How to make monthly INCOME

[ruddens]

Hi,

I`m just building an investment plan, and my wish is to eventually invest in real estate on a full time basis. However, as I`m developing my plan, I just don`t see how real estate brings money in my pocket to pay my personal bills, groceries, and normal life expenses. It seems I can only make money with equity and when selling after a few years. Even when using OPM, spliting profit with other investors, there`s almost nothing left to survive on...! Until it`s sold...

Is that all there is to it? How do people make a living out of real estate if it doesn`t bring regular income?

Thanks

Ruddens

 

[Thomas Beyer]

QUOTE (ruddens @ Jan 6 2009, 09:45 AM) Hi,

I`m just building an investment plan, and my wish is to eventually invest in real estate on a full time basis. However, as I`m developing my plan, I just don`t see how real estate brings money in my pocket to pay my personal bills, groceries, and normal life expenses. It seems I can only make money with equity and when selling after a few years. Even when using OPM, spliting profit with other investors, there`s almost nothing left to survive on...! Until it`s sold...

Is that all there is to it? How do people make a living out of real estate if it doesn`t bring regular income?

Thanks

Ruddens
it takes many years .. it is NOT a get rich quick game .. depending on the leverage cash-flow is strong or poor ..

Example:
one of rental pooled condos (see: http://www.prestprop.com/kensington) would sell for 120 to 150K with rent being 825 - 1025 depending on unit size and quality. Taxes, management fees and condo fees run about $350 to $400/month. If you paid cash for a $150,000 condo your cash-flow would be $600 to $625 or so per month or $7500/year .. about 5%. Usually you get a mortgage though .. so the higher the mortgage the worse the cash-flow but the better the ROI if you assume that an average condo in an average city in AB would go up, on average 3-6%/year .. there is a calculator here where you can manipulate interest rates, price, rent, and growth forecasts and it shows you cash-flow and ROI.

The calculator is here: http://www.prestprop.com/calculator.html

Generally, as a rule-of-thumb, large single family homes and good locations in big cities do not work well for cash-flow. Usually you have to buy a smaller house or condo or townhouse, and usually it works better in sub-urbs or smaller towns as rents are a little lower than big cities but prices are a lot lower .. so you have to look for the right asset class in the right location .. perhaps you`re looking in the wrong places or not hard enough ?

Also read this post on how to get started and how to make money:

5 ways to make money

http://myreinspace.com/public_forums/General_Discussion/61-3347-5_ways_to_make_money.html

How to get started
http://myreinspace.com/public_forums/General_Discussion/61-4391-How_to_get_started_.html

One reason why REIN has bronze(3 properties), silver (8) and gold (17) "medals" is that only at the gold level could you realistically live entirely off the income .. until then some other form of income is required (usually a job) .. some REIN members have done it in 1-2 years .. many in 4-6 years .. all VERY DOABLE if you follow a system such as the one REIN teaches !

 

[Smitty]

QUOTE Is that all there is to it? How do people make a living out of real estate if it doesn`t bring regular income?Thanks

Ruddens

Ruddens:

Read through Thomas` post carefully. Some excellent info there. Perhaps I am repeating some info, but I thought I augment some quick basics, in terms of #`s.

As Thomas said, people achieving the "gold" status in REIN means they have 17+ properties. They may be able to live off the cash through because having that large a volume provides enough income to "live" off:
1) If each property, on avg, cash flows +$100 per month, you have $1700.00 a month. Not much.
2) If each property, on avg, cash flows +$200 per month, you have $3400.00 a month. Better.

Caveat: make sure when you are living off your cash flow, make sure its the "cherry" portion on top of the icing and the cake. What I mean is, make sure you are never dipping into reserves, security deposits ( a no-no

), contingency or sustainability fund, or repairs and maintenance fund. Just make sure this is money truly leftover from your solid real estate cash flow.

Ok, so you get the idea.

The power of following a system such as REIN is that, you can accelerate your plans a bit. Thomas is dead right when he says this is not a get-rich quick game nor will this happen overnight.

But following the REIN system can really help you move along your retirement plans. Instead of working 20 to 40 years in a job, and/or instead of waiting for the mortgages to be paid off on your rentals properties, if you invested in a fundamentally strong area, and there is some appreciation, you can use that equity to create cash flow.

