What's A Realistic R.O.I On Real Estate?
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At the "buy" ..Light-Bulb!
I remember visiting a Ferrari dealership when I was 20 years old and I saw this old dude pull up with his Ferrari to get it checked up. I asked him what his best financial advice was. He said âyou make your money when you buyâ. Didnât click until a few years later for me.
What does that mean
still have no idea what it means
I bought many SFH in the early 1990's. FHA foreclosures, no qualifying in Phoenix area. They were going for about 85k and all i needed was 10k down. No debt on them today. Yes, I used leverage but I was not over leveraged. So I do not agree with Mr. Ramsey that investors shouldn't ever finance investment property. BTW, the terms are more important than price because if you buy right, in a growth area the price isn't really relevant over the long haul.
12 percent is not worth the headache of collecting rents and showing units and getting sued and paying for repairs. I'm gonna invest in REITs for now
The money is made at the buy
Can you explain this concept please ?
@@AbdellahBerhil with a lot of investments its assumed you will only get what people are willing to pay for an asset, this means the sell price is a set price and is mostly non variable. The way you make your money is finding a deal where the buy in price relative to the sell out price meets your expectations. For example, if you buy a 200k property in a market where houses are going for 230k and you need to put tens of thousands in repairs, that's a bad deal because no one will pay enough money to take your property off your hands at an amount that makes you money. If you buy that same property at 150k, put 30k in repairs and sell it at market value (230k) then you make 50k and that's an amazing deal.
@@justinc2633 Yeah! It makes sense. You have explained it well and I got the point. Thanks a lot, Justin! Appreciate that.
This is an adulting conversation
Trading as a beginner was very difficult due to lack on trading experience, this resulted in losing my funds though I've been able to recover all that I lost, all thanks to Mr Charles_forex09 on Instagram , i never knew good trader still existed till I come in touch with him_
15% ROI today is as realistic as it can be
Yes that is cash on cash ROI
$150k home would have a 760 payment with 20% DP ($30k)
House rents for $1400 and yearly cashflows $7680
At $30k DP plus 10 more for some paint and other fees you have $40k into it
Thatâs 19.2 % ROI cash on cash, factor in other expenses and would get you around 15%
$300k would get you around 7 similar rental homes that would produce 15% Cash on cash
Thatâs without tax advantages and write offs, without appreciation
And Yes , after 30 yrs of renting 7 homes they would all be paid off and collecting rents from them would definitely beat what any mutual fund or retirement account can give you
If your local market doesnât offer that, find the market that will
But will banks be giving out that many loans?
ali warraich
Yeah they do,
If some donât, or canât find it in your local market do multi family as long as #âs are same
Meaning, buy 150k SFR that rents for $1400
Or 300k duplex that rents for $2800 combined
Or 600k 4plex that rents for $5600 combined
Percentage Is the same
On multi family homes is it better when they dont have a common wall or under the same roof? What benefits are there
Andrei Spiridon hi good sir you seam highly knowledgable about this and I have a VERY QUICK question. With a large downpayment, say $100k, that brings down the Cash on cash ROI, so is that a bad thing to do? If so, why would a large downpayment be harmful?
@@DMoneyIBEW Does it matter? You're not going to live there. The tax writeoffs are the same.
Good is 8-9%
Great is 12%
Indianapolis is 12-15%, 20% if you do Air BNB
Where I live normal seems to be like 6-8%
I get 12% or above on value or I don't have much interest in the property.
I'm earning more than 20%...
@@alexanderkucinich3753 At today's rents am at 24% but it was with some hard to value sweat equity, probably 20% at time of purchase. I am not in the States.
Video didnât age well. 3 years ago... dude would have doubled his money on Phx REI!
Now is even worst
Depends on where you live. Big "rich" city like Toronto, New York City or SF, even 50%+ gain is possible in ONE year. I did it. $300K condo worth $500K now over a little more than 1 yr. Of course, it will NEVER EVER happen in cheap states like Texas or Missouri. Gotta play in a big league.
How dare you put Texas in the same league has Missouri how dare you!
Interested in how this comment aged?
It's 2 years later and it's become an even worse time to buy! The average cash on cash is now around 5%
We get maybe 6% and thought that was great. Our rentals-are in small town Alabama and Dave is in $ Franklin/Nashville $ area.
Weâre looking for a rental property now and itâs not happening..
Wait for the market to crash. It's in a few years time haha
Susan Reaves what area in Alabama?
I get 15% + from London. Happy to tell you how in an email.
real time information. horrible time to buy, perfectly said.
