All Forum Posts by: Account Closed

Phil,

Most SFR property managers do not make their money on the 10%. They make it on the padding of estimates and other techniques like you've described. Feel free to read my blog post on the subject...I would suggest interview many property managers prior to selecting one. If you decide to work at all with a property manager, look over the contract with a fine toothed comb to ensure you understand all the ways that they are getting paid and any protections it provides you. If you don't like something, insist on a change or don't sign it.

My preference is to use smaller property managers who are directly responsible for their work and do not outsource it.  If you hire a larger company how can these companies generate a profit unless they either (1) have enormous economies of scale (ie. over 100 properties under management) or (2) are making money in other ways (padding estimates, charging higher than normal fees, pocketing late fees, etc.)?  The answer is...they cannot!

@Joshua Dorkin

Can you tell me how many members are on Bigger Pockets?  Also, how many of them are Plus and Pro members and have access to the marketplace?

Thanks in advance for your response.

Best,

jon.

It's better to cut your losses quickly then keep an investment that is losing money.  Negative monthly cash flow of $400 over 5 years is a NPV of -$25,000.  If you were to sell and save this $25,000, I could tell you where to invest it and you can generate $400 in positive monthly cash flow with .

 Save $400 a month, $4,800 a year...sell it and acquire something that makes money.  Never underestimate the power of negative and positive cash flow. It compounds.  $100 a month compounded every month is dramatically better than -$100 compounded. Trust me.  Then...you'll thank me.

Or, as Joe and others suggest, restructure the debt and, assuming you have positive equity, cash out refi and invest the money in positive cash flowing properties.

restructure the debt as @Joe Villeuve and others suggest, then, if you have equity, cash out refi and take the proceeds and reinvest it in positive cash flowing properties.

 Save $400 a month, $4,800 a year...sell it and acquire something that makes money.  Never underestimate the power of negative and positive cash flow. It compounds.  $100 a month compounded every month is dramatically better than -$100 compounded. Trust me.  Then...you'll thank me.

Though there are many ways for investors to get started, the approach described below will work. It is a strategy described by William Nickerson in his best selling book "How I Turned $1,000 into Three Million in Real Estate in My Spare Time". If followed precisely, you will succeed in building a real estate portfolio worth over a million dollars if you follow this strategy.

Step 1: Increase Your Earning Power. Obtain a college degree, advanced degree or certification course.

Step 2: Save. Save 20% or more of all that you earn. Over time these savings will grow quickly. Read the "Richest Man in Babylon" by George S. Clason if you need encouragement.

Step 3: Learn About Real Estate. Read every book you can find on real estate investing, join an investor group, or take some courses and obtain a real estate agent or brokers

"If you have anything really valuable to contribute to the world, it will come through the expression of your own personality, that single spark of divinity that sets you off and makes you different from every other living creature."

— Bruce Fairchild Barton, co-founder of Batten, Barton, Durstine & Osbo

Creativity is not a scarce resource. Entrepreneurs like Steve Jobs and Richard Branson became a success by putting themselves fully into it and developing something new or executing a plan better than anyone else. They also connected different ideas or concepts to create something new. Jobs become famous by being the first to apply beautiful design to technology. Branson was the first to effectively apply entertainment to various industries, most recently airlines.

If you aim to become successful via creative means, competition is irrelevant because you’re creating a new playing field. Over the last ten years, I have come across many real estate investment entrepreneurs that exemplify this creative spirit. Here are examples of just a few:

Entrepreneur: The Power Brothers / Power Properties (Dallas, Texas)

While investing in North Dallas in 2009 and 2010, I began hearing of what the Power Brothers where doing in the Historic District. This area was mostly composed of very old, but historically significant, apartment buildings most of which were in significant disrepair and required an enormous amount of capital to rehab and reposition. The Power Brothers came up with a risky, but creative solution that became very successful.

The Power Brothers began acquiring and rehabbing these very old apartment buildings to create unique contemporary lofts. Young urban professionals appreciated the architectural details of these properties so much so that they were willing to pay above-market rental rates to rent them.

From the website:

“We offer unique homes with a boutique flare situated in the vibrant Historic District of Downtown Dallas. We have been providing dwellings that provide comfort and style with distinct management services for more than twenty years.”

Entrepreneur: Craig Hall / Hall Office Park (Frisco, Texas)

I've read many, many real estate books throughout my real estate investment career, but very few have been as memorable as reason Craig Halls' Timing the Real Estate Market. In this best selling book, Mr. Hall who is not only an extremely successful real estate investor, but a winery turnaround expert as well, described his dream of developing a commercial office park focused that integrated all types of art into the buildings and landscaping. After completing the book, I conducted some online research and discovered that Mr. Hall fulfilled his dream. He acquiring over 20 acres of land in Frisco, Texas one of the fastest growing cities in America. As the land in Frisco became more valuable, he developed his office park dream. Over the next few months, I visited the Hall Office Park and was very impressed with Mr. Hall's accomplishment. Turning an idea into reality is a beautiful thing!

