All Forum Posts by: Brian Garrett

I can't make it this month - putting it on my calendar for next.

@Francesco Epifania - My wife and I are getting started into property investing and considered doing a HELOC for a short period of time, but I could never make the numbers work well for me. While there are certain advantages to doing a HELOC, what didn't work for us is the following:

We had enough cash in the bank to pay the house off.

We were roughly half way through a 15 year mortgage payment at roughly 3% (I don't remember the specific % at this time, but that's close)

Refinancing allowed us to pull out up to 80% of the homes value and only slightly change our interest rate and our monthly payments stayed exactly the same because we went from a 15 year to a 30 year mortgage on a 10/1 ARM. The theory behind the 10/1 ARM is that for as long as I've owned homes, I've never gone more than 10 years between refinancing (owning now for over 25 years).

So we extracted the cash and were in no rush to invest instantly to offset the amount we'd owe with our mortgage AND the HELOC.

If you have a mortgage, a HELOC and a mortgage on a rental property and you don't have the property occupied, then you're in really bad shape (IMHO).

So what's why we refinanced over the HELOC. The upsides in my mind far outweighed any on the HELOC side.

Just my $0.02 worth.  :D

@Jay Hinrichs - see, that's called Karma and it paid you back in spades.  Sometimes doing the right thing actually does bring back a net positive.

@Chris Lopez and I signed up for your course on your website as well.. I'll take that over the next few days.  I just wasn't sure how you were applying a little girl who eats porridge..  ;)

@Chad C. - we should get together again and discuss the flipping.  Maybe we can make something work in that area.

@Chris Lopez - Thanks for the book recommendation. It's downloading now to my kindle app. I'll see if I can make some heads/tails on the IRR thing. I want to be prudent and effective with my investing so maximize my returns. I guess I just think the Denver market has a huge "me too" amount of investing going on that makes the homes nearly impossible to make the numbers work. In the KC market (I've been watching it for a little while and have a few full-time investors who buy and hold in that market) they have obviously good and bad neighborhoods. It kills me a bit that I don't actually live there because the fix/flip or BRRR homes are readily available and I can to the lion's share of a flip myself. So the BRRR there isn't AS attractive to me.

It's hard for me to imagine a market with a good employment base not at least keeping pace with inflation.  But I do hear what you are saying.  KC certainly could get hit harder than other areas and take longer to recover if/when the next bust happens (and it will happen)... but again if I'm being conservative it might be easier to buy/hold a property there for that time at half the cost of a Denver home than buying a Denver home and suffocating under the load here.

I do think the midwest is going to do better over the next 40 years for a few reasons, but again it's rolling the dice.

I'm not sure exactly what you mean by the "Goldilocks" phase.  Right now I don't see the salaries keeping up with the housing expenses here and that is weighing things down.

I am definitely in for the longer term wealth for sure - so that's why I'm appreciative of the advice granted from your experience.

@Curtis K Thomas - Well, I can provide a lot of excuses as to why we haven't gotten our first deal under our belt yet (or why interactions w/ property management teams haven't formed yet), but I have been on the board of our HOA for the past 9 years or so and we have nearly a full-time property management agent in my immediate community. That interaction has helped at least understand their processes. Certainly not for me to claim I'm an expert or anything, but I feel I have a good footing around what is expected.

Our delay in getting going is just life getting in the way.  I was wrapping up a basement finish on my sister's house and getting an instrument rating for my flying, which are two very time consuming activities.  Our last phase is to get the financing in order which we are working on now and hope to have that underway if not completed soon.

I know that isn't much help, but ultimately a good property management agency is going to be both a teacher as well as a manager in the initial stages of your engagement.  Trust but verify obviously.  I think if they know what your expectations are things go a long ways, and good communication between you and them is essential.  Nothing that wouldn't already make sense in any business relationship obviously.

@Bill - while I don't disagree with you as I certainly don't understand how to apply an IRR (I'm still new to the process), here's my very pedestrian view of the Denver market vs. a market like maybe Kansas City MO.

In Denver, the numbers that I've run against SFH's I am looking at an entry level property of $300k. That requires a down payment (assuming a conventional loan and 20% down) of $60k. If I get a good house, in a good location and a good price and self-manage, at best I can positively cash flow $200/mo. With a single family home I also have a greater exposure to vacancy as I have a single property with a single renter that I have to keep filled. If I'm looking into multi-family in the metro area, that price jumps to at least $500k and that is going to be for a so/so property at best, but helps to offset some of the exposure to vacancy, but rents are also operating on a pretty razor thin margin and I'd still have to self-manage to really make ends meet.

If I look at the KC market, I can get a really nice duplex for $150k, for $30k down, have it managed professionally and still cash flow $400/mo. My exposure to vacancy is now halved, I've only had to put out half the down from the SFH in the Denver market and I'm having the same level of cash flow per unit - although twice as much right away. I also don't have to manage the property whereas the Denver properties I would likely do it myself.

If I understand the IRR function correctly, the calculations are based on assumed appreciation of property over time and the longer you hold the property the more appreciation the property gains - which makes sense. My main issue with that methodology is it's an assumed gain. I don't disagree that the Denver market is going to continue to see appreciating gains, my goals are to create the passive cash flow for an ongoing process and to use that cash to purchase additional properties going forward.

Clearly if I'm way off base I'm all ears.  I'm all about doing things better or more efficiently and welcome the additional education.

Curtis - I'm in the same boat as you being in the Denver market.  Not much here to work with as far as passive income goes, so I'm looking into other markets.  I have no problem with doing that as we're going for multi-family units and the ones that already have property management teams in place are some of the more attractive units - at least for me.  My main concern is the ongoing maintenance that would be needed and the property manager would do the same level of work I'd do myself (of course I'd be paying someone to do the actual work remotely).

At the end of the day, a lot of this process is about the relationships you build and the property management team isn't any different.

IMHO I think multi-families are where the better cash flow is at.  I'm working towards my first deal and I'm only considering multi-family.  Even duplexes don't seem that interesting to me.

I'm just getting my feet wet with REI - however I gave up on the Denver market a while ago. I keep an eye on it, but from what I've been able to tell, I can do a far better job cash flowing in other markets with more of them AND have someone else manage the properties. We'd manage them here in the Denver market, but even with self-managing I was seeing monthly returns of a few hundred bucks a month at best. I've also seen quite a few deals for duplexes and larger multi-families go on the market only to be marked down a bit after a month or so... so I definitely think there is a softening - but I don't think it's going to fall off entirely.