The case for Real Estate over the Fastlane Strategy

[GlassCannon]

Here is the Fastlane strategy as I understand it:

1) Get rich making & selling a business
2) Invest those proceeds in "safe" government bonds
3) Collect a monthly pain free cashflow for eternity

My main problems with this strategy are thus:

1) Getting millions of dollars isn't exactly a breeze

2) As we're seeing in Greece and much of the Euro zone, government bonds are not necessarily safe. For those that think that could never happen in the US, take a look at this chart of US debt http://www.futuretimeline.net/subject/images/us-debt-graph-2020.jpg

3) Inflation figures are extremely manipulated by the government to make the economic picture seem rosier (as well as screw over social security and other entitlement recipients whose benefits are tied to the CPI), the real inflation rate is around double what's reported. Therefore, your measly 3% return treasury bonds will not keep up with inflation and you will lose purchasing power over time.

4) The logical outcome of the massive debt the US has is money printing which leads to even more inflation. Owning cash and bonds does not hedge against inflation, but real estate does.

The main argument against real estate is that no one wants to deal with tenants, or have to pay the mortgage if the tenant doesn't pay. I would advocate buying lower end property for cash, the kind of property that only rents for a few hundred dollars. Mobile home parks would be a good example of these. I know you might think "ew" at the prospect but you can buy land in some areas for just a few thousand dollars per acre and rent out the land to someone with their own mobile home for $100-$300 per month. Since you don't own the home you don't have to deal with the maintenance. And if the tenant doesn't pay you, you're not stuck with thousands of dollars in mortgage payments while you're evicting. Also with long term economic stagnation at hand, more people will be downsizing to low end real estate or retiring to these types of properties as their retirement accounts decline.

Here are some numbers:

At a 3% return on government bonds, you would make $250 per month for every $100,000 you have invested.

Compare that to a piece of real estate that you make $250 in rent and paid only $10,000 for, or less.

You could potentially earn 10x more cash flow with real estate. Yes it's more work each month handling checks, tenants, etc, but it's a lot more work to create a multi-million dollar business and even if you do, the returns using goverment bonds are not that great. The Fed has expressed its intention to keep interest rates this low for at least the next two years.

I suppose you could combine these strategies, selling a business and then putting the majority of the proceeds into low end real estate. I say, why wait. Start educating yourself on the subject and buy as you can.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[winch]

Here is the Fastlane strategy as I understand it:

1) Get rich making & selling a business
2) Invest those proceeds in "safe" government bonds
3) Collect a monthly pain free cashflow for eternity

My main problems with this strategy are thus:

1) Getting millions of dollars isn't exactly a breeze

2) As we're seeing in Greece and much of the Euro zone, government bonds are not necessarily safe. For those that think that could never happen in the US, take a look at this chart of US debt http://www.futuretimeline.net/subject/images/us-debt-graph-2020.jpg

3) Inflation figures are extremely manipulated by the government to make the economic picture seem rosier (as well as screw over social security and other entitlement recipients whose benefits are tied to the CPI), the real inflation rate is around double what's reported. Therefore, your measly 3% return treasury bonds will not keep up with inflation and you will lose purchasing power over time.

4) The logical outcome of the massive debt the US has is money printing which leads to even more inflation. Owning cash and bonds does not hedge against inflation, but real estate does.

The main argument against real estate is that no one wants to deal with tenants, or have to pay the mortgage if the tenant doesn't pay. I would advocate buying lower end property for cash, the kind of property that only rents for a few hundred dollars. Mobile home parks would be a good example of these. I know you might think "ew" at the prospect but you can buy land in some areas for just a few thousand dollars per acre and rent out the land to someone with their own mobile home for $100-$300 per month. Since you don't own the home you don't have to deal with the maintenance. And if the tenant doesn't pay you, you're not stuck with thousands of dollars in mortgage payments while you're evicting. Also with long term economic stagnation at hand, more people will be downsizing to low end real estate or retiring to these types of properties as their retirement accounts decline.

Here are some numbers:

At a 3% return on government bonds, you would make $250 per month for every $100,000 you have invested.

Compare that to a piece of real estate that you make $250 in rent and paid only $10,000 for, or less.

You could potentially earn 10x more cash flow with real estate. Yes it's more work each month handling checks, tenants, etc, but it's a lot more work to create a multi-million dollar business and even if you do, the returns using goverment bonds are not that great. The Fed has expressed its intention to keep interest rates this low for at least the next two years.

I suppose you could combine these strategies, selling a business and then putting the majority of the proceeds into low end real estate. I say, why wait. Start educating yourself on the subject and buy as you can.

Your summary and subsequent analysis suggests to me you don't "understand" the Fastlane strategy as well as you think you do.

