I hear this all.the.time. here. That you make the money when you buy.

Please explain this philosophy?

Most houses I buy, I can rent for $450-$550/month. So it brings me $5-$6k/year. Then you subtract things like expenses (plumbing issues, replace a fridge), and taxes, and insurance, and vacancy-related costs, and whatever. So I'm not taking home $5-$6k/year... I'm taking home maybe $3-$4k.

I can buy a house for $70 or $80k, turnkey. It will still rent for $450-$550/month, and I'll still have $3-4k in my pocket at the end of the year.

Likewise, I can buy a house for $10k and put another $10k of work into it, and it will rent for $450-$550/month, and I'll still have $3-4k in my pocket at the end of the year.

So I'm able to save myself $50k right off the bat by having vision-- buying a house that's been let go and putting in work-- rather than trying to compete with all the ordinary homebuyers buying ordinary houses and looking for something turnkey because they don't want to paint, or replace flooring, or repair a roof, or install central heat & air.

I think it just means be sure you don't over pay for the house in the first place.

I heard of people buying during the boom who were taking a loss each month as rent didn't cover their expenses. They counted on eventual appreciation and that did turn out well.

I have one I did not buy well. But I wanted it for a reason so I took a risk. Paid $150,000 for it. Now I've had it since 2005 and have made an average of $6000 a year on it, or $72,000. Only now could I sell it for what I paid for it, $150,000. Meaning I made $72,000 off it.

Five years a go I would have earned $42,000 in rent but I would have been lucky to have sold it for $100,000. So my $150,000 investment would have made me $142,000, or rather lost me $8,000 in the end.

I bought another one in 2011 for $108,000. I put $45,000 into it to get it rent ready so a total of $153,000. Over the past six years I've earned roughly $66,000 in rent and it would sell now for $285,000. So my $153,000 investment resulted in a $198,000 gain over six years.

When I buy a multifamily property I have a plan and strategy meaning that after all is said and done, I will own something that either produces positive cash flow OR I have lots of equity that if I sell -- I will make a profit NOW, not years up the road!

I've always hated that phrase! You do NOT make money when you buy--you PAY money when you buy. You only make the POTENTIAL for money when you buy right.

You never realize that potential until you SELL. If you bought it right, you get that money in your hand/acct when you SELL. Until then it is sitting locked up, and could be locked for 10-20 years, until you SELL.

I've always hated that phrase! You do NOT make money when you buy--you PAY money when you buy. You only make the POTENTIAL for money when you buy right.

You never realize that potential until you SELL. If you bought it right, you get that money in your hand/acct when you SELL. Until then it is sitting locked up, and could be locked for 10-20 years, until you SELL.

Deanna gave a very good explanation, but NE inserts a wise word of caution.

You "make money" with any investment based on performance. With real estate, you don't truly know what your end result will be until all the incomes and expenses are tallied and the property is sold. Then you add up your P&L (profits/losses) and whatever the bottom line is determines how you did.

So obviously like most businesses, we try to acquire our inventory for the lowest price possible while still accomplishing all our goals. For example...

I bought my first house in 2005 for $36,000 and it rented for $425. Today it rents for $500 and I could probably sell it for about $38,000.

I bought a house earlier this year for $14,000, put $2K in it, and I could sell it today for $30,000...easy, to an investor. It rents for $550. More rent + more "spread" on the profit. Even if I collect no rent, I still made $14,000 on this purchase where the 2005 purchase sale would only make me about $2,000.

Aha. That explains it very well, Lisa.

We made one purchase that was a good price when purchased during the boom (2004) and has made us good money every every year since then, but is probably only worth (13 years later) about $50-$100k more than originally paid. So not a lot of appreciation.

However we purchased a virtually identical property - right around the corner - for $150k LESS than the first one during the bust - 2009. And it has made the same good money, and is now worth almost double what we paid for it.

Still happy with both purchases, but the second certainly made us more money at the purchase...

As a REALTOR that expression is not confined to investment properties. I hear it all the time from buyers looking for a home especially in a hot market where there are bidding wars. Homebuyers relocating for employment who have no idea if they will be here long term are especially concerned with not overpaying.

