All Forum Posts by: Andrew Kiel

I think we need to clarify "depreciation". 

There's depreciation from a tax point of view, which is one of the benefits of real estate.   In the United States, the IRS says that you need to depreciate a (residential) property over 27.5 years - no need to go into detail here.

Then there is the possibility of actual depreciation based on the real value of a property going down (which I think is what you're referring to).  As a long-term cash flow investor, the underlying value of the asset is not my major concern, the cash flow and the spread (what I receive vs. what I pay) are.  If I buy a single family home for $200k and it makes $500 per month in cash flow and I plan on holding it long term - does it matter if it goes up to 225k or down to 175k if that cash flow stays the same?  Kind of like how Warren Buffet looks at the day to day fluctuations in the stock market. 

There are certainly some things you can do to prevent the risk of depreciation. Buy good, solid properties in "B" class neighborhoods - does someone want to live in your property or are they just putting up with it because it's cheap?  You can also invest in many areas that don't have much depreciation risk, such as many areas of the US outside mainstream growth areas.  The downfall is you don't get much or any appreciation either.

My personal opinion would be to start with a single family home as a long term buy and hold.  This is likely the lowest risk option as well for a new investor.  Specifically, look for something in a "B" class neighborhood (something around the median price for a zip code where your average family would call home).  Do some quick research to make sure you can get a positive cash flow on the house.  Not knowing your market, I can't say for certain this is possible, but it generally is in or near most markets.

Apartments, flips, and the near countless other options in real estate can be great, but generally better with some (or a lot) of experience.  Most first timers that I know actually lose money on their first flip. 

I would also highly recommend trying to find a local investor group in your area to network and talk to other investors that are doing various things in the business to get a feel for your personal comfort zone and what you have an affinity for.  There are so many things that you can do in this business it can make your head spin.  Best to find one or two things that you really enjoy and get really good at them!

This can be an amazing business, do some research, talk and network with others, decide on a plan, and most of all - take action!

It's all about discovering the needs and wants of the seller and then working to make a win-win for both of you.  We recently received 30-year fixed rate financing from an 85-year-old couple who's intent was to leave their kids a monthly payment (they didn't want them to receive a large lump sum).  One question I always like to ask a seller is "Do you mind if I ask what you plan on doing with the proceeds?" - if the answer is "I don't know" or "put it in the bank" you can make a GREAT case for owner financing, after all, you can offer a much higher rate of return than the bank.

There are of course a bunch of reasons that a seller finance deal could be beneficial for the seller, not getting hit with big capital gains being one of them.  As you mention, realtor fees another.

As far as the offer goes, make sure the numbers work for you.  We always look for a certain "spread" between the monthly payment out and in.  If it doesn't meet our requirements, we pass.  There is an infinite number of ways to structure a deal like that just make sure the numbers work for everyone.

Congratulations!  Nice cash flow and a big win for you and your partner!  Keep it up.

In Arizona, you can easily open the LLC yourself (AZCC.gov). You can also easily and inexpensively transfer title into that LLC once it's formed. if you don't feel confident about doing this yourself, you can likely find a title company that will help prepare the warranty deed for a small or no fee. I would strongly recommend NOT using a quit claim deed as that could invalidate your title insurance from when you purchased the property.

That being said, you probably need to do some homework here. Properly setting up the LLC: Do I use manager-managed or member-managed?; How do I set up a proper operating agreement?; How should my LLC be taxed? An improperly set up LLC could actually be worse than not setting one up at all. So yes, you could do this yourself inexpensively, just be careful and do your homework. You may find it better and less expensive in the long run to get some help from a good CPA or attorney on this.

Also, one of the key reasons for setting up an LLC is for asset protection. There is nothing wrong with having a property in your name if you don't have fairly significant assets.

They are very similar,yes. The key distinction that I'm aware of is that PMI is on conventional loans and MIP is on FHA loans. You would not have both on the same property at the same time.

Welcome.  As a new investor, I'd highly recommend attending an AZREIA meeting (AZREIA.org), which is a local real estate investors group that has an event on the 2nd Tuesday of every month.  This is a great way to start learning about various ways and areas to invest and also to network.

The whole point of an FHA streamline is to avoid most of the "junk" fees and closing costs. It's been years since I've personally done one, but the point is to avoid many fees and "streamline" into a new, lower cost loan. I would question the loan originator and if they can't get the fees back down to no more than about $500 (in my opinion) I'd pass. I would also check other lenders. Sounds like a bit of a bait and switch type of loan.

If the seller will agree to it and sees the big picture, yes it could well be a win-win.  You could also completely turn the situation around and offer full price or closer to full price with a zero to 2% interest rate and have effectively the same situation.  I've found it's a lot easier to get a seller to agree to a situation if they feel they're getting their price.  Would a 75k offer with $7,500 down at 1% interest for 15 years ($403.98 payment) work?

My first thought, is all statistics aside, make an offer that fits your needs and your personal budget. 

Homes over 500k are certainly not my specialty but from the market data I see the over 500k (and especially over 1MM) market continues to be a buyer's market.

If this is absolutely your dream (2nd) home and you would be heartbroken if you lost it, make a higher offer.  If it's more of a nice to have and you don't care either way, make a lower offer - worst that can happen is you get a no...but most likely you'll get a counteroffer.