All Forum Posts by: Brit F.

@Larry Spradling, have you visited the property and talked to the tenants? Is there any opportunity to improve the property to drive up the equity? If the tenant's lease is still in place, and if you want them out, see how much cash they'll accept to vacate (i.e. cash for keys). Might be cheaper to do this vs eviction. Agree with firing the PM and finding a new one or self managing. You can do it yourself, but there are limits under the SDIRA. If you go that way, talk to an attorney or whoever helped you set up the SDIRA LLC to make sure you understand the self-managing rules.

@Nathan Boyer, a few q's:

-When the offer was written on the new house, was there a contingency on your Mom selling her house first?  Sounds like 'no', which is a problem if she is concerned about the holding costs of both houses.

-Can your mom file an insurance claim for the leak on the current house?

-Can your mom do her own escrow, i.e. get the lender to remove Taxes & Insurance from monthly payments on the new house?  It'll spare her monthly budget in the short term, presuming she's a diligent saver and can pay those items later on.

-I don't understand the logic of backing out of the new house, losing $20k, in order to make a roof repair on the current house.  Plus, spending $30k-40k on cosmetic upgrades sounds like a lot for a 55yr old layperson/non-investor.  Are you sure she just doesn't want the new house?  

-If she doesn't want the new house, have you asked the sellers if they'd be willing to accept a smaller earnest money payment if she backs out?  You never know - just tug at their heartstrings, and take the brief hit on your reputation.

-If they won't accept a smaller earnest money payment, can you flip it?  Or could you find an investor or wholesaler to sell the new house to and do a double-close?

-If your mom moves forward with buying the new house, how much financial assistance can you provide your Mom? Can you cover the carrying costs of the new house until the current house sells?  It sounds like you should offer some kind of financial help in this situation.

Good luck.  It's a good learning moment, and I hope any losses are minimized.

@Alan M.,

Condolences about your Mom's passing.

Going the CO-refi route, closing costs and rates will be high, and it requires tenant compliance with the appraisals, which may also trigger the need to make unexpected repairs. Personally, I like to avoid refi's with tenants in place.  It's no fun to hold up a future deal b/c you have a pending repair and re-appraisal.  But, if you've been heavily involved operating your rentals, especially the inherited one, that might mitigate repair risk.

Going with the HELOC, the lender may not do an appraisal. Have you considered using the HELOC for other short term debt investments? You could be a private money lender (short term, high interest) and/or crowd fund commercial or residential? Local syndication would be fine too, but if you're sourcing from the HELOC, I'd prefer a high cash yield and maybe no equity at all - unless you're confident in return of capital in 3 yrs or sooner (am nervous about where we are in the economic cycle). I love the notion of making money off the interest rate spread using lender $.

@Steve C. has it right. As with many decisions, when you are positioned with the "this or that" option, the answer is to do both options, which in this case means own real-estate within a retirement account. SDIRA's & Solo 401k's are fantastic vehicles for this. I manage a Traditional SDIRA for my family, and it's working well with SFH BRRRR.

I also have a company sponsored 401k, which I'll rollover to a SDIRA to use for real-estate once I depart my current W2.  I deeply regret shoveling so much money into the 401k as a naive 20-something listening to conventional wisdom.  Like others, now I only contribute enough to get my employer's match.

Slight tangent: 

My philosophy on retirement has changed quite a bit over the last two years.  My goal now is to have an ever-increasing income stream, going into and throughout retirement - especially considering that Assisted Living rent *starts* at around $5k/mo currently in my area.  I've never spent anything close $5k/mo on room and board...that's way more than I need, but that's the *starting* target number if I want to protect my assets for my beneficiaries and not tear into their savings in my final years.  And I won't be including Social Security in my income stream; if it's there, great, but I'm making no assumptions.  Based on this, up until recently, I was drastically under-budgeting retirement, but I've got plenty of time to make it right.

It's shocking to realize that you could spend a lifetime building up your retirement and then burn through all of it and more in your final few years - even without a global financial meltdown.

I'm also not in a hurry to start any new IRA accounts (other than my previously mentioned future 401k rollover). IRA contributions limits are so small, it's just not that appealing to me. Solo 401k, on the other hand, that's something to think about for self-employed/single owner businesses (e.g. 1099 real-estate agent) since contribution limits are much higher.

Slight tangent: During the gov't shutdown, things were getting interesting.  My local Housing Authority notified landlords that they had enough cash to keep paying vouchers through February, and after that, future payments weren't guaranteed.  I reassured my tenant that I wouldn't hold them accountable for government's potential inability to pay, which was certainly a strange discussion to have.  While our gov't is not quite out of the woods yet, even if they fail to pay temporarily, I speculate that they would make up any missed payments eventually.  I'm not concerned about it, just funny/sad.

In other news, I've initiated a discussion w/the local Housing Authority as to why their monthly deposits to me are $8 short for 3 mo's in a row.  Tenant's payments are perfect.

The risks with Section 8 are similar to non-Section 8, chiefly driven by property location, condition, and tenant selection.  If you make bad choices in any of those three areas, you'll have a rough time with it.

On the other hand, Section 8 offers great opportunities, both financially and for the community - for LL/owner and tenant.  It's guaranteed income from your local Housing Authority, you can charge rent amounts well-above market, annual rent increases hit the Housing Authority (not the tenant).

What really opened my eyes to the opportunity with Section 8 was when I started browsing Section 8 listings and found less than 10 listings (zero in some areas) in my target zip codes.  By comparison, other zip codes outside my target areas had hundreds of Section 8 listings.  This creates a fantastic demand for my target zips, and allows me to be very picky with tenant selection.  Plus, it enables movement of people from those areas saturated with Section 8 housing, which in my view, is good for the community and the tenant.  

