All Forum Posts by: Bill B.

The Birmingham market is down 25-30% in the last 6 months? Ouch. It has to be the worst market in the country.

That being said…

Can you sell your current primary for a decent price and move in to this property? (Get an owner occupant loan.)

Can you seller finance it for more?

Could you rent it by the room?

Except for the mental pain losing $10k isn’t THAT much worse than breaking even. I find it hard to believe such a bad market could get worse, but only if you know why it’s doing so poorly compared to the rest of the country. Is it something that will pass? Is it a market like much of the country where prices might be 5-10% higher in April? (Fix it up, take beautiful pictures and be first to hit the spring market?)

If it's 4 units you'd always want the residential loan with the 30 year fixed rate, especially if you plan to live there. The commercial loan will be 3-5 or 7 years then you'll need to refinance. Can you imagine your interest rate doubling like it did a couple years ago? Even if it's a 30 year fixed DSCR that allows you to live in it the interest rate will make the "residential" loan a far better choice

Oh the other hand if it’s 5+ you’ll have to go commercial. I’ve often seen 5 units sell for the same or less than 4 units because there are less buyers and the financing is worse. Heck I bought a “four plex” where there was an “owner’s storage area” exactly the same size as the other 4 units. :-). 
. 
 But especially if you plan to live in one unit I would assume you’d save another full point in interest. Almost like being paid to live there. 

I’m not a big phone guy but I’d be happy to reply over and over to DMs or emails. 

Ps. If you plan to invest in Vegas, phoenix or any of the same kind of markets you really need to ignore the general examples given for maintenance, capex and such. In 25 years, with 10+ properties I’ve spent ZERO $’s on roofs or exterior painting, decks, driveways. On 1 townhome in MN I spent $17,000 for one reroof, $7500 for a new drive way, and $10,000 for a deck replacement. The homes are newer, the weather is better, etc etc. 

PPs  jay! 28 copy and paste advertisements in a row for your service? That’s enough already, come on man. You’re not helping  

Since you'll be saving your own living expenses by living in one of the units as required by the VA (to the best of my knowledge.) pretend you are paying rent and it should make your numbers look much better.

Plus. Since you said you don't really need the cashflow because you are sitting on huge reserves do the math based on income instead of cashflow. (Loan paydown, tax savings, etc etc..). You might also want to do the math on a convention loan instead. (Not being a vet I'm not sure of the interest rate difference but know that the 3.5% down FHA is often worse than a conventional 5% down.). You might find that a small savings in interest rate makes the difference.

Ps. If you truly have cashflow to spare I would personally look at the 15 year. It will make your cashflow worse but should save you $3-$6k in interest per year. That’s real income instead your pocket, even if it’s not cash. I also assume you’re investing in an area with increasing rents so look at 3-5 years out with increased rents an it better cashflow well if rent isn’t stagnant. 

I like the idea of a newer 4plex but they just don’t exist in my market. Good luck. 

Can't be purchased for your primary home. (Except something like 1/2 of a duplex where the rental 1/2 is worth as much as your exchange.). Yes for STR. (But not for a "I'm going to live in it 50 weeks out of the year and rent it out two weeks", IMHO, if that was your idea. if you were only going to rent out a portion of the house as an STR that portion would have to be worth more than your exchange as well. A nice but expensive duplex on a beach or in an expensive area might be ideal, if you can swing the other half out of personal funds.

Can you ask a more specific question? What do you mean by working with them?

These days most PMs don’t involve their clients in Tennant selection.They’ll get photos taken. They’ll suggest how much rent they can get, they’ll do the advertising, they’ll do the screening. If there’s a repair needed usually they’ll just handle it if it’s under a certain financial threshold o ran emergency. If it’s over that amount they’ll send photos and quote that you can accept or shop around. 

You’ll get a statement around the 7th-10th of the month and a deposit the next day or two. At year end you’ll get a summary and a tax form. When a lease ends they’ll suggest new rents and if the tenant hold be offered a renewal. 
some will offer to transfer utilities for you when it goes vacant, all should handle the transfer when a tenant moves in  

With 10 properties I don’t “talk” to my PM more than 2-3 times a year. We probably text or email 6 times?

For me it’s been a blessing and money well spent. I’m not a “people person” so they handle screening. I don’t want to keep up on local, state and federal law changes so they keep me legal. They’re “meaner” than me so they charge late fees (I get 1/2), file pay or quits, and increase rents faster and further than I would. They have a list of vendors that want to keep them happy because of all the business they do. When a water heater breaks at 9pm on a Sunday I get an email saying it happened, it’s been fixed and it cost $1200 give or take. Who would I call? What would it cost? I also appreciate there aren’t any charges for estimates. I recently had to get some garage door springs fixed on my home and nobody would give me a quote or even  come look at it without charging me $75+.

For all this I pay 8% of rent collected, $300 to place the tenant and $150 for renewals. They also only charge 1.5% realtor commission for the selling side and obviously nothing for the buying side. (None of those BS $595 document fees.)

It sounds like they covered 1/2 the upgrade. Sounds fair. Now you can advertise it as having a sump pump to prevent future water damage when you can sell. I assume that will add at least $7k in value and you’ve been “made whole”. 