An example would be if you did indeed buy 17 properties in a strong area, do you think, say even after 10 years you could sell 8 to 14 of them, use the equity to pay off the mortgages on the rest of the properties you keep (Keep the strongest ones eh?). Then what does your cash flow look like, on 3 to 9 properties that have no debt left on them?

That`s the power of fundamentally strong investing and buying more than one property. It doesn`t have to be 17, but the more, the better the math works.

Keep it simple: maker sure your first purchase is a decent cash flowing property in a terrific area.

 

[t67]

QUOTE (Smitty @ Jan 6 2009, 10:45 AM) As Thomas said, people achieving the "gold" status in REIN means they have 17+ properties. They may be able to live off the cash through because having that large a volume provides enough income to "live" off:

In the REIN system is 17 properties, 17 separate properties or 17 units ? For eample on one property zoned R2 I have an upper lower duplex earning two separate rents, is that property recognized as 2 properties at REIN ?

Thank you.

 

[GarthChapman]

QUOTE (nextrnd @ Jan 6 2009, 11:45 AM)
In the REIN system is 17 properties, 17 separate properties or 17 units ? For eample on one property zoned R2 I have an upper lower duplex earning two separate rents, is that property recognized as 2 properties at REIN ?



Thank you.




It goes by the number of Titles. So an untitled suite doesn't count towards the awards. But that doesn't stop you from counting them in your own tally. If they are cash-flowing high enough to contribute as any other unit does in your game plan then carry on!

 

[rymac]

QUOTE (nextrnd @ Jan 6 2009, 11:45 AM) In the REIN system is 17 properties, 17 separate properties or 17 units ? For eample on one property zoned R2 I have an upper lower duplex earning two separate rents, is that property recognized as 2 properties at REIN ?

Thank you.

I believe its counted by land titles. Your two units have the same land tittle so it would be only one property.

 

[Thomas Beyer]

QUOTE (Smitty @ Jan 6 2009, 10:45 AM) ...

An example would be if you did indeed buy 17 properties in a strong area, do you think, say even after 10 years you could sell 8 to 14 of them, use the equity to pay off the mortgages on the rest of the properties you keep (Keep the strongest ones eh?). Then what does your cash flow look like, on 3 to 9 properties that have no debt left on them?

That`s the power of fundamentally strong investing and buying more than one property. It doesn`t have to be 17, but the more, the better the math works.
or better: sell fewer, the ones that have the highest PITA factor, and re-finance some others .. equity + cash-flow as real estate in general should be appropriately levered with cheap mortgage money that is usually cheaper than the yield of the property !!

So with 17 properties, the combination of trapped equity that can be taken out through a sale or a re-finance and ongoing cash-flow is VERY VERY powerful .. hence the REIN Gold Medal !!

 

[Mitch Collins]

Hello;

Just to elaborate a little further..depending on where you live and where you are planning to invest, it may seem that cash flow isn`t possible, perhaps if you are investing in Edmonton, Calgary, etc. Or, if they do cash flow, it is quite insignificant.

But if that is the case, consider looking at other areas! Some areas such as Grande Prairie, Fort St. John, certain Ontario spots can generate much more CASH FLOW than other areas, and still have very strong prospects for capital appreciation.

Then, once you have identified the ideal spot(s) that you wish to capitalize in for cash flow, become an expert in that area. Learn which areas to `farm`, learn which property asset type brings the most cash flow with the least amount of work - I typically invest in side by side duplexes, and that has worked very nicely for me..

With the right portfolio of properties, it is totally possible to be earning $6,000 or more PER MONTH, after ALL expenses and joint venture contributions.

It`s a matter of finding the correct markets that fit your requirements.

Good Luck!

Mitch and Miranda Collins

 

[CargrenInvestments]

You may also want to consider Rent-to-Own properties as these tend to cash flow a little better, but is a whole different ball game to long term holds.

