All Forum Posts by: Brandon Taylor

Assuming, everything else is great for a tenant.

I'm only in the prequalification stage right now and I will get more info after a full screening, but I'm tempted to say yes if it was:

1) 7 years ago

2) non-violent

3) not repeated

Jfyi, here is my current felony policy, courtesy of @Marcia Maynard:

Criminal offenses (misdemeanor or felony) of a violent nature against person or property will result in denial.

Applicants with a pattern of multiple offenses will be denied regardless of what the employment, credit and rental history shows.

Applicants with a non-violent criminal misdemeanor that occurred more than two years ago or a non-violent criminal felony that occurred more than five years ago may be considered if restitution for their crime was made in full and all time was served. Also, we would require an additional security deposit and demonstration of good legal history, employment history, credit history, and rental history since the time of the crime.

Thanks in advance!

Brandon

I guess if a potential applicant said, "I don't like using online tools. Is it okay if I apply on paper and drop off rent manually?"

And I responded, "I'm sorry, but applications and payments have to be through my property management software for efficiency. You're more than welcome to apply through the online link after creating an account."

Would that be okay?

Thanks for feedback everybody. Couple comments.

1.

I'm not sure that the majority of my applicant base doesn't use email well (just my current tenants and people who have asked about property so far). I'll have a much better idea after I list the unit and go through the marketing process.

Obviously, don't want to turn away a bunch of great tenants over something like that. But if I can drastically streamline operations by requiring online applications/rent collection/etc., only lose a few people, and still fill the unit without the issues and a lot less time in, then yes that's a fair tradeoff.

2.

Not really email per se that is the problem. That's just a proxy for how non- tech-savvy they are.

It's more the laundry list of other issues that prop management platforms like Rentredi solve (automatic rent collection, automatic reminders, automatic late charges, automatic broadcast messages instead of posting manual flyers, automatic lease signing/document uploads, automatic scheduling for appointments, organization, etc.)

I imagine that professional property managers or those managing their own units have to be using tools like this. If so, they must be turning away certain applicants who don't want to use online tools. For example, Rentredi requires users to create an account (through the normal online process that requires email) to apply to units.

This is for a property in Covington, KY (right across Ohio river from Cincinnati, OH).

I find that many of my tenants/applicants are not tech savvy (don't know how to use email even).

Am I allowed to mandate that applicants apply with an email (through RentRedi, for example)?

I assume the answer has to be yes, because property management platforms require it. And I could just say that I welcomed all to apply and the applicants never applied.

Just want to confirm it. I couldn't find an explicit yes or no after searching online.

Thanks,

Brandon

Forgot about this thread until the recent activity.

I've definitely gone back and forth chasing my tail on this question.

It seems like I had the right instincts initially, then convinced myself of wrong view with numbers, then convinced myself to less wrong view with more numbers, and hopefully this time I've been convinced to right view.

@Chris Seveney Good point that I forgot to include the closing costs on refi. I'm not going to work out numbers, but agree that that probably almost entirely wipes out benefit of what I was talking about.

Also good point by @Will Barnard that rates could go up down line so paying down mortgage isn't really a safe bond without taxes. It is sort of speculative in nature since rates could change over the period until the refi.

Current view is this:

- paying down mortgage is still mathematically like a bond without taxes, which does increase your net worth faster than keeping the savings in a bank

- those extra savings will probably be wiped out by closing costs if you ever refi though, so it isn't a great idea

  - if you never refi, you would then lose the advantages of cheap debt at or below inflation for last time period on loan, which wouldn't be worth it

- even though paying it down might be better than holding in a bank, it is not better than alternative investments (it is sort of like an unattractive bond investment)

  - stock market will be 7-10% nominal even after all risk and volatility factored in, which is clearly better than the 3% mortgage paydown even with capital gains taxes

  - if you are a decent re investor, you have skills/opportunities for a much higher return than that with a re investment

- Also had not heard David Greene say that @Malcomb Stapel. I've definitely heard Brandon Turner say something like that, so makes sense.

- I appreciate everybody helping me (hopefully) get correct answer this time

Hi all,

- I threw together a basic spreadsheet to do this comparison with real numbers

  - https://docs.google.com/spread...

- Assuming a $200k house with 20% down and $200/mo cashflow,

  - If you throw cashflow at mortgage every month, you will pay it off in 20.5 yrs as opposed to 30

  - You definitely increase net worth faster by doing this (an extra $3,948 at year 10, which is pretty small, but still something compared to the total $24,000 cash you would have saved over the course of 10yrs at $200/mo)

  - You hit $80k in equity at 6yrs 5mo as opposed to 6yrs 8mo

    - this is the real advantage because it allows you to acquire another property faster, but there is a very small difference here

- Overall, I would say following about this strategy:

  - only do it if you are confident that low-interest fixed-loans will be available 6-10yrs down the road when you would be looking to refi

    - would be a shame to lose that advantage for the small extra advantage of paying down mortgage over that time period

  - this still seems like a no-risk, no-tax savings account or bond

    - instead of parking extra income (from job or whatever) at bank with minimal returns while waiting to buy another property, "invest the money in your mortgage" by paying it down

  - I suspect this strategy might start to look better if you had an extra $1-2k/mo from job to put into this to really supercharge equity which is what David was talking about in book, but I'd have to crunch numbers more      

