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CONFUSED - How long do you keep a rental property for and how do you create wealth?

PaulW

PaulW

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I`m not a REIN member yet but just came back from the TO workshop and read both of Don`s books.

I understand the due diligence, checklists and cash flow part of the business but I am confused about how you create wealth? I read elsewhere that you should always know how long your "holding period" is before you buy.

So my questions are:

1. Should you pre-determine before you buy how long to hold it or what ROI/equity you have? What is the typical?
2. Are you supposed to sell it or refinance it?
3. If the value of multi-families is based on income, does the value go up similar to residential? What makes the value go up?

Thanks,


Paul Woodall
 
Hello Paul. Great questions and great reasons for you to join. If your even considering investing in Real Estate, you should for sure join and or come to the ACRE workshop in April. That will answer all your questions and more,

1. for sure you need to know your ROI before buying and yes you should always have an exit strategy when buying too.
2. which ever is best for you at time of exit
3. yes if you increase rent/income or do improvements and depends on market at the time too.




QUOTE (PaulW @ Jan 30 2010, 09:51 PM) I`m not a REIN member yet but just came back from the TO workshop and read both of Don`s books.

I understand the due diligence, checklists and cash flow part of the business but I am confused about how you create wealth? I read elsewhere that you should always know how long your "holding period" is before you buy.

So my questions are:

1. Should you pre-determine before you buy how long to hold it or what ROI/equity you have? What is the typical?
2. Are you supposed to sell it or refinance it?
3. If the value of multi-families is based on income, does the value go up similar to residential? What makes the value go up?

Thanks,


Paul Woodall
 
QUOTE (PaulW @ Jan 30 2010, 07:51 PM) 1. Should you pre-determine before you buy how long to hold it or what ROI/equity you have? What is the typical?
2. Are you supposed to sell it or refinance it?
3. If the value of multi-families is based on income, does the value go up similar to residential? What makes the value go up?

1. Plan for 5 years or 25%+ appreciation. ROI is dependent on many factors but I like about 20%/year net.
2. Either. Your choice. I like refinancing if there`s enough equity to buy out my JV partner and then I have a property with none of my own money in it and a happy JV partner.
3. Yes, but at different rates and different reasons.
 
It may be time to sell when you identify another opportunity that can give you a greater ROI on your equity. If you can`t, then you already have your investment in the best place you know about!
 
QUOTE (JimWhitelaw @ Jan 31 2010, 02:02 AM) It may be time to sell when you identify another opportunity that can give you a greater ROI on your equity. If you can`t, then you already have your investment in the best place you know about!


Thanks everyone for their thoughts...what I liked about Don`s books was how you start with your "Vision" about what you want. I found the book, at least, failed to provide steps, though, on how you figure out how to get there. (how many properties, what kind, how long to hold, how to refinance to buy others, how to sell?)

Does the ACRE System go into more detail on building a portfolio to achieve your goals and how you "get cash" out of the system?

Thanks.


Paul
 
QUOTE (PaulW @ Jan 31 2010, 10:14 AM) Thanks everyone for their thoughts...what I liked about Don`s books was how you start with your "Vision" about what you want. I found the book, at least, failed to provide steps, though, on how you figure out how to get there. (how many properties, what kind, how long to hold, how to refinance to buy others, how to sell?)

Does the ACRE System go into more detail on building a portfolio to achieve your goals and how you "get cash" out of the system?

Thanks.


Paul

Yes Paul it does.

I found after reading Don`s books and "looking at things differently" was all I needed to know and started going out thinking I was an expert. Or at least someone who knew more than the rest. True, the book touches on the sophisticated investment system, but you truly need to attend an ACRE event to understand how you can apply your personal vision to real estate.

Within REIN, there are so many people who will gladly help you - they will not however, TELL you exactly what YOU need to do because it is a personal journey.

It took me a while to understand that. Yes, you will be introduced to systems and strategies that will help you achieve properties and wealth, but until you know where you want to go, you cannot plan on how to get there.

It seems to me that you want `cash` out of the system. So if you wanted to make some extra cash each month from your investment for instance, you would concentrate on properties that provide that extra cash flow for which you are looking.

