All Forum Posts by: Adam Odom

I've read this ENTIRE thread while getting over the flu. Helps with the cabin fever. I've got plenty but two come to mind. Had a daughter call for her mom because she was elderly and needed something low maintenance. It's a nice 2 bedroom townhouse for $800/month. She was telling me my price was high and asked if I could do better. Her mom owned a house much bigger and mortgage was cheaper. She was nice enough and I seriously tried my best to explain why renting costs more (responsible for anything that breaks, higher taxes, profit, etc) but she didn't get it and kept calling me back. I finally just ignored her. Another couple wanted to move from $400/month place to this same $800 unit. She was having another baby and not going back to work. His income was barely enough at their old place but they were super nice so I at least ran credit. Literally everything on the report was charged off/collections. No clue how they believed they could afford to move. And I'm with the crowd of not rescheduling for no shows. 15 minutes late and I'm gone if you haven't shown up or let me know running late. Next I'll have to go to the tenant thread and post some good ones.

@Kevin Latten wholesales too - Kevin maybe reach out to @Pete M.

I know there are a couple of guys on BP here but I've personally bought 2 deals from Tyrone White with 1st Tryon Group. You can go to his site and get added to his email list. He's one of the top ones here production wise from what I know.

I'm just now seeing this but would love to attend the next one - please keep me posted for the next one scheduled

Originally posted by @Teague Anderson:

For those who use lines of credit, is that only for acts-of-god types of repairs or vacancies, or for ordinary capex, like a new roof?  If the latter, it seems (dare I say?) foolish to go into debt to pay for expected repairs.  

Also, will a bank consider a line of credit as a reserve when they're deciding whether to approve your loan or not?

It's a catch all for everything for me. I don't consider it "debt" necessarily since my cash is sitting as a principal reduction on the line compared to sitting in a savings account earning squat. I could literally move "cash" into my account in less than a minute through online banking. The only risk I'd say you run is if for some reason the bank freezes the line. I'm a stickler for credit so that helps with the likelihood of it not getting closed out.

Like @Thomas S. our liquidy is in our line of credit. We don't keep a ton of money in checking or savings and in turn aggressively pay down debt when we can while I also do fairly high payroll deductions for 401k and stock purchase plan. If you saw my checking account you would think we're broke :) Luckily our line of credit is large enough we can do major expenses and pay "cash" for smaller properties so it's easier just to pay that back off as quickly as we can instead of paying 4% on the money compared to earning 1% in a higher yield savings.

Originally posted by @Joe Villeneuve:

Originally posted by @Alex Corral:

Originally posted by @Joe Villeneuve:

Originally posted by @Camilo Rey:

@Alex Corral I'm agree with @Maxwell Lee

@Maxwell Lee

The fact that you have an income from the rent, this doesn't mean that they are paying the loan, or what happens when the property is empty, you have to continue paying. However, I agree that sometimes it is better to have security in the cash flow, although that faster pay in 15 years, it could be better to choose the 30 years because it allows you to cover unexpected expenses or that additional money can help you to invest in other properties.

 Bills/expenses paid from passive income is paid by the source of that income.

When you have a vacancy, the 30 mortgage payment is easier to cover.

You can always pay off a 30 year loan in 15 years...you can't pay a 15 year loan in 30.

Here's one more item not mentioned...and it's a big one:

When you refinance or sell the property in less than 15 years, all that extra interest you are paying will never be recovered.  You don't see the benefits of the faster payoff until at least 3 - 5 years after you've paid it off (year 18 or later).  If you don't hold it that long, or if you refi before then, all you've done is add to the cost of the loan.

 It's very clear that a 30 year payment is easier to cover. That's why if you take a 15 year, you need to take the steps to make sure you can cover the extra cost. As rents go up, this should become easier. You can pay off a 30 in 15, but at the expense of a higher interest rate.

If you refi or sell the property in less than 15, you should also have more cash in equity just from the faster pay-down. Many ways to skin this cat. I still like the 15 year option better.

Also, what is your reasoning for preferring to have 20 mortgages, than 20 free and clear?

 If rents go up, they go up for both of us equally.

If you make the same payment on a 30 to pay it off in 15, you will pay down the principle faster due to the interest applied each month being lower, you are paying more on the principle.

If you refi a 15 before 15, you won't have that much more equity to make a difference, however you will have made higher interest payments up to that point that will be more than the added equity (and you only get 75% of that equity) back when you refi.

20 mortgages over 20 free and clear was in the context of the entire discussion...not a stand alone statement.  If I have to do 20 15 year mortgages to get there, I'd rather have 20 30's (we're talking about the last 15 years of a 30 year mortgage...when you would have the 15's paid off).  20 properties, with accumulated added cash flow, is enormous.  If you only took the amount you would have paid in added interest (that's a cost), and used it to invest in another property, you would be way ahead.

It isn't just the face value difference...it's more about the compounding effect of the investment potential of that added cash flow.

There's a 1 to 1 relationship between that added interest going out and into the lenders pocket...and it's going the wrong direction.

There's a compounding relationship between reinvesting that extra cash flow, and that money is going the correct direction.

 This isn't necessarily equal either though - you're going to normally get a better interest rate on a 15 compared to a 30 year note. To add to the calculations as well, you get 27.5 year depreciation no matter which term you do. I think the big thing for me throughout the entire thread is will someone really use that extra cash flow to it's absolute best use completely? If so then maybe the argument for 30 year notes applies but you rarely see people show that much discipline. Very interesting that people are so polarized either way.

I'm in the small group that agrees with the 15 year and that's what I do as well. IN THEORY, all of what everyone says is true but in real world practice, I'd love to see the actual numbers on investors that do each of the different strategies and would almost bet the shorter term loan investors have a larger net worth (just my opinion of course). To me, it's a forced savings account and my end game is to retire early with little to no debt. It's like the article that circulates every so often saying renters are better off than home owners. In my banking career, I bet for every 1 renter, I see 50 home owners in our private banking/wealth group. It's also very rare for me to see very affluent clients riddled with multiple mortgage loans but I see many with free and clear properties.

@Chris K. Yeah I know even for revocable trusts they have to run through our legal department. The trust attorney I relayed the information to mentioned REITs and was curious why they can "borrow" compared to others. I'm guessing they are normally revocable? I know just enough to be dangerous with trusts and rely on experts like you and @Andrew A. :)

Great clarification! I hate telling people no without a good reason or alternative. I appreciate the feedback.