Is Individual Real Estate Feasible?

For some reason, lately, my YouTube has been filled with channels that focus on individual real estate investing, i.e. buying multi-family units and collecting rental income, cash-out refinancing, etc. They all claim that it's the best way to build wealth due to a limited supply of land and other various factors. My question is this: is it actually realistic to have a steady income of your real estate assets alone? I know jack shit about real estate right now, but it's something that I've been thinking about more and more. Or is it all just a giant scam? Thoughts?

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Comments (27)

Mar 7, 2021 - 1:40pm

Disclaimer: Just an intern, everything I say is from what I've read and my own limited knowledge.

A lot of those YouTube real estate gurus are trying to sell you something, often an overly expensive course. Maybe they aren't wrong about somethings, but I would take what they say with a grain of salt. It's never as easy as they say it is and RE also isn't some holy grail investment that will make you rich like nothing else will. It has it's pros and cons like anything else. You can do deals yourself and buy duplexes and 4-plexes and what not, you might do well and have decent cashflow, but shit will come up (sometimes literal shit) which you'll have to deal with. All while working a full time job, so again, not the easiest thing in the world. Also can't hire a property manager in the early stages because it'll eat into whatever little cashflow you have.

Overall, it can be pretty lucrative and the big guys in the industry did start small, but just know what you're getting into and don't fall for what the gurus say.

Mar 7, 2021 - 2:06pm

What about if you partnered with someone for them to be your property manager and agreed to do like a 70/30 or 60/40 split so that way if you can't make any money you don't owe them anything but if you do then that's the problem of the property manager solved? Again, I'm probably missing so much so I'd appreciate insight from people who know more about real estate.

Mar 8, 2021 - 1:05pm

You don't need to give someone that much to manage your property. PM services usually cost between 5%-10% of gross rent. But keep on mind that this is just for property management (dealing with tenants, lease-up, etc). Repairs is a separate expense item. For minor things, the PM shop you use may have an in-house handyman that charges $x/hr to fix something, but if the drain is clogged and out of the handyman's expertise then the PM would call a plumber that they usually use and send you the bill

Mar 7, 2021 - 1:45pm

I think it's much easier in some parts of the country than in others, especially now. The price-to-rent ratios in expensive coastal markets are generally too high for small properties to cash flow unless you keep the leverage low (which means you need to start with a lot of capital). Totally different story in 2012, and in places like Indiana now.

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  • Investment Analyst in RE - Comm
Mar 7, 2021 - 2:12pm

It's feasible, it's not easy. Buy enough units to have your rental income reach a level you can live off of - and then some in case of major unexpected expenses occur or you lose some rent due to vacancy/non-payment. Property management isn't a walk in the park, nor is it glamorous and to attain enough units to have sufficient cash flow, you have to have a decent amount of cash to begin with. With that being said though a major benefit of RE is being able to use leverage and creative financing so if you're making an average to above average salary and penny pinching you can build a decent sized portfolio in 5-10 years if you make it a priority. 

Mar 8, 2021 - 7:20am

With that being said though a major benefit of RE is being able to use leverage and creative financing so if you're making an average to above average salary and penny pinching you can build a decent sized portfolio in 5-10 years if you make it a priority. 

I agree with your assessment. However, I feel it's sold as something you could do with ease next to your full time job, which I find hard to buy. I think a lot of people misjudge just how much time and effort it goes into managing assets such as these. Due to a variety of factors, these duplexes are usually in tertiary markets, with unconventional tenants and tons of capex requirements, and unless you bring with you some serious experience the average person will struggle to know what to do in this situation. Hell, I found it challenging (and tedious) to manage Class A properties in Nashville and that was with one of the country's largest property management firm in place doing the heavy lifting...

However, if you do have capital and some connections, I could see buying duplexes in gateway cities being an attractive play with less headaches, that could give you decent CF and refi possibilities. Only problem there is to find something that hasn't already priced in your upside for the next five years. 

  • Investment Analyst in RE - Comm
Mar 8, 2021 - 10:33am

100% agree. As much as like to buy an investment property or two each year, the time commitment would be more challenging than the financing. Having a business partner or spouse to lean on would he huge if you're working 60+ hours a week like the majority of the forum. 

Mar 8, 2021 - 11:10am

Yep.  People underestimate how much work goes into managing property.  Either you outsource all of it, which eats up all your cash flow and leaves you holding the bag for any downside contingency, or you put in real sweat equity to collect checks, be your own broker, fix appliances, etc until you can get some scale.  I recall an Off Topic Forum post a couple weeks ago that was basically just "oh yeah, I'll finance at attractive rates and then use the equity I take out to buy the next one, rinse and repeat!"

Typical for bankers, I suppose.  The deal begins and ends at the spreadsheet, when any CRE person worth a damn knows that underwriting and modeling is like 5% of the job and the real work starts when the ink dries.

Mar 8, 2021 - 7:06am

My Instagram feed is filled with influencers telling me to buy some dumpster fire duplex located in a tertiary market because it's a cash flowing asset and they can't possibly depreciate. LOL

Mar 8, 2021 - 2:05pm

Well, Graham takes about buying cheap real estate in good areas and fixing it up. I believe most of his investments are in Los Angeles. 