    - of course, have to make sure that refi closing costs won't wipe out any gains, and you don't risk losing a low rate fixed loan as @Robert Purcell said

   - also, I suspect that nominal stock market returns of 7-10%/yr would outperform this (even with capital gains) because the money will be invested for 6yrs before pulling out for a new down payment (which means long-term capital gains as opposed to short-term and you have a better chance to smooth out stock market cycles so portfolio doesn't crash when you want to liquidate and use it as a down payment for property), but I'd have to crunch numbers more

- Interesting idea to tune results, but I don't think I'll use it any time soon. I just need to focus on acquiring properties

Thanks for thoughts everyone,

Brandon

Uh, oh, guys - I think I accidentally convinced myself back to David's view

* start with initial state of holding property with revenue and mortgage, such that you get cash flow

  * can also sub in any cashflow source like savings from job or stock, etc.

* question: will your net worth increase faster if you hold the cash or pay down the mortgage?

  * option 1: hold cash

    * this is just cumulative cashflow that you save up (add up cashflow every month)

    * counting cash balances in net worth, this increases net worth by amount of cash saved every month (call it x)

  * option 2: throw cash flow at principal on mortgage

    * this decreases your liabilities (mortgage balance) by the exact amount that you would have increased your net worth by holding cash

    * decreasing liabilities by x is same as increasing net worth by x, since net worth = assets - liabilities

      * so at this point, we are in same spot (net-worth wise) as option 1

      * however at this point, you have a lower outstanding loan balance which means that you will accrue less interest in the next month

        * interest is technically a liability, even though it is a good liability in the inflationary environment that we have now

      * therefore, above and beyond option 1, we are also decreasing our liability every month (monthly mortgage payment will stay thesame contractually, but mortgage will be paid off faster so there will be many terms of a $0 payment)

        * decreasing a liability by y increases your net worth by y, therefore option 2 increases your net worth by x + y, whereas option 1 increases your net worth by x only

* when looking at it from the initial condition of already having the asset and cashflow, it is like you are investing your excess cash in reducing your mortgage and getting a return of 3% on cash invested as opposed to just consuming your cash flow

* this seems to be like investing profits for a 3% return, which would be like a conservative bond yield

* I think it might make sense to invest in a stock-market index fund at 7-10% during the interim (except that you take on more risk and will pay taxes), until you have enough for a down payment that you can pull out and reinvest in more property

  * of course, when reinvesting into paying down mortgage, there are no capital gains and also no risk, so that might make it just as good to do that

* the short answer I think is that you are either using your cash flow (from previous real estate, stocks, job, or whatever) to consume (spend on stuff you want that keep net worth same or decrease it, but not make you more cashflow) or spend that cashflow on things that increase your net worth and/or pay you cash flow

  * then paying down a mortgage that reduces payments by 3% is like buying a bond that returns 3% with no taxes (because overpaying a mortgage isn't taxed, and bond yields are)

* continually doing this is like funneling your excess profits from other stuff back into your 3% tax-free bond-yield

* the problem is that you lose this avenue when the loan balance actually hits $0, which is why long before this point, you actually refi, take out enough for a down payment to get another re investment working in parallel, then use both mortgages on properties as tax-free 3% bond yields (taking out another mortgage introduces a compounding effect here as well, beyond the 3% return)

  * this would be like selling your bond portfolio with no capital gains taxes (bc refis/loans are tax-free, even though you pay some closing costs), buying as much re as you can with down payments, and "buying more bonds - which are actually your mortgages" such that your bond portfolio increases (because your LTVs on mortgages are higher) and you magically get a house out of the deal (and did I mention no taxes)

* then rinse repeat

* long-story short, I think that it might actually be a next-level genius strategy, after all

* this is either the smartest thing I've heard in the past year or I'm completely chasing my tail

* can someone poke holes in this?

Would love to hear what @David Greene thinks on this

  (mention functionality doesn't seem to be working for me)

Thanks,

Brandon

Thanks everyone for the feedback! That confirms what I thought.

In David Greene's book "Long Distance Real Estate Investing" (which is awesome, btw) I saw an argument that I didn't understand fully, which is basically "you should overpay on your mortgages to refinance them faster for down payments of new properties". He said,

because every dollar that goes to the interest is a dollar lost. Your goal is to get as much of that payment toward paying down the principal as possible. This grows your equity, therefore your wealth, faster.

and then recommended overpaying on mortgages to build wealth faster. I also heard him on BP podcast 169 mention how he uses extra income from job or note investing to pay down mortgages faster.

My first instinct would be that a 3% mortgage locked in for 30yrs on a cash-flowing asset is a gift and you want to keep it as long as possible to basically short the dollar (betting on future inflation, meaning dollars you will have to pay the loan back with in the future will be less valuable). Not to mention, you can play arbitrage by getting a higher return on asset than what you borrow. I don't understand why you would want to pay off the mortgage early and lose these benefits.

However, I can see there being some next-level genius strategy that I'm not understanding of basically overpaying mortgage to build equity and refinance it faster to acquire more properties. The best I can imagine is that this is basically a way to give up cashflow now to speed up equity building, such that you would get more equity to borrow against for a down payment for next property faster than just saving cashflow. I don't understand why you would be able to come up with a down payment faster that way, though?

Is there anything I'm missing here?

Thanks for responses,

Brandon