for you (I like to introduce myself to all the neighbors and give them my business card when we first buy the house)
- Yards tend to be nice, so you less fewer concerns about curb appeal
- Generally no HOA

I would never recommend starting in areas where you have to worry about tools or materials being stolen (there's already enough stress in this business) and on the other end, I wouldn't go into HOA neighborhoods at first, as dealing with HOAs can be a major headache and this isn't the type of micro-managing you want on your first or second rehab (though after that, there are some advantages to HOA neighborhoods).

Great thread. Appreciate the effort. Would you please elaborate on the HOA neighborhood comment?

Any particular part you'd like me to elaborate on?

In general, HOAs can be a pain in the butt -- you generally have to get approvals for any exterior work, including things like painting, replacing the roof, installing a fence, etc. Sometimes they restrict the colors/materials used and many times, the approval process can take weeks (or even months). Ultimately, getting work done in an HOA neighborhood can take a long time, can be more expensive and can restrict you from doing what you might want to do. These are issues that new investors would be better served not having to deal with until they get the rest of the process down-pat.

On the other side of the coin, HOA communities are generally better kept up and often have amenities for residents (pool, tennis courts, etc). These things can be very appealing to some buyers, and therefore it is sometimes much easier to sell a property in an HOA neighborhood.

There are both good and bad...

To me the hardest part is finding the deal. I'm an experienced flipper also (have 12+ going on now) and people always ask me how to get into flipping. I tell them its a full time job like anything else. All the good deals get scooped up by experienced sharks leaving crumbs for newbies. Yes its possible to find a deal or two but very hard unless you devote a significant amount of time daily making contacts and such.

your thoughts on the subject?

Yup, finding deals is difficult. But, like you said, if you can build strong relationships, the deals will start coming to you. When real estate agents know that you'll buy distressed properties, they'll bring you these types of sellers; when wholesalers know that you can close quickly without hassle, they'll come to you first with their deals.

If you have 12 properties going right now, clearly you have some mechanism for handling acquisitions...I'd say that whatever you're doing, just do more of it...