This video didn't age well, I guess. :) Although S&P500 was not a mistake either...
Now what do you think ⊠lol was it really a bad time to buy ? Lol
Thank you :)
Be sure to include depreciation recapture tax when discussing tax advantages. Without that consideration, investor's may be get a surprise when they sell.
you all prolly dont care at all but does someone know of a method to log back into an instagram account?
I stupidly forgot my login password. I love any tips you can give me!
@Boden Edward Instablaster ;)
Wow I didnât know about this. Thank you!
did I mention that the money is made on the buy?
Realtors normally don't invest in real estate and know little about investing. A Realtor that knows about investing is busy investing and not turning the deals over to other investors. Find a hard money lender and look for distressed properties with owners that don't want the hassle of a distressed property. Beware of bad neighborhoods. Location, location, location. One percent a month gross minimum return works for me. In time, with inflation, that will increase. Don't let value and inflation get confused. Value is how many gallons of gas or loaves of bread will it buy.
Real Estate money is not necessarily made at the buy, I think its more made when you buy and hold a property for a long time and you don't try and do all the upgrades all at once. As far as rental property goes I think a good goal is to break even after expenses - cashflow means you have to pay taxes on the cashflow, better cashflowing properties often times have more troublesome hands on tenants.
How many millions have you made from real estate ? I'll take Dave advice thank you.
You have to pay taxes on cash flow if youâre not in debt to begin with from that property.
Break even is terrible investment. You need at least 10%
This is one of Dave's best videos. To the point, accurate, full of good information....
Except for one thing. LEVERAGE!!! Leverage is the big advantage real estate has over the stock market. I know Dave is anti-debt, but if used smartly, debt can super charge your returns like nothing else can. For real estate, if you buy right it's the smart play to put 20-25% down and leverage the rest. Put less down even if the deal still works.
Still have to find a good deal. In Phoenix, no. But in a developing area.
I predict Dave RAMSEY is gonna FLIP IN THE NEAR FUTURE......This advice he gave it PROOF......All he could say is, just wait??...Dave R. Was SOOO CLOSE...He told em about the 10% ROI , & ABOUT THE WINNING AT purchase...BUUUT DAVE NEW THAT he could have used a SMALL portion of his 300k for 20%down to Secure the Great Deal, than use the remainder of the 300 to fix n flip..or Fix n Rent then start Paying the Debt Immediately off...but no. ALL HE SAID WAS....WAIT
You mean I take a loan to pay the rest right?
That would be great if it wasn't for the interest pay it all up front load
How do you know whether or not itâs a good time to buy?
I shoot for one percent a month return on value of property.
ârealTORâ
all i know is that i need that mute button in my life.
Boy if it wasnât a great time to buy in Phoenix in 2016 and most that bought then are now sitting on 50 to 100k plus in equity like myself I donât know when a good time to buy in Phoenix is. I purchased June of 2014 and am very thankful with my purchase. For those that bought in 2016 Iâm sure they are saying the same, because most are selling out now or holding. Iâm about to purchase now in 2019 almost 2020 and boy am I nervous about any potential for future ROI. Iâm assuming based off of this video Dave would tell me hands down run donât do it. I pray heâs not right if so lol. Diving in! My situation is a little different in that I occupy/rent rooms and live for free this way while having my mortgage paid off internally, while I renovate my home, my goal is to do this on a second home now and hope to come out on top again, not everyone is in this situation and I get it. Fingers are definitely crossed this time around! Lol đ đŹđ€đđĄđ€đđđ
This comment aged like fine wine. Welcome to 2020 buddy
T bills are a great place to stash your money until property values drop.
Sometimes I wonder
Buy apartment complex.
The biggest advantage of real estate is leverage. Not all debt is bad debt
It also depends how well you know your market. I'm a Realtor a bought a sfh and rented it out for 25% roi after all expesnes. The deals are out there!
Which area?
not likely without leverage
Omaha NE. Leverage used
Antonio Esquivel thanks for the follow up. yes 25% with leverage is quite doable
@@knpstrr yeah thats why you use leverage, if someone cut their hand on a table saw and told you to never go near one would you try cutting your boards with a butter knife? No, you would learn how to safely use a table saw. I feel like im talking to children.
This is one of the most common questions I get when Iâm speaking with investors. The answer is fairly simple. It depends on what your investment is. There are broadly 2 types of investors: Passive and Active.
