All Forum Posts by: Brian Beck

Well, that escalated quickly @Account Closed  & @Robert Seltzer

I understand the use of leverage (AKA more debt) when REI and how that can lead to more investment opportunities. But I just don't see how risks created by leveraging outweigh stability of paying cash. I know paying cash limits the amount of investments that I could make, but is this the only reason people say to use leverage?

What are your thoughts @Chris May on this?

https://www.youtube.com/watch?v=rhkbYKl9ACo

@Chris May , that is exactly what we were/are planning on doing.  I too am scratching my head at all of this appreciation extrapolation.  

One of my original questions was about capital gains and how the gains would be calculated (from the time of purchase or the value when converted to rental), but everyone focused on the "Golden Goose" and I still don't know the answer.

Thanks for speaking up, now I don't feel so dumb.

@Account Closed ,  My wife is from Arkansas and we lived in Memphis for a couple of years.  If we did move to TN we would move near her brother and his family.  I totally know what you're talking about regarding the culture, and it is completely diffrent. 

 I like what your cooking, but I think I'm missing something.  If you financed $400K at 4% the monthly P&I mortgage would be $1,910. add that to 50% of the rent (???) for expenses and I don't know how that generates $4000/month.

Sorry if I'm being dense.

Greg,

Those are excellent questions.  Perhaps I should have mentioned this at the start, but my wife and I have decided that we want her to stay home to raise our daughter.  So, we will not be able to afford to remain in our home long term.  The idea behind renting is so that we don't immediately lose the option to move back while having someone else pay the majority if not all of the costs.  I know that there are risks regarding possible damage, and that is something we need to evaluate.

I don't think I want to be a long distance landlord especially if it is a negative cash flow property.

Regarding renting my mother's house (after leaving for TN) if the property is paid for is there a reason that we should not rent it out using a property management co?  It probably comes down to what could the $270 generate in other investments.

@Wes Brand , Here is my thought process.  If I purchased a rental for $30K then rented for $700 and plan on 50% expenses then the cash flow would be $350.  As you say, I still have the $30K plus whatever cash flow that is created.    

Assuming my monthly nut is 4k/month I would need 12 rentals with similar returns to cover the nut.  By purchasing 12 properties for a total investment of $360K (about what our home's equity is) we could be financially independent and debt free. I know my numbers don't account for much future wealth building but I just don't see how debt is all that friendly. Perhaps this is just my pre-REI brain talking.

I realise that there are advantages to debt but that is a tough pill to swallow. I'll continue my REI education and hopefully find a good compromise that tastes better.

Thanks again.

@Thomas S. , um... thanks, I think.?

Is this a real strategy?

The possible damages are definitely a concern that we have.

Now I really don't know what to think.

I understand the appreciation angle as follows: renters pay $3000/month - expenses at $1,200 - mortgage of $1,870 for a negative cash flow of $70/month.  However, if appreciation were factored in at $5,416/month then my total asset gain would be $5,076/month.  This thinking is a bit foreign to me because it seems to assume that the property will always appreciate.

@Wes Brand that is a totally different way of looking at debt in the context of real estate and is a lot to think about.   How do I know what "the max they'll handle" is?  

Sorry for asking such a basic question.

@Account Closed @Arlen Chou & @Robert Musallam ,

Thank you for the input.  Our main goal is to do all of this without debt.  We are BIG Dave Ramsey fans and his views on incurring more debt feels right to us.  However, as we improve our knowledge about real estate investing that opinion might change.

I totally agree that our home is our Golden Goose and we want to take full advantage of all that can provide that is why we have joined BP.   

I have seen that we should plan on using the 50% rule when calculating rental expenses? i.e. Rent for $3,000 plan on have $1,500 expenses  plus our mortgage of $1,870 for a total of $3,370 or a negative of $370 per month?  I hope the 50% is supposed to include the mortgage.

@Thomas S. , we only owe $305K and have a monthly mortgage of $1,870 with a 3.65% interest.

Hello,

I hope what I'm about to write is clear. 

Step 1)

Our 3-5 year plan move from California to Tennessee and in the meantime move back in with my mother and rent out our home (comparables rent for $3,000 and our new mortgage is $1,870). While living with my mother, we would get her house ready to sell or rent (needs major cleanout).  We purchased our home in 2011 for $335K.  Refinanced to a 15 year FRM in 2014 (got $70K cash out) and remodeled kitchen, added a back deck, installed French doors and replaced windows.  We are currently refinancing back to a 30 year FRM, and the house is now worth $660K.  

Step 2)

Sell our home (netting $400K or so) use profits to purchase land / house for less than $120K and use remaining funds to invest in rentals to become financially independent within ten years. Moreover, we would sell or rent my mother's house (valued at $270K rent for $1,700) and she would live with us.

So, I have a few questions:

1) If we rent our house for more than three years (triggering the capital gains tax) will we be taxed on the capital gains based on the original purchase price ($335K) or the value of the home when we start renting it ($660K)? 

2) Using the BP rental calculator it said, we would have a cash flow of $325.  Does this sound right?  I know I'll need to budget for repairs and expenses but $800 a month in expenses seems excessive.  But, I only just started learning about real estate investing this week, so I know little to nothing.

3) Assuming that we sell the home and net a few hundred thousand dollars, would it make sense to purchase rental properties outright or make down payments and mortgage the rest?

Thank you for taking the time to read my long post and for any advice you might provide.