All Forum Posts by: Aaron Knoll

Welcome Derek! Will you still do electrical work? What part of Utah do you live in? Where would you like to invest?

 Thanks William,

I just spoke to the borrower this evening. They said they're meeting with their BK attorney to prevent foreclosure but will be in touch with me if they can't work it out. I had to read between the lines but I suspect this is a strong possibility. I assume they're either not yet under BK protection -- or filed long ago, didn't make their BK payment schedule, and got foreclosed on anyway. If they do get in touch, I'd find out the payoff, reinstatement fee, etc. $220k is from the auction site.  My estimate of $280-300k is based on starting bids in the past for homes on that site, and my informal, non-committal conversation with the borrower.

How does assumption of a mortgage work? After I purchase it, who will be on the deed? What happens to their equity / interest in the house? 

Here's the situation:

A nice house in a great neighborhood is being foreclosed on. Auction starts in 2 weeks, starting at $220k. Since it is a hot RE market, I suspect it would fetch much higher -- comparable auctions have! I estimate the amount in default is somewhere between $280k-300k. Home would likely fetch $450k on MLS ($500k after renovation) -- I'm more interested in buy-and-hold. The owner has declared bankruptcy, is supposedly trying to save his home via a HAMP modification but that's hasn't moved fast enough to stave off foreclosure. It's obvious this family has fallen into hard times. They're going to lose their house, but from my perspective I'd much rather see them keep the 5%+closing costs (and apply that towards 3 months rent from me) than have an online auction house pocket it.

After the tenant left, the house would easily fetch $2500/mo -- and significantly more from AirBnb due to location. Property taxes are low, so that's around a 7% cap rate. The house needs some cosmetic work but appears to be a reasonable shape (obviously I would insist on inspection).

This is significantly more complicated than my last deal. 

What would a typical terms for such a sale look like? Would it be between myself and the owner, or myself in the bank? Is there any deal I can make that can stop the auction? If I offer terms, should I hire a lawyer? What are some common pitfalls?

Thanks for advice.

This is amazing -- congratulations! How much cash did you have to invest when you started out on your first acquisition?

The real question is not whether there will be another dip -- but:

1) will it look like 2008, when suddenly no one could get a mortgage and prices tanked?

2) what will the impact on rents be?

There is only way out of this hole and I think the Federal Reserve knows it: a rise interest rates and massive wage inflation. But making that happen smoothly will not be easy.

I will say this: as an investor, it doesn't matter what kind of car I drive. In fact, the cheaper the better. Cars are the worst kind of investment imaginable (especially if debt is involved!).

My car is a 2000 MBW station wagon. Lots of rust. Looks like it's been in a few "Mad Max" movies. I love it.

I suppose the strong dollar will keep some foreign investment out. But if Chinese investors suspect the government will consider to devalue the yuan, they may try to purchase US assets. 

I think REI is a lot more local than people think. In tech hotspots with a lot of well-off H1B workers who have caught on, there might be significant investment in RE. For example, in Austin there were a lot of wealthy Asian-Americans whose families had clearly invested in local real estate. In LA, SFO, Seattle, I'm sure this is a phenomenon too. But that's a far cry from Chinese billionaires buying up swaths of suburbia in every major US city.

 Not so much "damn these kids cost so much" -- I love them and my wife and wouldn't give them back in a million years. Just wish I'd learned about RE when I was 20, not 35! I certainly don't blame *them*, I blame me! I could have spent my 20's on the live-aboard boat, saving money and building a RE business. Instead I got a PhD, joined the rat race, and lived not beyond but not below my means for 15 years. It's only recently that it dawned on me how good RE was as an investment. 

Perhaps I have no right to complain. As rat race jobs go, mine is intellectually rewarding in many ways. I worked hard and made sacrifices to find a job that did not value face time, even if it is stressful and demanding. But in terms of being able to create a future for my kids and save for the long haul, it is a dead end.

I really liked "The Millionaire Real Estate Investor".

http://www.amazon.com/The-Millionaire-Real-Estate-...

I don't think anyone can argue that Gary Keller, cofounder of the Keller Williams empire, is a "dream peddler". There's a good chance that someone ghost-wrote this book for him, but the ideas in it (personal finance, building leverage, flip vs buy-and-hold, buy-it-right) are both concrete and several steps beyond the BiggerPockets guide. Sure, he has a whole series of RE books, but this one pretty much stands on its own.

For more day-to-day property management, I've been relying on this book:

http://www.amazon.com/Landlording-Handymanual-Scru...

For pure dream peddling, Dolf de Roos "Real Estate Riches" is absolute genius, also a free PDF. You can't beat that!

We're not that dissimilar. My kids have been a major inspiration for my interest in REI. My wife also supports our RE ambitions -- she wants me to invest not just for us but for our kids' future. She does plan to return to work, to improve our cash flow and enable more RE acquisition. I respect her a lot for not sticking our kids in daycare and working, but for investing her time in their upbringing and education. I only wish I could leave the rat race and do the same sooner.

If I have regrets it is what we've done *before* we became interested in RE. To be honest, we did not pay very close attention to personal finance, retirement, or investment of any sort.  Neither of us has wanted to make the "hard sacrifices", i.e. a decade or more of work building a career in the "rat race" outside of RE, necessary for most to build enough net worth to live entirely off of RE. While we were never overtly irresponsible with money (i.e. gambling debt, drug habits, credit cards, expensive cars), we moved many times, did PhDs, and spent the better part of our 20's and 30's doing things that might have been personally enriching, but were at some level exploitative of our time and not financially beneficial. What little net worth we have gained during this time has almost exclusively been due to accident and to appreciation in RE. Moreover, our lackluster academic careers could have been pursued while simultaneously pursuing RE! That said, having a 9-5 job with health insurance (as Minh Le's wife likely does) goes a long way towards having a "normal" life in America, and being able to acquire debt to finance our RE empires. 

I love my wife and kids and would never give them back. I am not saying "don't have a family". I am saying "understand personal finance, wealth building and RE before building a family." If living on a boat in your early 20's helps accomplish that and get you out of the rat race earlier, then go for it!