All Forum Posts by: Allan C.

agreed on new investors, but I was referring to OPs primary statement "when trying to scale"

I don't think many investors look at DTI because it's less relevant. Most of the crowd is looking for positive CF assets, which should not increase DTI, unless you have less than 2 yrs REI experience and cannot count rental income towards income.

But you're talking about scaling, so I think DTI isn't where investors hit constraints. Curious if you've seen otherwise with investors today?

Vegas is the Detroit of west coast. The appreciation you observed is the result of CA influx. It’s real, but you can’t fundamentally bank on it continuing. There’s so much land and not much economic diversity to support continued appreciation. You’re basically relying on CA migration, and while that may be a strategy, it’s a risky one.

Oftentimes we give the advice to not sue a contractor that has walked off with your money - not worth the hassle and incremental money. It's happened a few times to me over the years but the cost has been nominal. 

recently the cost was sizable due to long-lead materials ordered. More disappointingly, it was a trusted contractor that I've consistently used for years, and had gotten me out of a bind a number of times. 

Given the extensive work relationship, I performed due diligence in the beginning and archived the information (personal residence, other family member info, business address, etc). I lawyered up and was willing to pay a reasonable cost just to make him sweat. 

The lawyers went after the contractor's business and personal property, and eventually put enough heat for the contractor to repay without having to go to court - not only the money he walked off with but legal costs too. All in it was $50k recovered. 

Lessons this reinforced was to always perform proper due diligence on contractors to have info available down the line. This was a licensed contractor so there was additional info with the state registry. A payment schedule would not have helped for this instance, but I could have asked to pay the materials distributor directly - which is what I did when I resumed the job with another connector.  

Everyone will have a different threshold on when they're willing to take legal action, but you'll need to be well capitalized regardless to carry until you recover - if you recover. 

Your contractor is ripping you off. $200k can fix a $1.5M 3000k sqft house in CA. You can likely get away with $40k conservatively without kitchen work, and add another $20k if you need new cabinets. That's for a nice finish, which you likely don't need. Is this property in Hercules or Martinez?  Can't buy a lot for $600k these days. 

Whatever you do, don't sell one low class asset in CA for more low class assets in Midwest. That's not investing - it's getting swayed by all the sales people hustling to close a deal. Look at the profiles and you'll see 90% work for the same broker. 

you'll need to make some repairs if you plan to sell, or you'll get cleaned by another investor looking for a steep discount. It doesn't seem like landlording fits your capabilities, so consider exiting at some point and putting your funds into equities. 

my vote is fix the place with $50k budget then sell, otherwise you'll be back in the same position.  

I'll disagree with most comments so far (except Dymiski). I think the issue is money supply, coupled with low-locked mortgage rates. All the money issued over past decade has aggregated in the top 1%, and this wealth gap is creating an affordability gap. 

high net worth individuals have a lot of liquidity and nowhere to place it. All asset classes are getting bid up as folks with material wealth chase yields, and there are still tons of people sitting on sidelines with cash. Even if market comes down, someone else with cash under the mattress will come out to place a floor on the downward movement. 

you cannot simply create more housing supply because commodity prices are stuck at elevated levels, and new builds will remain higher cost than existing inventory. 

I haven't found a clear path of getting out of this standoff, short of some large population reduction event, billionaires giving up their fortunes or developing nations offering cheaper labor. Technology advances are making matters worse as the wealth divide will continue to grow. I'm not looking to sound alarmist, but I'm finding it hard to see a solution. 

I think most folks are not properly factoring tax consequences - and they are material at this level of capital deployment. Any dividend paying vehicle should be at bottom of the list or nearly excluded as you’ll pay ~50% taxes on ordinary income.

I’d go down the path of leveraging against hard assets to hedge against inflation and maximize tax shielding. Find a high cost area and buy a 20-30 unit property and you’ll minimize head aches. Better yet, diversify and pick up a few smaller unit properties to defray risk.

totally aligned with your sentiments Jack. Insurance companies are in business to make money, which means they are taking it from clients. It's all about probabilities and they have their models tuned well.

i max all deductibles and never make claims. If you do the math the analysis supports this on a probabilistic basis. When I own the assets free and clear, I plan on self-insuring. Even if one property had a total loss casualty, what are odds of that happening over investment span vs the amount of premiums you pay. Most people don't look at it this way. 

No matter how you dice it, you are saving 7.5%/yr. To do a proper analysis you have to compare opportunity cost. Let's ignore tax considerations for now to simplify.

So base case is you take your $10k and drop it into T-bills at 3.5%/yr yield. Alternatively you can compare other investment yields of your $10k. Investing is all about comparing one type of yield vs another. 

don't get confused by amortization schedules because the mortgage payment reflects principal and interest payments. In theory you only lose the interest portion to the bank. The principal is your equity. After you internalize this concept, we can then talk about time value of money and NPV - which is a big reason why you wouldn't want to accelerate pay-down of your mortgage. 

I think it goes beyond straight cost trade-offs. The time-boundary creates pressure that likely offsets the benefit of 1031s when markets are imbalanced. In a buyers market risk is lower, but in sellers market I suspect many have overpaid for their upleg more than the capital gains they are saving. In sellers market I think cap gains need to exceed 6 figs to pay-off. That being said, when there is large depreciation recapture involved the equation changes. So perhaps a combination of 6 figs for depreciation recapture and cap gains combined.