From the website:

“As a critical component when designing the Hall Office Park master plan, significant works of art were placed throughout development grounds and within building lobbies. More than 150 works created by artists from all over the world are on display here and include drawings, sketches, sculpture, paintings, glass art and photography. From humorous to serious, whether outside or in, each individual piece has been positioned and installed with the utmost of care.”

The Medve Group

I noticed one of Jakob Medve's properties called "The Arts" while driving through North Dallas. What immediately impressed me was his use of large sculptures and other types of art throughout his communities. After touring some of his properties, I was further impressed with his efficient logistics (all sculptures are imported and very low cost) and his integration of technology in everything he does. Jakob fully refurbishes his properties with a line of products produced by a separate entity he runs called "VIMA Décor".

VIMA Decor started as a function of The Medve Group as a way to add value to acquisitions of significantly undervalued properties. This increased profit margins across the board by transforming Class-C units to Class-A for the price of an average Class-C rehab. After five years of product development, VIMA Décor Ltd. was established as a separate business to offer these products to other commercial property owners, builders, and developers.

From the website:

"The Medve Group (TMG) continues to adapt to the ever-changing demands of the real estate industry. Using new technology, advanced equipment, unique methods with new materials for old applications (Aqua Therm and Rust Stopping Paint) and sophisticated logistics (with highly skilled personnel) TMG, Inc. creates solutions, resulting in approved operating costs. "

Entrepreneur: Houlihan’s Restaurant & Bar

While in Dallas, a friend of mine took me to lunch at Houlihan's. I was impressed with the design, quality of service, and immense creativity infused into every aspect of their business. In addition, take a look at their website. They are super tech savvy.

Founded in a Leawood, Kansas in 1961 by Paul Robinson and Joe Gilbert, Houlihan’s is a restaurant with music and creativity in its veins. Houlihan's kitchens are run from scratch. In the bar, cocktails and wine along with small bites have won the restaurant chain many 'Best of' happy hour awards. Houlihan’s has just under 100 locations, primarily throughout the Midwest and the eastern U.S. Buildings feature design-forward finishes and architectural elements, and a custom, curated playlist that changes monthly. Most locations feature display kitchens, original artwork and patios designed for social lounging.

From the website:

"What we believe in:

• Happy hour
• Good tunes
• Cooking from scratch with real, whole ingredients
• Really good cheese
• Celebrating anything, on any day, with wine
• Live and let live
• Good, thoughtful design
• Listening to our employees and our guests
• Lunch. Out of the office.
• Betting on everything, from reality TV to the final four. We don’t do that, but we hear it’s fun.

That pretty much sums us up. If you must know more, we’re an American restaurant and bar serving quality food and drinks. We cook from scratch and purchase products you don’t find in most casual restaurants due to higher quality and therefore, cost, but our guests are discerning and know the difference is worth it. Because life’s too short to eat mediocre food. We’re still able to offer amazing value due to our size and volume, which puts us in a bit of a sweet spot — our pricing tends to compete with more casual restaurants, while our vibe and food quality is what you’d expect from classier joints.

Our menu features center-cut steaks, wood-grilled flatbreads and artisan salads and sandwiches, along with an interesting, everyday wine and cocktail selection. We offer many dishes in both small and large portions and are dedicated to developing menu options that address ever-evolving consumer lifestyles — be it meatless, organic or whole grain items — and work with quality-focused partners like Creekstone Farms."

Take a risk. do something different. Connect things. If you don't succeed will have enjoyed the ride. If you do succeed, it will likely be BIG!

I would love to hear from you, so please feel free to post your questions or comments below.

Land taxation should replace all other forms of state taxation. For the reasons that I will describe below many economists, tax theorists, politicians, and philosophers have strongly advocated for land taxation to be the dominant or sole source of taxation. Adam Smith, Henry George, Alfred Marshall, Paul Samuelson, Milton Friedman, Michael Hudson, Paul Krugman, Joseph Stiglitz, Thomas Paine, Aristotle, Plato, Anne Robert Jacques Turgot, Thomas Spence, and Francois Quesnay are just a few.

Land taxation has been popular among economists throughout history. Many of them believed that that taxing land and housing, rather than income is the key to a fairer economy.Henry George, one of the most famous tax theorists in history, argued that land-value levies should replace all other taxation, leaving labor and capital to flourish freely, and thus ending unemployment, poverty, inflation and inequality. George argued that when the site or location value of land was improved by public works, its economic rent was the most logical source of public revenue. [1]

Adam Smith said “nothing could be more reasonable”; Milton Friedman termed it “the least bad tax”. Winston Churchill said scornfully that a landlord “contributes nothing to the process from which his own enrichment is derived”. The Organization for Economic Cooperation and Development, a Paris-based think tank for industrialized countries, supports the idea. So too did a recent working paper by the International Monetary Fund and the Mirrlees Review of British taxation by the Institute of Fiscal Studies. The mayor of New York City, Bill de Blasio, hopes that taxing vacant lots by value will help deal with urban blight in the Bronx and elsewhere. [2]

Benefits

The reasons commonly cited by proponents of governments deriving most or all of their taxes from land include:

1. Encourages economic activity. Not taxing income and profits encourages workers to work, which will have the net effect of increasing middle class spending, creating a virtuous cycle of economic activity.

