All Forum Posts by: Will Barnard

REI,

Thanks for the update. That is good information. I will send it on as well.
My credit union beats the rates, but not the LTV's. I am paying 4.25% on my HELOC up to 80% LTV.

In the example senario, the sfr is better from a standpoint that we look for $100 per door in cash flow. As mentioned by another post, the only negative on the sfr in this example is that a vacancy would be 100%.

The other item to look at is increased rents. By increasing the rent $25, you get $25 more on the sfr, but $50 on the duplex. If there is room to increase rents, the duplex may be better, so long as you can get it to $100 per door cash flow.

Credit unions are by far the best avenue for HELOCS these days. The rates are also the lowest compared to the large bank chains. Most will not lend above 80% LTV, so getting 90% will be very hard to find these days.

Josh,

New member "foreigninvestor" is posting the same question in 10 different threads.

I think the point here has been missed. Cap rate is ONE great screening tool. It is the proper calculation of the expenses to arrive at a true NOI that is often done incorrectly. Just because a seller or seller's agent lists a property's cap rate under false pretense does not make evaluating cap rates worthless, it means that we as investors MUST evaluate the P&L (as you stated) properly to arrive at the real NOI and not the stated one.

As far as cap rates for SFR and up to 4 unit multifamily, Mike was exactly correct. These types of properties rarely have sufficient and accurate P&L's to arrive at a true cap rate, plus, residential properties values are based on comps, in comparison to commercial properties which values are based on the income they produce. This does not mean that you should not use an income approach as an investor on res. properties, just pointing out how RE is valued in each class.

My favorite fear statement:
Rich people act in spite of FEAR, while others allow FEAR to stop them.

The depreciation deduction from rental properties is not a real expense. It is called a "paper expense". The IRS allows all residential investment RE to be deducted over a 27.5 year period.
For example, the house that Mike is closing on for $20,000 will look like this:
Assessed total value $45,000
Land value = $9000
Building Value = $36,000

Mike will be allowed to take the Building assessed value, divide by 27.5 years, giving him a paper deduction each year of $1309.

NOTE: The assessed values I used above are example only and do not necessarily reflect the true assessed valuation of Mike's property by the county assessor where the property is located.

Also, someone else mentioned that you should stop trading your time for income. That is a very powerful statement and one of the biggest advantages to investing in RE - passive income. Your income at work is taxed at the highest tax rates we have. Passive income is taxed at much lower rates, and capital gains (long-term) is at only 15% which can be deferred forever using the proper and legal strategies available to us by the IRS.

Well said Heather. I agree.
We all live two lives, the one we learn with, and thereafter, the one we live with.

I often disagree with the 50% rule, but in tis case, it most likely will apply.
When you have gross rents of only $600 or less in other cases, the OE including, but not limited to, mortgage, taxes, insurance, management, repairs, & vacancy will surely add up to $300 monthly.

Remember, as Jon said, this is a screening tool only and is based on averages. Be definition of averages, some expenses ratios will be lower, and others higher. When you get into gross rents of $800 or more, the ratio of expenses drops due to the fact that some of the OE are fixed and do not increase simply because the rent is higher. On the flip side, lower rents can result in higher expense ratios.

Lesson to be learned by everyone here. Be it commercial or residential, never believe the bs stories, everyone has them as to why the can't pay, always treat it as a business, and do not try a play nice by negotiating. The more slack you give the tenants, the more they will take. Make sure your contracts have specific verbage in regards to non payments, late payments and file necessary eviction docs the very first day as allowed by contract/law in your state.