All Forum Posts by: Tracey B.

Great feature, Josh, thanks!

Hopefully it will encourage more posters to be thoughtful about naming their topics, too. Does anybody else get a wee bit annoyed with topics entitled "Help" or "Advice wanted"? :roll: Thankfully there aren't too many of these; biggerpockets does better on this front than some other forums that I frequent. :cool:

I'm not remotely interested in adopting David's technique, but I am interested to find out what it is (I gather Will was at least close with his post of April 25th 2:22am http://www.biggerpockets.com/forums/50/topics/31274-subject-3-financinf?page=2).

I find it disappointing that:

1) David feels the need to adopt a condescending tone to those who choose different strategies (they don't necessarily do it differently because they're not as smart as you, David :roll:), and

2) Others, offended by that tone, feel the need to launch personal attacks against David.

How about we all take a chill pill and get back to discussing real estate investing, politely and respectfully? :cool:

Originally posted by J Scott:

As David pointed out, what he is talking about *IS* investing. It's taking capital, putting it in an asset (the business), and generating income from it.

I've just re-read David's first post in this thread, and realised that I misunderstood him anyway. :oops: The thread was about investing, and David simply suggested that being in the business is a much better way to start. I thought he suggested that his active strategies were a preferable form of investing, but I now see that he didn't say that at all. :roll: (We're funny how we humans sometimes see things that aren't there, aren't we?)

I retract my statements about being in the business not being the same as investing - because I suspect from his language that David would agree anyway!

David, I understand - obviously - why leveraging is risky if you can't make payments. But it seems to me that if your rental income doesn't cover payments, it wasn't a good investment at all, unleveraged or leveraged, so I'm not quite sure what the nature of your problem with leveraging was.

Did you have a single large tenant who vacated, creating a huge cashflow drop? Was the property not cashflowing, and you needed to refinance to continue holding, and couldn't because of stagnant/dropping values? Did you get to a point where leveraging had you strait-jacketed, because the lenders had too much control over your activity?

I ask in all seriousness, because you're the first experienced investor that I've met who's so opposed to leverage. I know a lot of people who don't invest, or have small investments, that are opposed to leveraging. I also know several sizable investors who advocate conservative leveraging, perhaps only to 50% LTV.

But I can't recall having met somebody before who's had such significant holdings, who advocates holding property entirely unleveraged, and I would sincerely appreciate insight into how you came to that position.

Originally posted by Jon Holdman:

I have a friend who's given her tenant a deposit only ATM card. The tenant just deposits the rent directly.

Good tip; thanks Jon. : )

I'm planning on buying multi-family property in the USA; in fact I'm in the USA right now, having a lot of fun learning about your property market.

I would like to accept rent payments via direct deposit to my bank account, whereby tenants just tell the bank to transfer the money directly to my account on the 28th of every month, or whatever date has been agreed, OR transfer manually using online banking.

In my native Australia, this is the only way that tenants can pay rent for most rental properties; cash and cheques - sorry, checks - simply aren't accepted. I much prefer this system because:

1) You're more likely to be paid on time.
2) You immediately know when a tenant is having cashflow difficulties, because there'll be a disruption to the payment schedule.
3) Records are created and kept by the banks for you; it's easy to know and prove who's paid and who hasn't.
4) The potential for fraud is largely eliminated.
5) Transaction costs are negligible; it's cheaper than paying staff to handle cash and checks, and there are no problems with returned checks.
6) Tenants generally prefer it, too, because it's so easy. You set it up once and forget about it, or you do it when you pay all your other bills online.

But I gather that this system is not the norm in the USA. Is this just because it's not accepted practise (ie people aren't in the habit of doing business this way), or because there are obstacles to doing things this way? Are there legal or logistical reasons why such a system couldn't work here in the USA?

Originally posted by David Alexander:

you are better off... buying and selling and being in the real estate "business"

The thread is about "investing". I consider investing to be activities where income is generated primarily by the input of capital and ownership of an asset, rather than via your efforts, ie from rental income and capital growth.

If income is generated primarily through your efforts, such as rehabbing, flipping, wholesaling, etc, then to my mind, you're operating a property-based business rather than investing. Yes, you've put money into property, but it's incidental to the profit-making activity. The profit-making activity is finding discount property, rehabbing, marketing, etc - not investing capital. Likewise, Kroger make their money by retailing, we don't call them a "grocery investor". ; )

If you're prepared to work in a property-based business, it can certainly be profitable and I'm not saying anything negative about that, but I don't consider it falls into the category of "investing".

I find it somewhat interesting that you lump the ~95% of the planet that's not the USA together as "overseas". :lol: The cashflow, sizes, market stability etc obviously vary enormously in the many different markets that exist.

My absolute favourite site for gaining an initial overview of countries that I'm considering investing in is Global Property Guide.

If you're considering a particular country, perhaps you could then ask some questions about that country.

Originally posted by Dan Inc:

How do you convert equity in a home into an annuity? I realize that it may be Australia specific and I'm in the U.S., but I've never of converting home equity into an annuity, at least not without getting a conventional bank loan and buying an annuity.

The person I know who uses this strategy has loads of equity (10s of millions), but relatively low income, so he got into a position where his ability to continue borrowing was limited due to DSR.

As you anticipated, he did increase his borrowings to draw down, say, $10M in equity, and invested this in a defined term (also known as prescribed, or fixed term) annuity for 10 years. This guaranteed him an income of, say, around $1.06M per year for the next 10 years. If he was simply investing for interest, only the interest earned would be counted as income for DSR purposes, but by taking out an annuity, his lender was willing to view the entire $1.06M (ie principal repayments and interest, effectively) as income. :cool: This obviously substantially improved his DSR and allowed him to continue borrowing.

Even if it doesn't necessarily make sense from an investment perspective (ie the 6%-ish return isn't very attractive, and may even be less than his cost of borrowing the funds), the fact that it enabled him to continue expanding his portfolio was what made this such a great option for him.

Originally posted by Bob Hines:

You said you originally offered $5k more than the other bidder. In my experience, $5k will cover the cost of a new furnace, a/c unit and water heater installed.

Exactly! Well said, Bob. You don't have to know everything about a property; you just have to know what it is that you don't or can't know, and how much that could potentially cost you, and take that into account when making your offer.

An investor buddy of mine in a similar situation got around it by converting some of his equity into an annuity. For example, he invested $500K for 10 years at x%, and got paid, say, $55K pa for 10 years. Many lenders (here in Australia, anyway) were willing to accept his annuity as income.