2. Encourages the growth of a strong middle class. People in the lower class are working paycheck to paycheck, trying to make ends meet.

3. Encourages upward mobility. No state tax on employment income would help the lower class grow into the middle class strata.

4. It is more equitable. The wealthy pay a greater share. Wealthy people tend to own more land, poor people very little. Therefore taxing real estate is effectively a progressive tax (the poor pay less, the wealthy pay more, poor). Thus it would be paid for by those with a higher ability to pay, and reduce the tax burden of lower income families. Land value capture would reduce economic inequality, increase wages, remove incentives to misuse real estate, and reduce the vulnerability that economies face from credit and property bubbles.[3]The tax burden would fall on land owners and cannot be passed on as higher costs or lower wages to tenants, consumers, or laborers.

5. Encourages the productive use of land. Under a land-based taxation system land hoarders are penalized and, since the tax increases the total cost of land ownership, owners are encouraged to put the land to its most productive use. Land hoarding is quite a big concern in post-industrial cities like Detroit, Toronto, and Pittsburgh.

Photo: Detroit, Michigan

6. Discourages urban sprawl. Taxing land increases the overall cost of land ownership. Increasing total cost of ownership will encourage owner to develop their land upward and not outward. It’s quite clear that this would be the result as cities where land is expensive tend to grow upward (ex. New York, San Francisco, Tokyo, etc).

7. Less costly to enforce. Taxation on profits is costly to enforce. In comparison, land-based taxation is easy to enforce. If the owner doesn’t pay, the land can be easily seized and sold and taxes can’t be avoided by moving the land to the Bahamas or Luxenburg.

8. No Loopholes. Taxation of income and profits not only discourage economic activity, but it also displaces it. In order to pay less tax, companies relocate or exploit loopholes. The tax code is so porous that companies and creative accountants can choose from several means of escape. The growth of tax inversions is one such example. A tax inversion is when a company changes its country of incorporation to avoid taxation without changing its majority ownership, management, or headquarters. See Bloomberg’s list of company tax inversions, a list of over 50 large corporations who have completed inversions to avoid taxation.

Texas. A majority of states finance state and local government through some mixture of sales taxes, property taxes and income taxes. Texas is one of nine states that do not have an individual income tax. Even with regard to property tax, Texas does not have a statewide property tax. Property taxes differ from county to county. Governor Rick Perry touted Texas’ low taxes, and its lack of an income tax in particular, for the reason that an estimated 1,000 residents were moving to Texas every day, a trend often referred to as the “Texas miracle.” High-ranking officials in Georgia, North Carolina and Ohio have also cited Texas in recent months as a model for tax reform. [4]

Challenges

More than 30 countries have some form of land taxation, but this form of taxation isn’t free of difficulties. The three often cited difficulties with this form of taxation include:

1. Changing behavior. Land taxation invokes furious opposition from landowners, who see it as unfair. The landowning lobby is strong. A significant percentage of landowners believe that since they worked hard to acquire and develop land, they are entitled to its benefits.

2. Balancing winners and losers. Some entities control significant land, and it is in the public’s best interest for them to do so, but they would not have the means to pay (ex. golf courses, urban car dealerships, urban landowners with gardens). For this reason, exceptions to the tax would have to be developed to encourage certain uses that the society deems important (ex. urban gardens).

3. Assessments of high-priced urban land. Wealthy landlords could find ways to tie up assessments with costly legal knots to delay and fight the taxes levied.

Though it appears that economists, politicians, and philosophers throughout history strongly have favored land-based taxation, the landowner lobby in the United States is strong. Though there are clear benefits of land-based taxation, it is unclear whether these benefits will actually materialize in practice. The answer may lie in the details and specifically how this taxation structure is implemented. Due to the nature of our politic system and politicians’ preference for short-term small benefits over than long-term large impacts, it is unlikely that any politicians will risk taking on the landowning lobby, even if the new system is clear more fair and equitable.

Citations:

1. George, Henry (1879). Progress and Poverty. The often cited passage is titled "The unbound Savannah."
2. http://en.wikipedia.org/wiki/Land_value_tax#cite_note-McCluskey_and_Franzsen-37
3. Land Value Taxation: An Applied Analysis, William J. McCluskey, Riël C. D. Franzsen
4. http://www.nytimes.com/2013/05/24/us/in-texas-the-joys-of-no-income-tax-the-agonies-of-the-other-kinds.html?_r=1

 I generate 12%+ annually from cash flow alone (cash on cash) and 20%+ annually (factoring in 5% appreciation assumption, which I've beaten every year since I started investing over ten years ago.