All Forum Posts by: Will Barnard

Raiz, why would you purchase properties to hold if the cash flow is so small? Buy where you get cash flow in excess of $100 per door. That should be your base goal. If the numebrs can't produce that, move on.

Mike, I will have to disagree with you any several points.
Apartment complexes often have larger expense ratios as compared with a duplex or 4-plex. The reason investors buy them is because they can buy on the cap rate factor (commercial) and not the comp value (residential) which is often priced higher. Sure you have administartion, accounting, etc. but those expenses are spread out over all the residential investments which makes them less per, assuming you buy more than one or two investments. Apartments are usually operated as a seperate entity and all the admin./accounting/etc. expenses are for that single complex.

Of course I do not know all the operating expenses as the original question did not list them. It is not my property, nor did I have the benefit of looking at the P&L. Of course sellers always lie or mis represent OE and income so there is a need to estimate some items. The items I mentioned to get exact figures on are set things like insurance, taxes, etc.
There are of course averages nationwide, and sometimes, these figures are needed to get a valuation.

Any building with 4 or less units is residential, not commercial. When is the last time you got a commercial loan on a duplex?

As a full time landlord, you pay no taxes so depreciation is not an issue!?
What kind of BS is that. Perhaps the IRS would like to be introduced to you to examine your tax evasion scheme. If you make income, then you need deductions to offset that income inorder to reduce the taxes. For a full time "investor", I would hope you make enough money to be in the position to have to pay some tax.

Principle paydown is also relevant because you receive it when the property is sold or refinanced. It is not simple lost just because you cant "eat with it" today. It remains a return on the original investment.

You have promoted yourself as a full time investor and landlord here numerous times. From reading some of your blogs, you appear to be a painter, handyman, property manager, and book keeper just to name a few. As an investor, I find my time is more valuable networking, analizing deals, negotiating them, and managing my business. You also seem to have a niche in the older sfr properties valued under 100k and enjoy managing them yourself and dealing with all the headaches as well as having a high vacancy rate (according to your blog posts). If that is what you like, more power to you. It is just not for me and may not be for others. Investing in older sfr properties with lower income tenants, I can see why you would easily have the 50% OE. I prefer new multi-family units with lower maintenance and leave the headaches up to my property managers to deal with.

In closing, let me say that I did not intend to bash your business here, only to respond to your attacks on my statements previously. Perhaps we can agree to disagree on computing NOI and the differnce between res vs. commercial calculations. I do wish you success in your business as I would any investor. (by the way, the IRS comment was in jest)

Happy investing to all.

Jason hit the nail on the head. Just because it is a FSBO does not mean it does not require a rehab. There could be a number of reasons why the seller chose to sell by owner rather than list with an agent. Realtors are not all great and often times are worthless and know less than you do as an investor.
Being a newbie investor Christine, you need to plan an investment strategy first before searching out properties.

Good luck.

Advice to buy with all cash from a guy who's name is all cash! Give me a break. Even Donald Trump utilizes debt financing to acquire investment real estate. Eliminating the power and advantage of leverage greatly decreases your ROI.
I do agree with Mike and others in regards to getting yourself educated before diving in. As Mike said, newbies make huge mistakes due to a lack of knowledge, experience, and due diligence.

On the subject of utilizing a HELOC for down payment funds, that is a great strategy that I teach and encourage each and every day. First off, the HELOC rates right now for good credit and up to 70-75% LTV is as low as 4.25% right now. That is lower than a fixed first at 6.75-7%. The fact that it is variable is not an immediate concern as it can not jump more than x amount of points each year (usually caps at 2), so it would take 3 years to start getting scary if it were to max increase each year. The second and most important advantage to using a HELOC is that the loan is open-ended, meaning that $ can go in and out. If you pay extra towards principle on a fixed mortgage, you can't call the lender and have them send back the extra principle the next month!
This allows for you to contribute all of your cash flow towards the HELOC, thus cancelling interest, and when the cash flow is not there (a vacancy, large repair, etc) you can pull out to cover the loss rather than come out of your own living expenses.