Take ur time,
2021
Most real estate in North East Ohio has not increased in the last 25 years.. reverse ROI
Itâs gone way up in northwest PA Iâm 10min from Ohio boarder not sure why itâs so much less there
In the long run it will increase at the rate of (1+inflation) X (1+population growth) in the area of the home. (1.02)x(1.04) that's an example and it'd be ~7%
The way the IRR (internal rate of return) is achieved between 15-20% is through debt. If cap rates are 5% (meaning 5% yield on purchase) and you pay all cash for the property; it will take 20 years for you to make your money back (this assumes no debt). Dave claims he is getting a 9% cash on cash return but he is not doing deals. I think a realistic return (goal) is 6-7% in the first year or two with a target of maybe 8% in year three in non Tier One Markets (Boston, DC, Miami, LA, NYC, SF). We are at the top of the market (NYC topped in 2016) & may be on the way down.
@@tarheel181 Dave doesn't orient these videos to sophisticated investors. Listen to these people... these are our renters. I'm 1.6M in debt on $2.2M property. Dave knows leverage is the way real estate works. He just doesn't want these laymen to get themselves into trouble. They'd be buying our flips and giving them back to the bank.
@@andersonandrew112 There is some truth to that, no doubt. I worked in Leveraged Finance for a few years and actually trying to bring down my leverage so I'm one of those people not giving product back to the bank. Even with leverage, it takes a while to build equity, many are too impatient to let it build w/n a good property!
Don't compete with people getting a bank loan, look for not lendable property that is cash only, even if you need hard money to do the deal.
why is a bank loan worse than hard money lenders? on paper theyre the same. you pay them or lose your house.
What about having rental property while in debt? I have a rental house worth $75,000 with a mortgage of $48,000 that brings in $700 a month from it, $22,000 in credit card debt, and my wife has $90,000 in student loan debt. We make $120,000 a year before tax. I'm having a hard time deciding if I should sell the rental property and pay off the mortgage and credit card debt with it. I like the mail box money and after it's payed off it will be nice back up plan if say something bad happens like job loss or whatever. But I know it's a liability and it's best to have as little liabilities as possible
I think if it is cash flowing and not costing you money you can keep it. It's really up to you and how long you want to be in debt. You could sell it and get $30k right away in equity to pay off the CC and some SL. If you like being a landlord and have good tenants I would say keep it, but if it becomes a burden be prepared to sell it.
No one could really anwser that, you gotta do all the math and include the interest rates to figure out the fastest approach, you could always buy more real estate at another time if youve gotta sell
If these numbers are correct your networth is negative...a minus 85k... ----- 85k.
This is worst than nothing, nothing = zero
Dave great content! Thank you for helping us with our doubts. question? would you buy mobile home investments? would you uses you 401k (hard Withdrawal)
Dave never recommends a hard withdrawal
Thank you for your answer @@ThomasJames69420
Dave doesnât recommend mobile homes because they always depreciate
What does he mean by cash on cash buy?
Mutual funds don't need $20,00 roofs, furnaces or new windows either.
Joyce Castona
Do you mean $20,000
@@RealGalaxyGamers yes
@@RealGalaxyGamers that too
Capital expenditures like that ought to be built into the rent. Vacancy also needs to be built into the rent.
Biggerpockets.... that's all đ
So this was 6 years ago... If that guy would have went against Dave Ramsey's advice and went on a spending spree buying rental properties with that almost $400,000...
He would be worth millions now..
Why would an owner give a super discount on their property? Why would they not simply put it on the open market and get and honest price? No ethical Realtor would allow a vendor to sell their property way under value. Thats a potential lawsuit man!! Furthermore, foreclosure deals right now are almost non existent.
People who are trying to get it sold asap. Need to move, need the money for a better deal, ect.
You ask a good question, based on the rational actor assumption belying much economic theory. But it is just a simplifying asaumption. Many people in fact are not 100% hyper rational economic actors. People buy cheap off market property all of the time, every single day.
Many banks will not lend on properties in states of disrepair (also known as dumps). No one wants to live in a dump either. Investors buy these dumps for cash, rehab them with cash, then rent them. Once rehabbed and rented a bank will now give the investor a mortgage. The investor gets all or nearly all their money back with a cash out. The investor then takes the cash and looks for another dump to rehab. The bank is happy because thet sold a mortgage. The tenant is happy because they have nice place to live. City hall is happy because the property taxes went up after rehab. The investor is happy because the property is cashflowing.
