Most people never learn money or real estate; these are the best intermediate real estate lessons we learned while buying our first 5 homes in a few years.
BRRRR - Buy, Renovate, Rent, Refinance, Repeat
CapEx - Capital Expenditure, like replacing a fridge
Depreciation - Things declining in value, like cars, this is a tax write off
HELOC - Home Equity Line of Credit - often costs ~1% higher than current mortgage rates.
House hacking - renting out a room, MIL Suite, tiny home, etc. in your house to help cover the mortgage. To me this is the best path to becoming a millionaire.
MFH - Multi-Family Home (residential are 2-4 units, commercial are 5+)
NAV - Net Asset Value, the expected sale price minus the loan value; like Net Worth for a home or business
PITI - Principal, Interest, Taxes, and Insurance = the mortgage payment
PM - Property Management
REIT - Real Estate Investment Trust
SFH - Single Family Home
Syndication - Be a co-owner in a large commercial building; the General Partner (expert/lead) may contribute 5% of the purchase costs and take 20% of the equity; the limited Partners may contribute 95% and get 80%. We do the opposite by giving our co-owners extra equity.
Yes, you can buy up to 4. I hit this limit which is a reason I am diversifying to help others
Desirable land, high demand/migration and constrained supply (eg Seattle between bodies of water, not rural Kansas). Over time my preference has shifted from immediate cash flow to a good school/neighborhood score. Tab 1: https://docs.google.com/spreadsheets/d/1r0m0m85W25VVhkZcdZhN7-IG8hebwCF6q7mPdP9-jvg/edit#gid=1823849657
Go for it. For me:
Home - requires 3-5% down (massive leverage)
Duplex-4plex - generally 20% down (still great leverage)
5plex+ - generally 25-35% down, more expensive loan costs and interest rates, worse ROI
My favorite is a home with a tiny home or MIL suite, to get rent at just 5% down!
1. Foreclosure is far less common (~5%/5yrs) than business failure (~50%/5yr)
2. Government-backed companies buy home loans to keep rates low
It's good though riskier than residential real estate. What is the ROI from leveraged appreciation on a 5% down home vs a 30% down multifamily, assuming 4% appreciation?
Short-term: Airbnb, basically a hospitality small business. Least passive, most cash flow
Mid-term: rent by the room, often with friends or travelers. Semi-passive, medium cash flow
Long-term: rent a home, unit, etc. Most passive, low cash flow
RE Total ROI = (Appreciation + Cash flow + Principal Paydown + Tax deduction)/ purchase cost
Example Math
$700k home
4% appreciation
Purchase costs = 5% down payment + 2 % closing costs = ~$49k
Mortgage roughly equivalent to rent = 0 cash flow
Principal paydown is $700/month
$3k interest/mo
22% marginal tax bracket
RE Total ROI = (700000*0.04 + 0 + 700*12/49000 + 3000*12*.22) / (700,000*0.07) = $35.9k / $49k = 73.3% ROI
The majority of that came from appreciation. Index funds have a ~10% ROI while most businesses have a negative ROI.
Once you have assets, you have to figure out how not to lose them (this is why lottery winners lose their money). Very few people buy real estate alone, it is risky. 1% of homes go into foreclosure per year; this is much better than the commercial RE or overall business rate, but is still a risk. I genuinely believe that having an expert partner with integrity reduces that risk; that is the service I wish to provide.
We all know cars depreciate (fall in value) like ice cream on a hot day. Despite our intuition, homes depreciate too. Homes must be maintained, then the land and cost to replace the home appreciates much faster than it depreciates. The net effect is that you get an appreciating asset AND a depreciation tax deduction. Laws are written by the wealthy for the wealthy; if you join them, maybe you can fix that.