If you don’t want to spend money I’m pretty sure you could get someone to grade the surrounding dirt and add some gutters for your $5k discount and gain you will have added value and come out ahead. I don’t think you have a loss here. 

Not if you already own the land. It would be hard if it was just your son as the IRS might doubt it's an arms length transaction. Especially if your son could then try to sell his primwry with the ADU under the sec 121 tax exemption

I wonder if he could sell you the land? It would still be hard because it wouldn’t be a traditional 1031 unless the land alone is worth more than your sale. Your 1031 QI would have to buy/hold the land and do all the construction BEFORE you owned it. 

Reach out to @Dave Foster. If he can’t help you, nobody can. 

Anthony, again assuming you can’t or won’t rent out rooms in your home, better known as easy money. What I am trying to say is so little of the return is based on cashflow, it shouldn’t be the deciding factor. 

Imagine you buy an average $400k property and hold it for 30 years. With ZERO cashflow, the rent exactly covers repairs, taxes, PITI etc, even 20 years from now when you've doubled the rents because you were behind at the beginning.

If you refused to buy it as a new primary, so you had to put down 20%, were unable to find a good deal and just bought at market price, didn’t hit a home run, etc…

Imagine you only average 4.7% appreciation. In 30 years your $80k downpayment has turned in to a $1.6M paid off property. A 2,000% return or 10.8% annually. After depreciation you probably got that return almost 100% tax free. Now you have 3 choices. It cashflows like crazy as is, you take out a tax free loan of $1.2M give or take, you leave it to your heirs when you die and they pay zero taxes. 

The way I think of my real estate investments when I started was the same way most people think of their 401ks or IRAs. I didn’t expect them to cashflow when I got started. In fact I got 15 year loans to pay a lot interest rate and just sent all their income in to paying them off. 

By accident the above example is close to what I experience. Between 10 & 15 years ago I purchase 5 primary homes and 5 rentals over 5 years. I could have put less down on the primaries but I put down 20% to avoid PMI. So the average home was $100-$110k, I put down $20-22k, and 10-15 years later they are worth $420-$600k and they are paid off. The throw off about $200k year in cashflow and I pay almost zero taxes. (Being in NV helps.). They worked exactly how your retirement accounts are supposed to work but 3 x faster.

You can say houses are much more expensive today! And my reply would be: That means you need less houses to get the exact same results I got in raw dollars. But I’d suggest with inflation eating at your returns I’d still try to get 10, even if it takes longer. It’s not a race. 

When I was young I feared the day I would start pulling funds out of my IRA and/or Roth. Was I supposed to hope I died before I ran out of money? The Alabama song "I'm in a hurry" would play in my head.

Unless you truly believe interest rates and prices will be lower in the next 2-3 years there’s no way to catch up with the investor that starts today. I was going to type “don't take uncomfortable risks.” But you will be taking them. Don’t take extreme risks. This was being done by amateurs without mentors, BP, a decent Internet forum, anyone to ask for advice, or heck, without knowing anyone that owned more than one house. You can always regret not starting 5 years ago, until you start. I truly meant it when I said good luck. Your success is a compliment to those who succeeded before you. Not a detraction. 

Why else would so meany people be trying to help you for free? We’re not trying to sell you anything and we don’t make $1 more than if you never get started. We’re simply cheerleaders, fellow players, and coaches trying to get the new players to live up to their potential. 

Ps. After I posted this. I randomly got an email from @Eric Fernwood that showed how a negative cashflow rental could provide a 19-20% annual IRR return even after selling costs because of the increased rents and appreciation. He is MUCH better at math than me. You could reach out to him to ask for a copy of his results.

So you’re saying you’d rather have $100 or $200 in cashflow than 5 or 10% in appreciation? ($20-$40k/yr) then you should definitely target small midwestern towns where you can get cashflow and zero appreciation. That is until a roof or an hvac unit fails. Then you’ll wipe out 4-5 years of cashflow and still have no appreciation. 

I’ve said it before and I’ll say it again. If you NEED cashflow, you probably aren’t ready for real estate investing. Cashflow goes up in smoke All the time. 

Could you rent out your current home and buy a new primary home? (Lower interest rate, easier to qualify and lower costs.) Do you have any friends, relatives, co-workers you like that would rent a room from you? (Easiest and lowest risk.)

My main point was your complaint that investors made $200-400k in appreciation in the last 7 years, But you want to make $2-4k a year in cashflow instead. Imagine you only do 1/3rd as well as they did. And you only make $100k in 7 years. Seems more important that $14-$28k in  cash flow. 

Yes you have to be able to afford to keep the property. But you should be raising rent $100-$200/month every year. Suddenly in 2-3 years you’re cash flowing.  (You mentioned values have doubled or tripled in 7 years, but rents are also up 60-80% or more. Less than the price increase for sure. But a big difference when your costs stay mostly flat.) whether the property is positive or negative $100-$100/mo should make zero difference to you. If it does, but more money down, or forego appreciation and choose a stagnent market that cashflows. (That’s why it cashflows and appreciation markets don’t, at least not right away. )

Good luck either way. You literally can’t pick a property in any “average” market that won’t cashflow 10 years from now. But most of your wealth will come from appreciation.