Why Don't My Returns Look Like What People On Social Media Are Posting?

It's often discouraging to see people post on social media about how amazing their properties are performing. Don't be fooled! In this episode, Michael and Emil talk about setting realistic expectations and expose why everyone seems to be hitting homers while you might only be getting base hits.  --- Transcript Michael: Hey everybody, welcome to another episode of The Remote Real Estate Investor Weekend Wisdom. I'm Michael Albaum and today I'm joined by Emil Shour. And today I'm gonna be talking about some things that a lot of folks may have seen on the internet, Phantom cash flows, or people touting how much money they're making in real estate. When you break it down, we're gonna look at maybe what's going on behind the curtain. So let's get into it.   So Emil, you and I were talking before we hit record here about people on the internet talking about, oh, I'm making so much money in real estate. You know, what's the big takeaway that you've found from a lot of those people?   Emil: Yeah, the reason behind this episode is you and I were talking about how often you'll see people projecting these cashflow numbers. And then you you question though, when you say, oh, wow, like, are you factoring in this and that, and oftentimes, what you'll find out is people are literally taking their rent, and subtracting their mortgage payment, their property tax and their insurance. And we've talked about this in many episodes, that is never what your cash flow is. Maybe if you're lucky, in a certain month, you have no expenses, you have no maintenance. And that's what you end up with.   But I mean, if you average something out over the years, that is insanely misleading, especially for newbie investors, I think if you see that you're going to be led astray thinking, those are the cashflow numbers that are A) realistic, and B) what you should be aiming for. And it's couldn't be further from the truth. So we're all following different people on the internet, looking for different advice from people just important to realize that everyone is going to anchor to a high number, and it's to look a certain way on the internet. And you should not trust those numbers all the time.   Michael: And I think it's tough to because as investors we have, I'm trying to think of like a good word for this. But what I'm trying to say is like we have expenses that we pay regularly, and then we have expenses that we don't actually pay. So like your your repair and maintenance, your capex that may occur, or that might not occur in any given month versus your principal interest, taxes and insurance, your PITI. That's a regularly occurring expense, you know what it's going to be it's predictable. It shouldn't change much from year to year or much from month to month. And so that we say, Okay, great, I have my rent, that I take out my pie my known expenses. Well, that's it. And then we forget about the repairs and maintenance, the capex property management fees, the release fees, vacancy stuff,   Emil: Utilities, right!   Michael: Utilities!   Emil: A lot of times you'll have utilities that you're responsible for, and people don't talk about those.   Michael: So I think it's so so so important to when projecting cash flow to get a very clear picture of Okay, what are the known expenses, what are the unknown expenses, list the unknowns out on a line item and put projections next to them, and then subtract out all of that stuff, then what you're left over with, that's your true cash flow. But to say that your PITI subtracted from your rent is your cash flows like absolute garbage.   And I think that catches a lot of owner occupants off guard to while we're on the subject. Well, we got some momentum here. If you're thinking about owning and buying a property, we can evaluate it the same way as if it were an investment piece of property. And you have to take out your PITI, but you also gonna have repair and maintenance and capex and definitely utilities if you're living in the property. So don't just say, Oh, my PITI is 15 $100. That means I can afford a 15 $100 housing payment. In reality, you might be closer to two grand or 2200 wouldn't use peanut butter, spread it all out over a given year. So factor in all of this stuff. If you're not sure about what stuff should go into that equation, comm check out the rootstock Academy go online. There's tons of free resources out there, we just published to our YouTube channel, our essential series, which is a totally free real estate investing course. We talk a lot about what some of those expenses to factor in are there as well.   Emil: Absolutely great point. I think I mentioned on a previous episode and one property I was looking at right this is a property in St. Louis. I underwrote it. And I think the cash on cash return for me was like a seven or 8% and then I saw someone else posted two months ago after they closed on this exact property that I looked at and underwrote and they were expecting a out of state investor as well so they're gonna have to pay for property management all that stuff.   I think they were projecting like a 16 to 20% cash on cash return so it's it's rampant I mean, you'll see a lot of people just not factor these things in or you know, maybe their agent whoever they're working with doesn't properly tell them all these things I think is better just be super conservative. We talked about it like always be conservative with your cap ex your maintenance, your utilities, all these things. So if anything, you're beating your expectations, you're not coming in under and wondering what happened.   Michael: Under promise over deliver type of thing, for yourself.   Emil: Even to yourself Exactly. It's not like you're promising it to somebody else, but your expectations should just be in a better place where else you'll you know, you'll get discouraged and stop when you shouldn't.   Michael: Yeah, especially to when a $2,000 expense pops up to trim the trees. falling on the house and there goes your entire cash flow for the year and you're like, Oh crap, I didn't budget anything for repair and maintenance on this house because it was turnkey. Well, welcome to real estate investing.   Emil: Yep.   Michael: I think especially on the subject of turnkey, a lot of those turnkey providers will say, oh, there's no repairs and maintenance. There's no capex. It's all been done. Like, look, folks, there's always repair and maintenance. tenants are tough on homes. That's just the nature of the beast to have money set aside for reserves, for vacancy for rainy day funds for repair and maintenance, for things that pop up that are not covered by your insurance because this stuff happens. And so to say that there aren't going to be any expenses beyond your your known expenses. Your PITI, again, is just hot water.   Emil: Yep, exactly.   Michael: All right. Anything else we want to beat up on while we're here? While you're here? And I'm here? We got some steam.   Emil: No, I think it's just the big takeaway is Don't believe everything you read on the internet.   Michael: Yep. They see people, you know, cashing big checks or whatever. And, again, we've talked about it in other episodes that people only celebrate the big wins. No one ever talks about the losses, I know, we try to highlight them a lot, because we've had a lot of losses you Tom and I, and that's important to remember is that it's not always going to be a win.   And even the wins that are being highlighted aren't necessarily that big of wins. They're just people that want to look good, or don't want to be honest with themselves or the world around them. So again, take everything with a grain of salt.   You published an article that was I thought really great. You said look at my cash flow. We did an episode about it on the podcast, and he said, Look, these are my numbers, full disclosure. And so I think that's important to be honest with yourself. And if you're going to be posting that stuff honest with those who are asking the questions as well.   Emil: Yep.   Michael: Don't be misleading. Don't be one of the people out there who are misleading folks and thinking that you can make you know ungodly amounts of money and have to do any work. Don't have any expenses beyond your PITI.   Emil: Yeah, exactly. And social media, you know, everyone wants to put their highlight reel they're not going to tell you about the furnace that just broke or you know, the hole that went through the wall or the eviction they have to do all those things. So it's really that's part of this business it's not always rainbows and butterflies and sunshine, it's it can be tough and you have to have like the right mental fortitude for it so.   Michael: Absolutely. All right, should we get out of here?   Emil: Let's do it.   Michael: Awesome. Well, that was our episode everybody. Thank you so much for listening. Hope you enjoy the meals and I rant a meal and need a meal and I our rant and if you liked the episode, please give us a rating a review wherever it is you listen to our podcast, they are super helpful for us. And as always, if there's anything specific that you want to hear about learn more about here a meal Tom and I rant about Feel free to leave us a comment or episode idea or suggestion. We look forward to seeing in the next one happy investing.   Emil: Happy Investing!