As a phoenix realtor, I agree you always make your money on the purchase for real estate; however, I as an investor prefer real estate over WAY WAY over priced ETFs, Funds, equities at their current P/E ratios...
duh, you're a realtor
Spoiler alert: _all_ assets get over priced with low interest rates, even real estate, not just stocks and bonds.
spoiler alert 11 months after this post: Stocks rallied 17% in 2017. Oops. Thought with his last name he'd know whats up with ETFs (jk Matt much love and good luck!).
And with a rally, you'll always get a correction. Unless you're pulling your investments? It's about averages. Anyone that selects a 12 month period to brag about has a very low financial IQ. Dave himself only talks in terms of decades.
@Richard Dixon - I know Real Estate investors getting 35% ROI in my market. What are you actually smoking?
What I like is the ability to simulate real estate investing in other investment vehicles using far less capital, without leverage, without risk, no tenants, no repairs, no liability, maintaining complete liquidity and still be able to generate returns of 10% or more per month.... or higher if the market graces me with corrections along the way. Why deal with brokers, sellers, tenants, banks, property managers, insurance companies, contractors... I mean are we investors or employees? Lol
what are the alternatives?
@@andypagakis His " Book " will out in a few weeks..If you want to know the secret you must be willing to pay for it , lol
I wanted to get into rental properties so i started small. I invested $6000 dollars on a junior adu in my house I charge $1300 for rent. It makes me $15600 a year. If my calculations are right. My cash on cash roi is 260% is that correct?
đ đ đ
My cash on cash is 12% but I wait and wait and buy at deep discounts.
The market was hot then and itâs hotter now. Dude should have bought.
How quickly things change.
R.O.I.
So is my math right I put 60k into my house and I can rent it for 1500 a month but I have a loan so is based on cost of property? My cash on cash is 30% ?
trublu97 no I bought my house for 150k and put 40 down and 20bin repairs and someone helped me my cash on cash is about 12%
@@ericwilliam7949 no, because with a loan you pay interest, you also pay taxes, insurance, possibly utilities, cash on cash takes into account how much is going in your pocket, youd be getting maybe 15%.
Also IMO if you're gonna bother using that much leverage you might as well use all the leverage you can get, the difference in payments will only be like $100 a month. Refinance and you'll be making 30% ROI
Hi Dave what Mutual Funds you recommend?
Theres a whole video on it in his channel
After hearing Dave Ramsey claiming that stocks average 12% per year, I canât trust any other ROI figures that he claims to know.
SP500 historically has been over 10% and Dave is correct looking at many mutual funds over last 5 years in this bull market.
tom tom over the last 5 years? Sure. Over the last 30 years (as Dave claims)? Not even close. More like 6-7% BEFORE accounting for inflation.
Certain sectors do. Do your research
Dave Ramsey is a little extreme, for good reason. I take his advice as wise, basic common sense, but he is very black and white. Good for someone who lacks self control. I don't think in the real world it's that absolute, you can bend his rules a little sometimes. Take out some leverage within your means, jyst don't leverage the heck out of everything, especially if it's vulnerable to factors outside your control. He is right in warning about the dangers but if you understand the risk and are willing to take a calculated risk then go for it. Just not all out with 10 leveraged properties!
Try infinite. BRRRR.
9% on real estate.
Right...
Not supported by historical returns
yea that is about right, remember how up you pay for it, how much you get form rent, after bills, he was not talking about the overall price.
so if you spend 200k for a doplex, about 1500 a mouth profit,
Lots of people purchase real estate without understanding the financials to it. It's simple to make a 9% return on real estate. You just have to wait on the right property. I can go out and blow my life savings right now on 5 properties that perform at 3%, or I can wait and purchase 6 that all perform at 15+%
@@kylercook7968 This is gold advice. If you have the patience to wait and ability (within yourself or purchased ability, possibly off market through auctions or direct letter campaigns) to eventually find a better than average deal, real estate can be gold. If you live in an expensive market with low cap rates and you lack any of this stuff, you are probably better off sticking to stock market index funds.
One of thee biggest advantages of rei is the debt/leverage. And 12% average mutual funds is a joke. đ
The joke is that "average return" is meaningless. CAGR is all that matters. example:
starting price $100, 50% gain in year 1 is $150.
new price of $150, -25% loss in year 2 is $112.50
average return = 50-25/2=12.5%
CAGR = 6.06%
If you average returns meant your compounded annualized growth rate is 12% (which is what CAGR means) your end amount would be:
100*1.12= $112*1.12= $125.44 you can see that even though you may "average 12% returns" it doesn't mean your average growth is 12%, that is CAGR.đ
False, you may want to read it again. As you can see the person you "averaged 12%" had only 12% of their money *after 2 years* not 1 year.