And, in my area, there is a loooooong waiting list for people to be added to Section 8, which means there is incentive to stay on the program (i.e. don't get evicted).

Section 8 tenants (the ones you want) want the same things as everyone else: a good area, nice finishes, and good schools for those with kids.  It's important to remove any negative stigma you may attach to Section 8 tenants...they can be any age, race, gender, familial status, etc. 

If you can wade through the myths of Section 8, it can be powerful. 

Looking into my crystal ball, it seems likely government assisted housing increases over time: college expenses & student debt keeps rising, new grads have a harder time finding jobs, millennials have been told to not expect Social Security to be around when they need it, and people are living longer (assisted living costs are chewing through retirees savings quickly).

Sidebar on Section 8 Seniors: Nursing Homes and Assisted Living facilities that accept Section 8 are rare and sub-standard in my area. It might be an interesting niche to do some nice Section 8 Senior SFH/multifamily properties.

Been using powertochoose for several years.  I switch every time my contract is up, which is usually 6 mo, but sometimes I dabble in the 3 mo's.  I rarely do 12 mo's because most REP's offer will only be advantageous in one or two seasons and painful in the others.  Absolutely read the EFL's and see how it compares to your prior usage, which you can see by using the smartmetertexas site if the property has a smart meter.  The best times to switch REPs are spring and fall.  Avoid changing REP's in mid-summer and mid-winter.  Put a reminder in your favorite calendar application to remind you to start looking at rates 2 weeks before your current contract ends, which is around the time when you can switch without an early termination penalty - but check your REP docs to be sure.

Best price I ever had was 1 cent per kwh, but that probably won't happen again for a while, if ever.

Side note: Only once did an REP not honor it's EFL, and after they declined to adjust what they were charging me, I filed a complaint with the PUC of Texas.  They investigated and ruled in my favor.  I eventually got a refund for the overcharges.  That REP isn't in business anymore.

Just wanted to say thank you to the BP community for all the great info about SDIRA LLC. About a year ago, I became POA for my parents and took control over their traditional IRA, and at the same time, they moved to assisted living (AL). I discovered their previous IRA custodian was charging extremely high monthly fees for mid-single digit returns. After you guys enlightened me to SDIRA LLC, the lightbulb went on.

Implementing the SDIRA LLC + BRRRR enables me to protect their assets and provides the necessary rental income to offset the AL costs. (Wifey and I have been doing BRRRR for a few yrs prior to this, so it was a natural fit to do that within the SDIRA LLC.)

The SDIRA LLC helped me turn around the situation where we would have previously watched the AL expenses rapidly burn through their cash. And we didn't just slow down the cash burn, we stopped it :) Looking at all their income and expenses, they will be cash flow positive annually. And if I consider the appreciation from the held property, it'll absolutely turn a double-digit profit when it's time to sell. It's been several months now, and things are looking good with the setup.

I am really loving SDIRA LLC as a financial instrument for retirement savings, so Thank You again.

Gah - 401k's....I'm so irritated by that financial instrument!! That money is tied up in a corrupt/insane system I can't control. Now that we're a couple yrs into BRRRR, I feel duped by everyone who recommended to me yrs ago to max out 401k. 'Duped' is putting it mildly...'defrauded' is too strong...The notion that I, as an individual investor, should put my money into a system which is increasingly volatile due to the whims of large financial institutions, global politics, environmental factors, social media, etc. for a paltry 6-8% return.....it's lunacy.

I absolutely agree on only contributing up to your employer's matching amount. Within the 401k, since I really don't like spending time on researching investments, I end up keeping it in cash or the most broad fund/ETF available. My 401k end game is once I leave my employer, I'll roll it over to an SDIRA LLC (which in contrast to 401k, is a great investment vehicle) and finally be able to use it for more BRRRR.

What you do with the add'l monthly cash just depends on your situation: interest bearing savings account, pay down other debt, crowdfunding, join an investment club, contribute to a new IRA (SDIRA, roboadvisor), the list goes on.

How can I continue leveraging parents' cash and do R&T Refi's to keep rates as low as possible?

Wifey & I have 3 SFH in Texas using BRRRR, and are looking for more. We bought each with a private family loan in order to appear as a cash buyer to the sellers, since our target neighborhoods are so competitive. The private loan funds *prior* to closing, and we bring those funds to closing. Our Title Co still files a DoT w/the county to secure the private loan, and later we do a R&T refi with a conforming loan to get the family cash back in order to do it all again later. We'd be happy to continue this model, but the new x-factor is my aging parents will soon no longer be mentally capable of signing legal docs.

I already have full POA, but after talking with our Title Agent after our most recent closing, using my POA in this situation might be viewed as self-serving and lead to issues or delays with refinancing, depending on lenders' attention to detail and/or appetite for such a situation.

I'm looking for a way to stay with a R&T refi and not cause heartburn for lenders. Would one creative solution be to setup an LLC to act as our private lender, for which wifey & I have signatory power? Granted, in spirit, it's the same as potentially using my POA in our current model - in the sense that we're authorizing a loan to ourselves (making payments too, of course), and then we would subsequently release our own loan after the R&T refi closes.

I know we could just use the fam's cash, without the private loan bit, and do a cash-out refi, absorbing the slightly elevated interest rate. But like I said, if there is a legal/ethical way to use the cash without dealing with higher cash-out refi rate, I'm all for it. Even 1/4 pt higher rate would cost more annually than operating an LLC in TX.

If I'm missing another option, let me know.