 

[TIMWEMBLEY]

Here are some other ways to make money once you get some hands on experience in investing following the REIN system some are riskier than others but if you know your market VERY well they can all be profitable and can provide instant cash but the real money really is made in long term cashflow and equity appreciation.Rent to own - Much better cashflow as tenant/buyer takes care of maintence pays higher rent and management is usually as simple as cashing post dated cheques. I recently assumed a mortgage for closing costs and got a $10k deposit from my tenant buyer. So I netted $8k for buying a positive cashflowing house. You have to look hard but these deals are out their now and are coming up more and more.Bird Dogging- Knowing your area very well and finding deals for other investors that you have built a relationship with and they will be happy to pay you for your time.
Flips- By far the riskiest but can produce fast cash if done right and you must know your market VERY well. You must get property well below market price especially now as the flat market were in now will not correct your mistakes.

Don`t quit your job until it no longer makes financial sense to keep going and built yourself a good nestegg of live on cash.

 

[ruddens]

Thank you all for your answers. After I read your replies, I realized, there is very little chance i can create cash flow in cities like where i live (Vancouver) even in the whole BC province it`s hard to find high cap rates.
The only city I found that has a cap rate high enough to bring the kind of cash flow i want is Windsor...
However Windsor has the highest vacancy rate in Canada (No wonder the cap rate is so high). But I`m thinking, even with the high vacancy rate and decreasing value, there`s gotta be some areas in Windsor where I can find quality investments, get good tenants and decent vacancy and as a result, get a nice cash flow.
Do you recommend investing there?

Ruddens

 

[Thomas Beyer]

QUOTE (ruddens @ Jan 31 2009, 12:17 AM) Thank you all for your answers. After I read your replies, I realized, there is very little chance i can create cash flow in cities like where i live (Vancouver) even in the whole BC province it`s hard to find high cap rates.
The only city I found that has a cap rate high enough to bring the kind of cash flow i want is Windsor...
However Windsor has the highest vacancy rate in Canada (No wonder the cap rate is so high). But I`m thinking, even with the high vacancy rate and decreasing value, there`s gotta be some areas in Windsor where I can find quality investments, get good tenants and decent vacancy and as a result, get a nice cash flow.
Do you recommend investing there?

Ruddens
keep looking .. deeper and closer to home .. there are MANY cash-flow deals even in the lower mainland (no, not a coal harbour $1M penthouse ..) but surrey, east-van, burnaby, poco, port moody, abbotsford etc. .. no need to go all the way to one horse town like Windsor (btw: don`t go there unless you live there and can stick handle issues and buy dirt cheap .. it is not a growth town !!)

 

[JBagorio]

QUOTE (rymac @ Jan 6 2009, 12:02 PM) I believe its counted by land titles. Your two units have the same land tittle so it would be only one property.

How about titled parking stalls? I have a couple that I rent induvidually and planning to buy more. I found that they cash flow very well...

 

[NeilUttamsingh]

QUOTE (Smitty @ Jan 6 2009, 12:45 PM) Ruddens:Read through Thomas` post carefully. Some excellent info there. Perhaps I am repeating some info, but I thought I augment some quick basics, in terms of #`s.
As Thomas said, people achieving the "gold" status in REIN means they have 17+ properties. They may be able to live off the cash through because having that large a volume provides enough income to "live" off:
1) If each property, on avg, cash flows +$100 per month, you have $1700.00 a month. Not much.
2) If each property, on avg, cash flows +$200 per month, you have $3400.00 a month. Better.

Caveat: make sure when you are living off your cash flow, make sure its the "cherry" portion on top of the icing and the cake. What I mean is, make sure you are never dipping into reserves, security deposits ( a no-no

), contingency or sustainability fund, or repairs and maintenance fund. Just make sure this is money truly leftover from your solid real estate cash flow.

Ok, so you get the idea.

The power of following a system such as REIN is that, you can accelerate your plans a bit. Thomas is dead right when he says this is not a get-rich quick game nor will this happen overnight.

But following the REIN system can really help you move along your retirement plans. Instead of working 20 to 40 years in a job, and/or instead of waiting for the mortgages to be paid off on your rentals properties, if you invested in a fundamentally strong area, and there is some appreciation, you can use that equity to create cash flow.

An example would be if you did indeed buy 17 properties in a strong area, do you think, say even after 10 years you could sell 8 to 14 of them, use the equity to pay off the mortgages on the rest of the properties you keep (Keep the strongest ones eh?). Then what does your cash flow look like, on 3 to 9 properties that have no debt left on them?

That`s the power of fundamentally strong investing and buying more than one property. It doesn`t have to be 17, but the more, the better the math works.