Averaging 12% ended up with $112.5 after 2 years (this is a 6% return NOT 12%)
CAGR of 12% ended up with $125.44
Not the same.
I feel sorry for you if you aren't interested in learning about investment returns and how they can be defined. It is quite easy to fool someone with stating "average returns" and not stating "CAGR".
Also be sure to not include your contributions in your return results.
Oh and it has been very easy to obtain 12%+ returns, over the last 5 years anyway. The market index funds have CAGRs of 13.6% after all expenses.
Good luck to you!
Oh and I forgot to mention that real estate can return much more than 12% but you'll have to be un-Dave like and use a mortgage.
I'd agree 12% on unleveraged real estate is quite unrealistic. With debt, 30%+ is the norm. My apartment house (6-units) was bought leveraged and had 50% cash on cash return at the buy. Will be paid off this December where now it will only yield 10% on market value, however it will yield 16% based on buy price.
That's funny... my mutual fund have averaged 14.5%. Guess it's time to change your "assumptions"
10%?
You could passively invest with a multi family syndicator like Michael Blank, Grant Cordone or Rock star Capital. You will make more on your return.
Once you have a good trader as agent for your trade like mine then you will know investment is the best for humans and to live better and happier đ
This is one of the best words I have heard in recent times because I started earning on my investment when I started investing through an expect trader and the good thing is that he only takes his percentage and sends the rest of the profit direct to your block chain address, am so happy đ
My investor friend once waited 12 years for the market to cool off and bargains reappear. Patients pays off.
Pandemic.....
Ramsey loves muting people. Buahahaaa...
My god. This guy must've had lost a boat load of money by not investing in RE or stock market. Dave sucks at investing advice :D
does this guy think real estate is going up forever? does he not remember the 70's 80's 90's and of course the big one 2008? fed has raised 3 times after Trump's election. 1 time Obama's 8 yrs.
Of course the housing market will have it's ups and downs. I don't think Dave, whos been in real estate for over 30 years would argue that. 2008 happened because of relaxed lending restrictions and balloon rate mortgages, and people over leveraging themselves. Over time though the housing market does trend upward.
Real estate investments are ok in inflationary environments: you can raise rents, value of property is measured in dollars
ALL WRONG !!!! DAVE RAMSEY DOES NOT KNOW REAL ESTATE !!!!!
paul gennuso enlighten me
BryceJohnson88 you make more money with debt leverage. You can buy a $200,000 unit with $50,000
Yes but your cash flow will be about 25% of a rental with no payment. Having 10 houses that are all 100% financed means you have 0 wealth and all liabilities.
That is untrue because the point he is making is you put up less of your own money while somebody that is renting it is paying it off and you are getting a slight chunk of it meanwhile, but once it's paid off then you only invested 25% of the initial price meaning you made hundreds of thousands of dollars and you will get the full rent money at that point. And also while it is still under a mortgage, you are getting more than just a small cash flow, you're getting the equity built up and huge tax breaks that you factor into the whole amount of return. If you go and buy a house for $200,000 cash and rent it out for $1,000 a month, that means you will make gross $12,000 a year which equals a 6% gross return on your $200,000 every year. Now if you had a mortgage on it and put down $50,000 and rented it still for $1,000 a month and cash flowed $250 out of that rent, that would equal $3,000 per year which is 6% of your $50,000 that you put into it. But after the house is paid off, and you get the full $1,000 per month gross, that is $12,000 per year which is 24% of $50,000 that you put in initially. Not to mention 30 years later, the value of the house went up tremendously so your initial $50,000 will be a small piece of what it ends up being later.
The thing you're not taking account for is risk. 4 houses, 4 tenants, 4 roofs to replace, 4 HVACs. All the while you're doing 4 times the work for the same $1000 the person with 1 house is doing. Meanwhile the paid for house is saving for the 2nd house, the 3rd and 4th with cash. Also you can get deals by purchasing with cash and the $200k house for a borrower would probably be around $175-180. That's a 20k bonus right out the gate that you can invest in other properties. It isn't fancy, but in 2008 many people went bankrupt because of over leveraging. Most people don't play it like you stated above either, they continue to cash out and leverage and leverage and leverage and never get any equity. Once they have some vacancies they can no longer pay all these mortgages and go under. That's when cash buyers come to save them from foreclosure and offer them 60 cents on the dollar for their "investments"