All Forum Posts by: Adam Michael Andrews

Document everything, deduct security deposit and get small claims going. You may not get monetary restitution, but if you do nothing it’s essentially reinforcing the behavior.

0 Votes

Manchester, New Hampshire

Quote from @Keegan Darby:

Quote from @Adam Michael Andrews:

Quote from @Keegan Darby:

Hi All,

I have a duplex in Arizona in which I’m in year 3/30 on my mortgage, which has a 4.75% fixed interest rate.

My ROE is ~6%. I’m interested in selling the property, but would ideally be able to sell at a higher value if someone can either A) assume my mortgage or B) I structure owner financing or C) another idea I haven’t thought of.

Recommendations on selling a property with a low interest rate to get the highest price?

You could sell on lease option or installment sale. Installment sale in particular might be helpful from a tax perspective depending on your situation.

Thank you. Installment sale is interesting. How might your structure that? 3 year balloon with what % interest rate?

You’re receiving 6% ROE now, that’s a decent starting point. You would calculate an even payment the corresponds to that and then back into your sales price and term. You have to decide for yourself what term you can live with and if you want to make money on the lending part or just get your sales price and give them a few years to refi you out.

0 Votes

Quote from @Dave Meyer:

Door count is the worst (commonly discussed) metric in the real estate investing community. Why does everyone use it? Can we all decide to collectively kill it? Or are there some of you out there that stand by door count being a useful barometer of success? Honestly, I'd love to hear the argument for why this metric is useful, cause I can't think of one -- so please reply back here.

Here's my argument. Door count is what many in the analytics world would call a 'vanity metric.' It's something that looks important and fancy, but doesn't actually tell you anything about business performance. Sound familiar? It's because door count is a useless metric, it exists to pump up the ego of the investor, and nothing more. Here's why:

1. Door count tells you exactly nothing about the quality of a portfolio. As an example, let's say Jane T. Investor has 12 doors, and she leads with that when networking. Well 12 doors sounds solid, but how are they performing? Are they cash flowing? Do they require enormous amounts of time and maintenance? Are the returns as good as what other investors in your market/asset class are generating? I know people with huge door counts who lose money every month. What good is a 'door' if it doesn't generate returns? Tell me how efficiently your deals generate returns, and then I'll be impressed.

2. Prioritizing door count makes you focus on the wrong thing. If I wanted to get 100 doors in the next few years, I bet I could -- but you can bet many of those deals would be thin. Shouldn't we be prioritizing quality over quantity? If I could choose between earning $5,000/month from 10 doors, or from 5 doors, I would pick 5 doors all day long! Good metrics push you towards good decision making, and door count does the opposite. For a lot of people getting lots of doors would be detrimental to their strategy!

3. Don't even get me started on passive investor door counts. They're absurd. I invest in multifamily syndications as well as residential properties. On the passive side of my portfolio, I am in syndications that collectively own over 2,000 units. Does that mean I own 2,000 units? Of course not, claiming so would be ridiculous (don't tell people on Instagram, though). If I own 1% of those syndications, does thatmean I own 20 units? I have no idea, nor do I care. Why on earth do I care what % of the doors I own? I care about actual measurements of returns like CoCR, AAROI, and IRR to determine if my portfolio is doing well.

There's my argument -- but I want to be proven wrong. Someone explain to me why this metric is useful.

Can’t spend doors. That’s why I use financial metrics. As far as doors go, my sister has all you beat with her dollhouse collection.

2 Votes

Quote from @Russell Brazil:

Quote from @Chris Seveney:

@Jay Hinrichs

Actually with a 506c you have very little disclosure - you don’t even need a ppm technically. If it was written by an attorney then everyone had language in there that you could lose your entire investment etc etc.

As you mention big difference between fraud and a bad investment. Right now anyone can speculate but I would always recommend people even when they are upset - to be careful what you say.

Heck....it could be a good investment and you could still lose 100% of your capital. As you and I know, investing comes with risk. Even the safest, least risky investments can and do go belly up from time to time.