For others it has as much to do with the upside of a given neighborhood with a higher long term ceiling for appreciation than about the actual price of entry.

Then there are the majority of buyers who fall in love with the house and/or neighborhood who overpay and will rarely get back what they put in.

As an investor I do look at it differently and as Deanna says it is not only the cost to buy it is the total upfront costs.

I would never buy an investment property that I didn't think I could A: make money on it out of the gate and B: didn't see a longer term benefit.

I find that a frustrating cliche (sp).

It seems to be the key "advice" in most real estate investment books. Geee....no kidding, buy below market and make a profit, repeat and so on and so on.

While it seems to work in depressed areas with motivated sellers, in my 30 years in toronto, it very very seldom works. There are simply sòoooooooo many buyers chasing deals that even in slow markets there is no reason to give away a property.

Occassionally, in a slow market, one can find a distressed property that needs work and can be had a FAIR price, but if one were to simply buy and resell, they would be unlikely to net any profit after expenses.

Here, profit often comes more in rehabbing a property, repurposing a property or turning it around financially, or buy and hold.

For us Buy & Hold is the way, and NOT for the appreciation. Houses here are simply too expensive to "fix and flip." But buying one that needs fixing to make it pretty, then doing so, and renting it long-term to generate a steady cash flow is the way to go.

Really don't understand what your guys are talking about. first of all I don't have anything that leases for less then 750 and secondly maybe im doing something a little different but I walk away fro the closing table with as much as 5k to take a little vaca....

Interesting to read all the varying interpretations of this simple phrase.

As an investor I grew up with the phrase using the meaning the potential for profit starts at the purchase. Pay too much and I'll never make money when I sell. A lower price, when mortgaged, means a lower payment, leading to more monthly cash flow when renting.

BRAD

WMH yes of course its on the mortg. but even at that the property will still cask flow, so what does it matter its 5K that I can draw that wouldn't have been able to unless I bought the property. So I bought the prop and cashed out 5K at closing and it will still cash flow. Really not that hard to understand.

"You make your money when you buy, you collect your money when you sell."

That is the old cliche.

I KNOW what the phrase means. Im saying it is extremely difficult in toronto to buy below market value.

Equity and cash flow from day one, any appreciation down the road because of market conditions etc is just icing on the cake.

So if the property is worth say $10 today, you need to buy it for less than that. Some people are happy paying $9, right now I have one I'm paying about $.50 cents for.

In toronto, currently and for years, paying $12 or 14 for $10 rental property is the norm.....and then you wait and hopefully it will appreciate in value to create a profit.

TA its about finding motivated sellers, and or sellers that don't know what they have.

Pmh I disagree cash flow pays the bills but equity makes you rich. I can leverage against it to buy more deals or trade it up into a better property.

Or when I get old enough say I'm done, sell and walk away with a nice check to live off of, preferably fishing every day somewhere warm.

Tex,

This phrase is not thought about often enough.

The correct perception is to make your money before you buy, leave your heart at home in the drawer.

Separate your profit from the property.

Simply put if it's not a steel it's not a deal, if you're not making money when you buy it's not worth buying.

If you overpay, someone else's making the money, if you strike a good deal and you have the perception to see that the transaction will make you money. From the very get-go and possibly pay you month after month after month, then you could be ready to make money.

Just remember the time to make your money is before you buy!

Not when you buy.

Too often too many times people don't think about profit and profit potential. When negotiating for the transaction of the property.

Remember the seller need you more than you need them, they have a product and they don't know how much you need it until you tell them, or show them or proved to them that they can take advantage of you.

Negotiations, negotiations, negotiations. This is a class that was taught by the late great Jack Miller, he will live in my mind forever and if you don't have his booklets, go to www.cashflowdepot.com . Upon his passing a student Jackie Lange took over the cash flow depot and she was from Garland Texas. Myself from Oregon, we shared the traits and thank God we both found Jack.

Life is a negotiation, if you have children think about it. What do they do when they want something and they can't yet speak?

They negotiate................ how is that done?

You make your money before you buy!

Happy new year 2018