All Forum Posts by: Michael B.

Hey Ron,

I actually bought an auction foreclosure recently here in Orlando. I knew what the back HOA was going to be but was surprised at the rest.

Not only will you get hit with the back HOA, but late fees for every missed payment are a part of it. Also 18% interest on everything. Top it off with lawyer fees and it gets a little expensive.

In my property I knew that the HOA fees were about $6,000 in arrears. Adding in the rest brought it up to about $10,000. The condo was still worth it, but that extra 4 grand was a nasty surprise.

And I was lucky ... The taxes were actually up to date. I could have been hit there also. Just make sure you understand all of the fees prior to bidding.

My first question would be -- what other debt do you have?

If you have other consumer debt -- car, student loan, credit cards, etc. -- they get in line ahead of the mortgage payments. Keep the mortgage and put the rest against retiring them.

After that it's a toss up as to whether to pay down the mortgage or invest. I could go either way (and have gone both ways at various times). But knock out the other first.

Building equity is a matter of living on less than you make and investing the rest in a way that yields a decent return.

If you want a down payment, spend the next couple of years working 2 jobs and scrimping on expenses. Then you'll have table stakes for real estate investing.

There are a few investors that started out with nothing and were able to borrow their way to prosperity. But for most it's a matter of saving and working hard for an extended period of time before it pays off. Short cuts rarely work out well.

Though I'll admit I'm more conservative than most here ... I'd choose door number 4, Monte.

Spend the next year working an extra job. Save enough cash to either purchase the place you want outright or at least enough for a large down payment. In that time spend time looking at likely properties in your area and talking with people who do what you want to do. After a year of education with cash in hand, then you're ready.

Being new, your first deal is likely to go at least somewhat sideways. But it's likely to go a whole lot better if you're neither paying exorbitant interest rates or dealing with partnership issues when the unexpected happens.

And even in the end if you don't have quite enough cash for what you want to do, you'll be able to drive a much better bargain if you have most of the needed cash and are knowledgeable about the business in the area.

Take your time. The deals will still be there when you're ready.

I guess I'm one of the folks here that would tell you "Don't do it".

Here's the way I would look at it. If you had the bigger house, would you buy your present house at current market value as a rental? Keeping it really has the same effect.

You're probably going to have to be able to qualify for both houses simultaneously with no rental income considered. If that's a problem, or if it's even close to being a problem then don't do it. Sell the current place and then buy your new place. If you still have the energy and can qualify buy a new rental buy it then.

I guess my biggest issue is the mixing of so many issues. Business issues like buying a rental and personal issues like getting the wife a bigger place don't mix well, especially when a partner is in the mix. Slow down.

Besides, wives are usually pretty forgiving about living in somewhat cramped quarters for a while if they can see a pathway to do better at some point. Much more forgiving then she will be if you get seriously over extended with a more expensive new place and an old one that bleeds cash every month.

Absolutely it's ridiculous to compare a roulette wheel to investing in trust deeds. But not any more ridiculous than to refer to high yields without referring to risk. Risk is a player in every investment decision, whether that decision is a treasury bond, a house, a trust deed, or a roulette wheel.

So why does putting investment returns in the context of their risk offend you so much that you ask that I be ignored? I never said that trust deed investment was equivalent to the roulette wheel. I actually didn't know we were talking about trust deeds so I couldn't have been comparing the 2. My initial reference to risk was that houses can often yield a very low risk 8%. To which you responded that higher yields are possible. I agree, but without knowing the risk involved that's a meaningless number. Hence the obviously offensive reference to putting it on black.

Retirement savings is about getting good returns while balancing risk. There are always ways to rev up returns, but they involve increased risks. Maybe that increased risk is appropriate for a retirement fund, maybe not.

Stocking picking systems will promise huge returns if you follow the right guru. And real estate has more than it's share of prophets, all of whom for a fee will lead you to the Promised Land.

But without understanding the risks involved the promise of higher returns is meaningless. That was my only point.

I raise the rent EVERY year on EVERY tenant. No exceptions. It may be only a 1% raise but leaving the rent unchanged for years on end makes it hard to increase the rent later.

In this case I may split the difference. Go to him and say something like 'Hey, the market is $40 or more than you're paying. We're only increasing yours $20 since you're such an easy person to work with. Our way of showing our appreciation."

But don't go years without an increase again. Just my $.02.

No doubt about it. You can get even better results by placing it on black on the average roulette wheel. Assuming things work out.

Accounting for risk is even more important in retirement savings than in regular investments. And there's definitely a place for riskier investments in a well balanced portfolio. But understanding that risk and balancing it with more and safer investments is vital. Large losses of principal is devastating to a long term plan.

I like holding SFR's in my retirement plan. A couple of thoughts:

Without leverage, it's eminently doable in most areas of the country to hit an 8% yield holding a SFR, and that's not counting any appreciation that may come your way. In a time when the risk free rate is around 2%, that's an outstanding return with very little risk.

A couple of people have mentioned lending from the SDIRA. Everybody has to find their own level of acceptable risk. For me, that's a step beyond where retirement funds go. Holding clear title to the asset that's earning is a good thing. But to each his own.

The tax advantages of owning from a house within an SDIRA are different than owning outside. But that doesn't mean they don't exist. Depreciation and deductions disappear, but the ability to push out recognition of profits for decades (or forever in a Roth) makes growth easier.

Successful retirement investing is about 1> preservation of capital, and 2> finding an acceptable return. In that order. Holding one or more houses in retirement funds may help achieve that goal.

Once bankruptcy is filed nothing happens quickly. Ever. Judge approval is needed for any such move.

If the seller files bankruptcy the assets and debts will all be counted. You'll end up with somewhere between pennies on the dollar for your equity and completely wiped out.