Yep, plenty of examples. And even if the company survives you may get diluted or take a haircut in the recap. See FNMA for example.

2 Votes

Everything pays until it doesn't. Madoff had a great payment history. The right question is what is the collateral backing your note. If it's a company, how are they earning money and are they earning enough and consistently.

4 Votes

Let's see what renter's insurance comes back with before discussing proration. What's that, you don't have it? It's in the lease. That's one conversation.

Since the situation is out of both of your control, I would propose full credit for the days between incident and scheduling with the city, and split city scheduling delay days 50/50. That's pretty generous considering they chose not to carry renter's insurance.

0 Votes

New York City, New York

Quote from @Keegan Darby:

Hi All,

I have a duplex in Arizona in which I’m in year 3/30 on my mortgage, which has a 4.75% fixed interest rate.

Recommendations on selling a property with a low interest rate to get the highest price?

You could sell on lease option or installment sale. Installment sale in particular might be helpful from a tax perspective depending on your situation.

0 Votes

One more thought on this too. The 7% pretax return is also zero-work and accrues month 1 and lowers your portfolio risk (by increasing your cashflow). Most other investments are going to increase your risk on a net basis and require a degree of work on your part.

1 Vote

Like others have mentioned, you will pay structurally more for a home warranty than self-insuring for the cost of repairs.

This may be worth it if the value proposition was that you could be hands-off whenever a covered item breaks.

In reality, it adds significant overhead because there is the claims process and you give up control of the repair timeline and quality as you have discovered. I don't think it compares favorably to just hiring out the job when something breaks.

1 Vote

Quote from @Kyle Z.:

Hi everyone - I currently have an investment property with a 150K+ mortgage of 7% interest. It is cash flowing a couple hundred bucks every month (so rent > mortgage).

I have a lot of cash saved up in a 5% HYSA currently and am wondering if it would be a good idea to prepay the principal by $60,000 (I would be financially fine even if I did pay this) - which would lower the amount of interest I owe. I feel in this market it is difficult to get outsized returns (S&P seems very hot and might be hard to sustain 7%+ returns in long term.. but even if so, I’m risk adverse so would probably keep it my HYSA)

I did run the numbers if I were to prepay $60,000 now and it appears the IRRs are lower (because of the higher cost basis). Does this mean I shouldn’t pay down mortgage with such high interest? One other thing is that I paid a lot in points to buy down my rate which made the mortgage initially expensive… It will also take a while to refinance (a couple years) so I don't want to wait fully for that option either

If my tax rate is 30%, is it right for me to think that the cost of paying interest is ~5% instead of 7%? (7%*(1-.3)

You're being mislead by your model IRRs unless you also incorporate the HYSA balance you'll need to carry to keep the deal leveraged.
You're also being mislead by the points you originally paid. That irreversible decision is made already, so it isn't relevant information to your next move. This is referred to as a sunk cost.
Your revenue and expenses are going to be what they are, your question really translates to whether you think a 7% pretax fixed and *guaranteed* return is good relative to your opportunity set. What a lot of people miss is sure, you *can* earn more with that money, but it comes with higher risk. You mentioned that 7% is a large portion of long term market return, and I would agree with you. It's true you get a tax deduction for your mortgage, but you also pay taxes on whatever else you decide to do with that money.
I would list all of your known investment opportunities, what you think the after tax returns would be, and a risk level 1-5.
If paying the mortgage is a clear standout on that list on a risk/reward basis, I would spread out the $60k over a period of time and apply it to principal.
You might have other goals like cashflow or reducing risk which might weight towards paydown also. Remember, if you find some generational opportunity, and it makes sense, you can refi and take the cash back out. It is just a bit of a hassle.

2 Votes

All Forum Posts by: Adam Michael Andrews

Adam Michael Andrews has started 0 posts and replied 86 times.

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Post: Selling with a low interest rate

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Post: Mortgage at 7% interest rate for investment property; pay down earlier?