 

[Kak]

Im kinda taking on the mindset:

Make a good chunk of money (a million or 2), but learn how to intelligently invest that money at much better returns than shitty government bonds.

If you could make 15% annually that is 5 times the monthly income of 3%. It is in essence the same thing as having 5 times the principle at your 3%.

 

[Illusion]

Creating wealth in real estate is not as easy today as it was 10 years ago.

Real estate investing has become the new "in thing."

Honestly speaking, I believe that it is better suited to wealth preservation today then creation. If anyone wants to jump in, they better make sure that they really know what they are doing. The people who actually make good money have deep pockets, the right connections, and know the game inside out.

If your still considering this, I strongly recommend reading some books. Although they are written for Canadian markets, the principles still hold true:

Commercial real estate investing in Canada by Boiron & Boiron
Real estate investing in Canada: Creating wealth with the acre system by Don R. Campbell


Dont get me wrong, I love real estate, but the more I get into it, the more I learn everyday and the more I realize I dont know. Its 3 years Ive been in this game, and i learn more and more every day.

I've seen people set them selves up for the rest of their lives with some good deals, and ive also seen people take losses because they believed that anything will appreciate. I know it sounds cliche, but its true: You make money on the buy, not on the sell.

I've also seen people trying to flip homes with no experience, and the renovation costs soared beyond their wildest nightmares. I have how ever seen people make it look like child's play and make a cool profit.


Don't ever use all the capital you have on your deals, as once you run out of money, your screwed. Do your own home work, and hire the right professionals.

All and all, yes I believe its more profitable then investments like bonds, GIC's, Mutual funds, ETC, but building a good amount of equity and wealth takes quite a while and the mistakes can be very expensive.

Real estate should be used in conjunction with another fastlane, but not solely as the fastlane as it usually takes big capital to really make any money.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Illusion]

Im kinda taking on the mindset:

Make a good chunk of money (a million or 2), but learn how to intelligently invest that money at much better returns than shitty government bonds.

If you could make 15% annually that is 5 times the monthly income of 3%. It is in essence the same thing as having 5 times the principle at your 3%.

Residential apartment buildings (What I really know) can bring you anywhere between 8-15+ % ROI. That is excluding the equity you are building, and the appreciation if the markets are good. I cant say this 100% about the US, but the lending practices are not as strict as here, so id assume it would be similar.

Because of the crash, I think its a good time to scoop up some nice rental properties and hold on to them their.

Only problem is, these investments are not always so passive.

Ive know people who have doubled up every 5 years or sometimes less, but like I said, I dont believe things will be as good from now on.

 

[fellipe]

fastlane business is earning 100k every month

 

[danoodle]

I am attempting to go the RE route as my semi-fastlane strategy. My goal is to be making enough money through renting the houses that I don't have to have a "conventional" job. I would be very happy with that outcome and don't need millions to live a happy life. I have seen pretty good success so far and you can follow my progress in this thread if you're interested. With record low interest rates and houses being extremely discounted, now is a very good time to get into RE if you are interested.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[H. Palmer]

I think real estate has a lot going for it as far as getting rich is concerned. There have been many studies done into very wealthy people and study after study came to the conclusion that real estate is one of the cornerstones of their wealth.

Let's examine how it shapes up to MJ's CENTS requirements.

N. There is definitely a Need for real estate. Although stores are probably in decline over the long run because of the internet. Residential is the hottest place at the moment.

E. Entry. In principle anyone can do real estate, so in theory there are no entry barriers. On the other hand, not many people are doing it anyway because it requires a lot of knowledge and skills on top of patience and the discipline of cold calculation.

C. Control. Once you have control over a property, there is no one who disputing that.

S. Scale. RE has infinite scale.

T. Time. Every aspect of acquisition and management can be outsourced.


One of the beauties of real estate as I see it is the combination of leverage and control.

Let's say the going mortgage rate is 5 percent for 20 year terms. Then any rental property that returns cash flow of over 5 percent can be added to your portfolio. And that is numerous properties.

I'm in the Netherlands, but I have learned that in the US right now there are about one million properties in bank foreclosure. Each and every one of them will deliver you over 5 percent cash flow, some of them over 30 percent. And on top of that there is mostly 30 percent built in equity because of foreclosure short sale.

Besides all that, the US knows financing mechanisms that are mostly unknown to the rest of the world. Like seller financing and hard money lending that can be acquired on the basis of built in equity (Loan to Value).

If that isn't enough, there is also property depreciation, which is a tax facility that means that technically you can lower your profits in order to lower your taxes. Geez, that's a combination of opportunity that the rest of the world would kill for.

You Americans are lucky bastards at this moment although the majority probably doesn't realise it.

Nonetheless, outside the US, there is still a lot possible with RE because of the combination of control and leverage.

The element that I like most is the possibilty of refinancing once a cash flowing property is acquired.