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Mar 8, 2021 - 2:09pm

Monty Burns

Exactly, I needed to know if Graham Stephan and Richard Garcia were just full shit or actually on to something

Anyone pitching you an investment or an investment strategy through a YouTube video is full of shit, full stop.  You literally don't have to do or think anything else - if they want to sell you on an idea and are marketing it through mass media, you pass, no questions asked.  They are looking for credulous rubes who want to get rich quick and without working for it, the moment you think "hey, these guys are onto something," you're the fucking moron.  If they had an actual strategy or secret, I can guarantee you they'd be out raising money to execute on it, not selling it for 5 low, low installments of $99.99

Mar 8, 2021 - 2:30pm

It's definitely possible, but as others have mentioned much more work and risk than those youtube videos/guru courses lead you to believe. I invest exactly in the space you're talking about (2-4 unit multifamilies) and I am trying to achieve the same goal (create enough fixed income to live off of and more); however, I will admit that I have a very strong background because this is my family's business, so I have their construction expertise and balance sheet. But even without their knowledge and balance sheet it is still very possible (at least in my area). Assuming you have a certain amount of income for a mortgage and equity saved up for a downpayment, the most important thing is to know your market/product. Investing in real estate (and probably other assets) is finding a needle in a haystack. There are good/great/home run deals out there, but you have to be able to differentiate hay from needles.

Just to give you an example, I'm in the process of acquiring a 3-family in a hot, up and coming market for ~$1.2mm (I live in a HCOL market). The 2nd and 3rd floor units (3 bedrooms each) are currently on leases for $2,500 each (below market) and the 1st floor unit will be delivered vacant (also a 3BR). The 2nd and 3rd floor units are in great condition, probably renovated in the last 3-5 years. I have no doubt that during this spring market the newly renovated 3BR's could fetch $3,000 each. The vacant unit is in decent condition (definitely livable, but nothing super nice). It could probably rent for ~$2,500. Now if all I did was lease up the vacant unit for $2,500 and bump the rents of the 2 unit already rented to $2,600 each at the end of the lease, that would be gross rent of $7,700. I estimate my operating expenses to be ~$1,900 (5% property management fee, 2% repairs, 1% turnover expenses, RE taxes, insurance, utilities etc..). At 80% LTV, 3.75% rate, my mortgage payment is ~$4,500. So my cash flow to equity would be ~$1,300/month (6.5% cash on cash return). Not bad considering all I did was lease up 1 unit and this doesnt even account for depreciation write off and appreciation of the property. If this is your first time buying real estate, then this is a solid strategy because it doesnt require any renovation but you still generate a solid return and cash flow.

But if you have a bit of free time and really wanted to maximize this investment, then you could vacate the 3rd unit at the end of their lease and increase the rent to $3000 (or keep the original tenant if they are willing to pay $3,000). Vacate the 2nd unit and put up a wall/door to convert the dining room into a bedroom to create 4 bedrooms (there is a living and dining room, no one uses dining rooms anymore) and bump the rent to $3,600. And then update the kitchen/repaint/resand the floor on the first floor and rent it for $3,300 (the first floor is larger than the top 2 floors, so it may be able to get a bit more). This would bring your total rent to ~$9,900. My operating expenses are slightly higher at ~$2,100 and lets say I take out a $50k construction loan for the renovations, then my monthly mortgage payments would be ~$4,700. My cash flow to equity would be ~$3,100/month. Also, a 3-family half a mile away of similar size and condition sold for $1.55mm a couple months ago. Now you may be saying that this is a once in a 10 year event and that I can't repeat it, but I did a similar deal 3 months ago (the financials were a little less impressive on that one, but still very good). In both these deals, the seller was retiring and just wanted to sell for a decent price and get the process over with. I know this market and product very well and can tell a good deal from a bad deal almost instantly. If you dont know your market/product, then you will have no idea if a property for the $xyz is good or bad. Once you've seen enough, then you will begin to develop a sense for what criteria you need in a property so that it fits your parameters (financial, work/time needed, etc..)

  • Analyst 1 in IB - Ind
Mar 9, 2021 - 10:39am

Rule of thumb: if you see it on Youtube, it is either:
a) a SCAM
b) a sailed boat

Why would someone who claims to make millions of dollars without breaking a sweat, sell courses for a few hundred books or share his secret recipe with a complete stranger. Anyways if you are dumb, then yes go ahead and purchase the course please....

Mar 9, 2021 - 12:22pm

As someone who owns a rental, and plans on buying more. I think the key was buying a few years ago when housing was significantly cheaper. Housing got destroyed in the 08 recession, and has been on a decade plus run upwards. My rental is just now in 2021 worth what the people in 2007 paid for it, I paid significantly less, and have a pretty decent equity position in it. For me to retire and live off the income, I would probably need 30 of these, but by the time I get to 30, I will probably have an income that would need 100 units to replace.

Most of my friends who made serious money, are a few years older and were able to start buying in 2013-2015. Most of the gains have come from the appreciation in housing, and then the high rental growth markets helped, the spreads were a lot better too back then. I know one guy who, with a partner, was able to get into 150 or so units, but it was in a third tier market, and most of the capital to scale came from constantly refinancing the portfolio down to 20% LTV.

Mar 11, 2021 - 10:38am

I have a buddy that does something very similar to what Fred Fredburger mentioned above. It requires a lot of time and effort and is difficult to do while maintaining a normal corporate job. My buddy was done with the corporate grind so he quit and got involved in real estate. He was luckily able to find someone to mentor him which helped him get started. He now raises capital from friends/family (including me) and buys distressed 2-4 unit properties, fixes them up and either flips them or keeps them for passive rental income. He's been netting 150k-200k/year from his rental portfolio for the past few years and pretty much hasn't 'worked' at all since the pandemic started. He can literally stop doing new deals right now and never have to worry about money again if he wants, but he genuinely enjoys real estate and wants to get involved in bigger projects (apartment buildings).

Def doable, but it will require a lot of effort and a good degree of luck as well. My buddy got lucky in mainly two ways: 1) found a mentor that was willing to provide advice which helped him avoid some newbie mistakes and 2) timing - he started doing this around 2011/2012, when the housing market was at probably it's lowest point coming out of the 2008 crash so he was able to get his first few properties extremely cheaply which helped get his business off the ground

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