Keep it simple: maker sure your first purchase is a decent cash flowing property in a terrific area.

Smitty,

Great post! Great insight!

 

[SeanKozicki]

Thomas,

I have a couple of follow-up questions based on the premise that "cashflow on newly acquired properties is typically low".

1. How do you position a real estate deal to a potential JV partner when housing prices are expected to remain flat or depreciate over the next 12-18 months? There won`t be a significant return from cashflow until rents increase (or you decrease expenses), or a paper equity gain for several years out.

2. How do directed real estate RRSP investments work? I understand that you need to pay a reasonable annual return (5-10%) to your investor. Where does that cash come from? You could ask for more money than you need and pay them back their own money, but you will probably run out before you cashflow catches up.

 

[Nir]

Sean, the following example might help:

Purchase price: $1,000,000
Down payment (33%): $330,000 - your investor pays the amount. let`s assume you pay your investor an annual return of 8% (within the reasonable range you mentioned 5-10%).
CAP Rate: 8%
Without further calculations(!) you can see that you only pay the investor 8% on 33% of the purchase price. you get to keep the rest(!) which is 8% on 66% of the purchase minus mortgage interest let`s assume 4% mortgage interest. so you get to keep 4% on 66% of the purchase which is the SAME amount of CASH every month as your investor! because 4% on 66% of the purchase price = 8% on 33% of the purchase price - the amount your investor put down. Fair? Everyone is happy? Good!

PS. The amount you get is a little less than 4% because a portion of that is used to pay mortgage principal but to simplify I rounded to 4% as in the first years principal paid is close to zero anyway.

 

[Thomas Beyer]

QUOTE (SeanKozicki @ Feb 1 2009, 03:17 PM)
Thomas,



I have a couple of follow-up questions based on the premise that "cashflow on newly acquired properties is typically low".



1. How do you position a real estate deal to a potential JV partner when housing prices are expected to remain flat or depreciate over the next 12-18 months? There won't be a significant return from cashflow until rents increase (or you decrease expenses), or a paper equity gain for several years out.


you wait or find a terrific deal !




QUOTE (SeanKozicki @ Feb 1 2009, 03:17 PM)
2. How do directed real estate RRSP investments work? I understand that you need to pay a reasonable annual return (5-10%) to your investor. Where does that cash come from? You could ask for more money than you need and pay them back their own money, but you will probably run out before you cashflow catches up.


I do not understand the question ... any equity should include a reserve, possibly for cash-flow. Construction firms do that, such as one heavily advertising company right now for Ft. McMurray with a "mortgage that pays up to 18%" .. essentially they collect all interest payable for 3 years upfront (i.e. of 300K invested 200K is used for construction and 100K for interest and sales commission), and hopefully when the project is finished they can sell it or re-fi it for enough money to pay the principal too. Hopefully ..



Consider the RISK though .. no one mentions risk these days .. aim for return OF the investor capital, then for a return ON the capital !

 

[SeanKozicki]

I`ll try to respond to both threads in one go. I hope this makes sense.

investsmart:

As I understand it, cap rate is calculated as NOI over price and does not include financing costs.

The problem I have is how do you sell to a potential JV "Thanks for your money, we don`t offer cashflow for several years and we don`t expect any market appreciation to take hold for another 1-2 years."

Please don`t get me wrong, I am very bullish on real estate compared to other investments. That being said, real estate must be attractive now to attract money now.

Thomas:

I think that answered my question - in real estate investments where some annual return is expected you pay it from the reserve until the asset starts to perform. Risk doubly-noted.

I also think your prestprop website is very professional looking and has great information.

 

[Nir]

Sean, In my example you do pay your investor from the first year. Why are you asking about selling to the investor "we don`t offer cashflow for several years"?

 

[Thomas Beyer]

QUOTE (SeanKozicki @ Feb 1 2009, 05:57 PM)
..



I think that answered my question - in real estate investments where some annual return is expected you pay it from the reserve until the asset starts to perform.


indeed .. or avoid cash-flow obligations in year 1 or 2 when cash-flow usually is weak unless low leverage is used with strong cash-flow but much lower equity gain cash-on-cash. I.e. find out what investor wants:



cash-flow and some equity growth



or



some cash-flow and equity growth



or



cash-flow (variable)



or



cash-flow fixed ?