Let's say your downpayment is 30,000 and you lend 70,000 from the bank.

Once the property is cash flowing sufficiently, you can borrow out the downpayment by providing other investors with an investment opportunity. Suppose the property is cash flowing 10 percent, you can give them 10 percent which is quite enough for most investors.

Then you can repeat the process with the 30,000 downpayment. I believe MJ calls this Intentional Iteration.

 

[Runum]

I'm in the Netherlands, but I have learned that in the US right now there are about one million properties in bank foreclosure. Each and every one of them will deliver you over 5 percent cash flow, some of them over 30 percent. And on top of that there is mostly 30 percent built in equity because of foreclosure short sale.

These are the kind of assumptions that can lead people to do bad deals.

Yes there is a back log of foreclosed property (shadow inventory). When they are brought to market, not all foreclosures are wholesale deals. Many are being sold at current retail prices and may or may not cashflow. Also, location is a huge factor. Buying a great deal on a foreclosure located in a slowly dying city may not be the best use of your money. Getting it rented will be just about impossible.

When considering any potential investment property, the real numbers HAVE to make sense. Also, you have to know the market and the local economic cycles.

REI can make you money but it can break you too. Good luck to all.

 

[H. Palmer]

Yes there is a back log of foreclosed property (shadow inventory). When they are brought to market, not all foreclosures are wholesale deals. Many are being sold at current retail prices and may or may not cashflow. Also, location is a huge factor. Buying a great deal on a foreclosure located in a slowly dying city may not be the best use of your money. Getting it rented will be just about impossible.
.

Yes, this reminds me that I'm reasoning out of a different geographical context.

Over here, there are only slight differences in regional markets in a country that measures 300 x 200 kilometers and has a structural shortage of residential property that sees no solution coming within the next decades.

In the US the regional differences are far greater, just think of the Detroit area compared to Texas. The markets are light years apart.

And yes, always do the math first.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Jacobfk1]

I also am using real estate as a cornerstone of my fastlane goals. I currently own 2 properties (had them for four years) and am looking to make an offer on two more tomorrow. Over the past 4 years I have averaged about a 25% ROI, which is certainly not bad but wont make you rich quick. A few positives that I've found in my limited time as a landlord...

1) 25% return on the cash I invested is better than most other investments I've made (one oil stock has returned over 200% in the same time period, but I've struck out on several other stocks, too). As I close in on completing my 4th full year of owning the properties, they've just about provided enough cash flow to cover my down payment. Think about that.... I'll own two properties that are paying for themselves, providing me with cash flow each month and I've already pocketed my initial investment.

2) I bought before the recession, so much of my equity has been wiped out. I dont lose a wink of sleep over that though because I wasn't counting on selling for a long time anyway. I'm trying to build cash flow and dont plan to sell for a LONG time. The equity will come back.

3) It's hard to understand the magnitude of the tax benefits until you see them in action. I have a mortgage on both properties, so between the interest, depreciation and expenses, the cash flow is more than tax-free.

4) real estate is a snowball. One deal wont make you rich, but if you reinvest the profits the returns really start to stack up and accelerate down the road.

5) When real estate is good, it's REALLY good. It's like going to the ATM every month. When it's bad... well, I just think about how to make it GOOD again.

6) you do make the money on the buy, not the sell... but also on your tenant selection. If you have fears about government vouchers (section 8) get over it and try it once. Nothing is worse than a tenant that doesn't pay their rent AND messes up your property. With section 8, the major negative in that scenario is eliminated. The check is in your mailbox on the first of every month, and I mean EVERY MONTH. I currently have one of my best tenants yet, and she's on section 8. There are many misconceptions about the program (it's only for slums, you can't choose the tenants, they pay lower rent) that aren't just wrong, they are the complete OPPOSITE of the truth.

In short, if you do your homework, buy the right kinds of properties and get the right tenants, real estate is a time-tested wealth creator.

 

[H. Palmer]

I also am using real estate as a cornerstone of my fastlane goals. I currently own 2 properties (had them for four years) and am looking to make an offer on two more tomorrow. Over the past 4 years I have averaged about a 25% ROI, which is certainly not bad but wont make you rich quick. A few positives that I've found in my limited time as a landlord...

Etc.

Jakob, please allow me some questions.

. Apparently you do your own tenant selection. What do you think of outsourcing this to a property management company?

. Do you use a property manager?

. How do you view out of state investment in real estate? Or even out of country investment in RE?

Thanks!