How MUCH cash flow do you want/need? WHY do you need that cash flow? OR, are you investing to create multi-generational wealth for you and your family? Providing you understand that this is a long term game, in 5 years you will look back and say "I`m glad I did that" because you will more than likely have a system set in place with SOME sort of success following REIN and the members that have gone before you.

I hope this inspires you to make the right move today and not years from now.
 
QUOTE (JoeRagona @ Jan 31 2010, 11:40 AM) Yes Paul it does.

I found after reading Don`s books and "looking at things differently" was all I needed to know and started going out thinking I was an expert. Or at least someone who knew more than the rest. True, the book touches on the sophisticated investment system, but you truly need to attend an ACRE event to understand how you can apply your personal vision to real estate.

Within REIN, there are so many people who will gladly help you - they will not however, TELL you exactly what YOU need to do because it is a personal journey.

It took me a while to understand that. Yes, you will be introduced to systems and strategies that will help you achieve properties and wealth, but until you know where you want to go, you cannot plan on how to get there.

It seems to me that you want `cash` out of the system. So if you wanted to make some extra cash each month from your investment for instance, you would concentrate on properties that provide that extra cash flow for which you are looking.

How MUCH cash flow do you want/need? WHY do you need that cash flow? OR, are you investing to create multi-generational wealth for you and your family? Providing you understand that this is a long term game, in 5 years you will look back and say "I`m glad I did that" because you will more than likely have a system set in place with SOME sort of success following REIN and the members that have gone before you.

I hope this inspires you to make the right move today and not years from now.

Thanks Joe...I`ve actually looked at RE for about 5 years but most of the stuff I read was US based and no network per se to get advice from. My wife also is not too keen mainly because of lack of knowledge and scared I will "risk-it-all" and we don`t really have any $ to invest. Understand their is JV $ but she is slow to lean towards the "good side". I feel like now is a time to start or put it off for good. I like what I see in REIN.

I`v had other programs - US based - that used a combo of fix & flip to generate down payments and then used 1031 exchanges to flow into bigger properties. Obviously that does not work here so curious as to how you generate short and long term "cash" because equity is just "on paper".

What strategies/properties do you use?

Thanks.
 
I posted this my my space on myreinspace. I hope it gives you some insight:
Here is Some Stocks vs. Real Estate Rhetoric



So you have $100000 dollars to invest. What’s the best investment? Is it stocks or real estate? What would be an investment that you can maintain control of? And which investment can you recover quickly with in a down turn?



I give credit to an author Dolf De Roos for the following information. I read his book Real Estate Riches in April 2002. Let me summarize:



1. How many stocks can you buy for $100000?

I. $100000 in stocks.



2. How much real estate can you buy for $100000?

· a) $100000 can buy you approximately $600000 in real estate.

b) How do you stretch $10000 into $600000? Where does this $500000 come from? Maximum

Loan Amount

I. A bank will lend us $510000 mortgage on our real estate purchase.

II. The mortgage loan relating to residential property may not exceed 85% of the lending value, as determined by CMHC.

III. And yes there is one time legal & closing costs of $9000.

$100000 to invest - $90000(down payment) - $9000(closing costs)



3. What is your $100000 investment in stocks worth in value after purchase?

a) $100000.



4. What is your $100000 investment in real estate worth with your 85% loan to value mortgage?

a) You own an asset worth $600000 in value.



5. What is your $100000 of stocks worth if they appreciate in value by 10%?

a) $110000 in stocks.

I. $100000 in stock appreciates 10% to $110000.

II. $110000 invested minus no leverage is $10000.

III. The return on your invested $100000 is still 10%...



6. What is your $100000 invested in real estate worth if in appreciates in value by 10%?

a) $150000 of equity. Equity is the value of real estate less mortgage financing.

I. $600000 appreciates 10% to $660000

II. $660000 asset minus the $510000 CMHC Ins. Mortgage = $150000.

III. The return on your invested $10000 is 50%!


Real Estate investing is kind of like growing bamboo. you water it for 5 years and nothing really happens until the 6th year! You really have to keep your expectations in check. It takes patience & determination to see this through.
 
Others will differ but my thoughts are your holding period should be forever. Ie plan to own the property 20+ years.

1. Yes. You should plan on owning the property and not ever selling it. Ensure you purchase something with a long term vision - ie potential for stable and consistent revenue stream - long term budgeting for repairs and updating and capital expenditures - expectations of future growth in area to drive higher rents / low vacancy.