Final note: I have yet to meet a single investor who bought there first property with all cash.

Tax lien certificates can be a great investment if you know what you are doing and pick cities/counties that do not have a tremendous amount of competion for you. This is a bit more of an advanced strategy and you need to know how to investigate each property and due the due dilligence necessary to ensure a profitable investment.
I would suggest as a newbie, you choose a different strategy to start out and get your feet wet.

Now is the time for the buy and hold strategy. Start there if it is feasible for you.

Good luck.

Thanks for the update Josh.
The question I had on the first topic was when you do delete the request, is the other party aware of it?

Thats a great question. I would like to know the answer as well.
Josh, can you chime in on this?
Also, what are the stipulations/requirements for your profile changing from newbie, to contributing memebr, and on up to the top?

Felix, you received some good advice here on the evaluation of your deal. It looks great to me as well. One thing to consider here: The up-side potential which can be very beneficial to your bottom line. Buying multiple buildings on one tax parcel allows for the divide and conquer tecnique. If you were to get approval from the city.county, re-plat the lot and subdivide it so that the tr-plex sits on one parcel, and the duplex on another, you could sell them individually and they would become residential properties (4units and belwo) which are valued based on comps and not cap rates. This could mean receiving higher sales price.

Again, your deal looks good, and if you decide to pass or want to assign the deal let me know. I may be interested in it.

Good luck.

Some good info here but not all correct.
UBTI will occur on any debt financed investment held in any SD IRA as tax-deferred/tax free $ can not/should not compete with other taxable structures as stated by the IRS. This is where UBTI comes from.
For instance, the IRS says that it is not fair that a business (say a coffe house) which is held in a SDI open up and compete with a taxable entity such as Starbucks. The Coffe house held in a SDI would have the luxary of selling their products at a lower price because it would not have tax implications as does the Starbucks, therefore, the IRS created what is known as UBTI.

Now, speaking from a RE investing standpoint, UBTI is not necesarrily a bad thing. Take this into consideration:
Purchase a home for $100,000 with 30,000 from the SDI and debt finance the balance $70,000. Sell the property in 5 yeras for $200,000.
Calcualte the Loan to Sale Ratio which would be $70,000 divided by $200,000 which equals 35%. The sale price of $200k less the purchase price of $100k is $100k profit which is now multiplied by the 35% which equals $35,000. The UBTI tax rate would be 30% times the $35,000 figure which is equal to $10,500 (which is your UBTI tax due).
Now, $10,500 tax on $100,000 profit is only 10.5% which is even lower than estate tax of 15%.

This example illustrates why UBTI is NOT necessarily a bad thing. Condier how much you would have made in profit without utilizing debt financing.
I believe you would end up with a larger net each time because you could invest more utilizing debt financing. It is a great and wonderful strategy used by many wealthy individauls who will gladly pay only 10-12% in tax rather tha the larger alternatives. Do not forget that in your ROTH IRA (with the above example) you net $89,500 after paying the UBTI which goes back into the IRA TAX FREE.

Hope this clarifies how UBTI works in the real world.
Best of luck to you.

Marshall, self-directed IRA's are rapidly growing as more and more Americans are becoming aware of them. As Mike mentioned, Equity Trust Company www.trustetc.com is a great SDI administartor which I personally use. I am a RE investor and I borrow funds from investor's SDI funds and pay them nice interest rate returns ranging from 8%-15%.
If you do not want to actually hold properties then loaning $ guaranteed by the RE is a great strategy.

Wheatie mentioned that the administrator approves the investment and that is not true. You control the funds and the direction of investment, not the administrator. The admin. simple documents and reports all activity to the IRS and assists you to be in compliance with all rules and regulations. They never have control of the assets. As for the checkbook control, that is only necessary for advanced investors who utilize strategies which require funds immediately such as tax lien certificates, all cash 3-5 day closes, etc.

I highly recommend using Equity Trust, roll your 401k into a SDI and start buying property or loaning $ secured by the real estate. If you need further assistance in addition to what ETC gives you, feel free to contact me and I will help you any way possible.

Best of luck to you and I believe you are on the right path.