 

[Runum]

6) you do make the money on the buy, not the sell... but also on your tenant selection. If you have fears about government vouchers (section 8) get over it and try it once. Nothing is worse than a tenant that doesn't pay their rent AND messes up your property. With section 8, the major negative in that scenario is eliminated. The check is in your mailbox on the first of every month, and I mean EVERY MONTH. I currently have one of my best tenants yet, and she's on section 8. There are many misconceptions about the program (it's only for slums, you can't choose the tenants, they pay lower rent) that aren't just wrong, they are the complete OPPOSITE of the truth.

i have many rental properties. Started in 2006 myself. Lost a little equity but the cash keeps on coming in. I agree with you on most of your points except the last.

Section 8 is a national fed housing program administered locally. While HUD has its rules and guidelines, the local administrator may enforce or interpret those rules a little differently than the next. Or, it may be that one administrator is overworked and the next one can handle the work load.

I have looked into section 8. In my local city, I have not heard good things about the program. (Heavy on code enforcement but light on tenant misbehavior) In the next city over, where I have other rentals, I have heard great things. I have never had any section 8's but if I did they would be in the more favorable locations for landlords.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[biophase]

The problem with real estate is control. You can't really control the rental market. If the rents drop, there is not much you can do about it. You can't control the housing market, if you home value drops $100k, again, not much you can do about it.

With real estate, you are sort of tied to the large overall real estate market. I have found that running a business is much more agile, you can use your brain, change your strategy and your options are limitless.

With REI, you basically can only lower rents, give incentives, all of which basically help you lose less money.

 

[Jacobfk1]

Jakob, please allow me some questions.

. Apparently you do your own tenant selection. What do you think of outsourcing this to a property management company?

. Do you use a property manager?

. How do you view out of state investment in real estate? Or even out of country investment in RE?

I like the tenant selection process, I feel like it gives me some real control over my property. Meeting the people face to face, getting a feel for how you work with the person and seeing how they interact with the property are all valuable tools in selecting a tenant. The best tenants I've had in my limited time have ALL filled out the application on their first visit because they really liked the property. My trouble tenants all left to "think about it" and then settled on my unit. Being there to show the unit, explain the lease and see their reactions are all valuable.

That being said, eventually I plan to turn over most of the duties to a property manager. While building my business, I want to be there, but one day I want to put it on autopilot and let the assets do the work.

I also dont currently do out of state, there are plenty of good deals 20-30 minutes from my house. I'd rather be able to be there, see the problems and know that I'm not being screwed.

i have many rental properties. Started in 2006 myself. Lost a little equity but the cash keeps on coming in. I agree with you on most of your points except the last.

Section 8 is a national fed housing program administered locally. While HUD has its rules and guidelines, the local administrator may enforce or interpret those rules a little differently than the next. Or, it may be that one administrator is overworked and the next one can handle the work load.

I have looked into section 8. In my local city, I have not heard good things about the program. (Heavy on code enforcement but light on tenant misbehavior) In the next city over, where I have other rentals, I have heard great things. I have never had any section 8's but if I did they would be in the more favorable locations for landlords.

Admittedly I am using a small sample size here (I've delt with exactly ONE housing authority) and I'm sure there can be variances. When I had my inspection, I failed right off the bat (different story for a different reply) but the inspector went ahead, since i was a newbie, and walked through the rest of the property to show me what all needed to be done before it would pass. I was SHOCKED at how thorough they were, he found many many things wrong in a very decent apartment. He even said I'd have to remove a soccer ball under the porch! But when he came back the next week (on a Friday afternoon) he said "show me what all you fixed from last time" and I just showed him what I had done. He passed me without looking at another thing.

That being said, dont let things that you've "heard" stop you from trying it out. Someone else might have had a bad experience, but some of that might have been because they didn't do everything they were supposed to. Section 8 pays above market rent, on time every time, and I can treat the tenants exactly like I would treat any other person living in my apartment. "Tenant misbehavior" isn't their responsibility, it's yours. All they do is make sure the place meets a certain standard of housing, then pay the rent. The rest is between you and the tenant. I can accept or deny anyone I want (as long as the reason is legal) and can ask them to leave if they dont follow the lease.

Let me know if you disagree, I certainly do not know it all. I'm speaking from my very limited experience and welcome learning from others.

 

[GlassCannon]

My main argument here is to target a specific segment of the real estate market: the lower end and mobile homes. I've been to places in Pittsburgh where the houses can be bought for less than $20,000 and rent for $500. That's a 30% return, and the property pays for itself in 3-4 years. Owning land and renting it out to mobile homes owners has the advantage of no maintenance. And the demand for cheaper rentals will go up as the economy continutes its decline, and also bring in better quality tenants the previously were owners or higher end renters.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[CPisHere]

Rental properties are great for cash flow, but not for building a high net worth quickly.

I think investing in rental properties is an EXCELLENT source of diversification for investment of your assets, but I wouldn't want to rely on it for building an asset base.

 

[KhayShenz]

EXCELLENT source of diversification

:eusa_clap:

That's what I'm doing with REI.