2. No. It almost never makes sense to sell a good property. If you need more funds to purchase another investment property refinance the current property. Generally selling is only reasonable when: a) You`ve made a mistake on original purchase and it`s losing money b) When you need the funds from sale of the property to put into a larger or more profitable purchase and you can`t pull out the needed amount through financing options c) When someone offers you a price well above market value because they`ve fallen in love with the particular house/ lot or there`s value in the land for redevelopment.

3. It depends. If it is a residential property that you`ll be renting out, like a single family house, it`ll be valued through whatever way it is worth more - ie either for its income or residential comparable - and generally its highest value is as a residential comparable though occasionally (RARELY) you might be able to get a slight premium in certain markets for a fully rented property to an investor. If it is an investment property it`s valuation will change based on changes to net income, and what the market cap rate for this property type is in that area at that date. (ie so even if net income is the same one year later it could be worth less if market cap rates increase, or vice versa)

If any of the other posters provide different information in their responses you should ignore their answers and re-read mine.



QUOTE (PaulW @ Jan 30 2010, 09:51 PM) I`m not a REIN member yet but just came back from the TO workshop and read both of Don`s books.

I understand the due diligence, checklists and cash flow part of the business but I am confused about how you create wealth? I read elsewhere that you should always know how long your "holding period" is before you buy.

So my questions are:

1. Should you pre-determine before you buy how long to hold it or what ROI/equity you have? What is the typical?
2. Are you supposed to sell it or refinance it?
3. If the value of multi-families is based on income, does the value go up similar to residential? What makes the value go up?

Thanks,


Paul Woodall
 
QUOTE (PaulW @ Jan 31 2010, 12:12 PM) Thanks Joe...I`ve actually looked at RE for about 5 years but most of the stuff I read was US based and no network per se to get advice from. My wife also is not too keen mainly because of lack of knowledge and scared I will "risk-it-all" and we don`t really have any $ to invest. Understand their is JV $ but she is slow to lean towards the "good side". I feel like now is a time to start or put it off for good. I like what I see in REIN.

I`v had other programs - US based - that used a combo of fix & flip to generate down payments and then used 1031 exchanges to flow into bigger properties. Obviously that does not work here so curious as to how you generate short and long term "cash" because equity is just "on paper".

What strategies/properties do you use?

Thanks.

Paul, I echo Jules` statement also but personally for me, I generate short term cash from ensuring that my properties are cash flow positive. Now honestly, that positive cash flow does not amount to something that you can quit your day job, but the reality is that you are really looking at 4 streams of income with a property:

1) Cash flow in the form of liquid cash
2) Mortgage Paydown - paper (but your overall debt is reduced monthly)
3) Appreciateion - paper
4) Tax Savings - paper (capital losses etc.)

This is why I suggested you should know WHAT you want to achieve from real estate investing. IF you are just looking to monthly cash flow gains, then maybe YOU can JV with somone who can match your financial expectations.

Believe me, I as many others have been through US based systems as part of our learning process. When moving to a Canadian based system that cares less if you buy or not, it truly is a welcoming addition to your career.

You are right in saying that now is the time - it ALWAYS is the time, however the longer you wait the more you pushing wealth aside. Jules is the perfect person to attest to how important your wife being onside is. Ange and Jules are inspirational to how couples need to support each-other.

Once you attend an ACRE event, you will have at least the arsenal to talk with your wife and explain how this investing is so different. With the amount of material you will receive, I`m sure she will see the `good side`. Better yet, take her along with you.

When you do come out to the event, come by and say hi - I`m usually working at the REMA booth.

Good luck my friend.
 
Comparing stocks and real estate is irrelevant to the OP and is also ridiculous. Unfortunately as a consequence this post is also irrelevant to the OP.

There are dozens of ways to make money from stocks as there are from real estate. Both asset classes are very viable investments to accomplish different goals.

Leverage always enhances ROE. To give an example where a bank will lend on a real estate investment and thus produce a higher return is an example that would only convince a beginner. An individual who is savvy with both stock and real estate would recognize that there are dozens of ways to leverage massively in either asset class.

I apologize for the rant.
 
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