All Forum Posts by: Calvin Lipscomb

Keith,

The issue with aiming for the “safe” 3% is that inflation has, historically, been roughly 3%. If you are saving the income, then over the long term you are breaking even; but if you are spending it then you are losing the same roughly 3% a year in spending power.

In my day job I am an investment professional. My suggestion is to find a FEE-ONLY financial advisor and have them complete a financial plan for you. There are some/many around that will build a plan and not require you to invest with them. They charge a fee for building the plan. Yes, it may seem expensive. But imagine the cost of taking the advice of non-professional...

If you need advice on what questions you should be asking potential advisors, feel free to PM me.

Hello Everyone, 

So I just paid my house off and am now unconventionally financially independent. I say unconventionally (maybe this is the wrong word for this ..I don't know) because while I am able to net about $13-15k a year after all expenses and taxes, this is mainly due to me living in my basement and renting the rest of the house out. My house is nice, the basement is comfortable, I'm single, no kids, about to be 35, so I'm totally content with the situation. I have a small office building that is paid off and rented out as well, which makes up the rest of my total income thus far (I am currently not working). I also inherited another home that is fully paid off, but am letting a close elderly relative live there for free. So I have (3) paid off properties in total - My House $450k approx. value, small office approx. value $325k, and the inherited house approx. value $500k. When the inevitable happens, I will be able to rent the inherited house out as well, or sell it. I have no car payment, no student loans, etc. ..no other debts whatsoever. Along with the house, I did inherited two pieces of land that I intend to sell as well, approx. value for both lots is about $80k ..and just to complete my financial life story, I have about $300k in a retirement account that I no longer contribute to.

With that said, more to the point in question, I have an additional $355k sitting in a bank account right now, basically doing nothing. I was hot and heavy on purchasing another rental property for a while, but have since changed my mind because I really don't want to manage another property. Things are so seamless for me now and I'm enjoying the freedom so much that I kind of have this voice going off in the back of my mind, saying 'if it ain't broke, don't fix it!' every time I think about purchasing another rental property. Haha ..you know? I also have no interest in investing in the stock market at this point in time either. So ..I've convinced myself that a tax free state municipal bond fund is the way to go. I was thinking of putting $250k into one, with a tax free annual yield of 3%, which comes out to about $625 a month in return. This will help me stay in the lowest tax bracket and bump my net income up to about $20k a year. My thinking is that after doing this, I'll have about $100k left in the bank for emergency, I'm getting a nice return off of a pretty safe (???) $250k investment, and I can start investing this extra $20k annual income into riskier things like stocks throughout the years to come. My main train of thought here is that I have no family aside from one elderly person, I don't plan on having kids, so why make riskier investments to chase bigger returns that I won't be able to fully use or leave for anyone when I die? ..so I'm always thinking, 'just protect what you have, no need to chase huge returns, and when the time comes you can sell everything, buy a smaller/cheaper house, drive an old truck and live an easy/simple life until it's up'. I also have this idea that if my quality of life is currently good and I can live comfortably, why not just save some of that extra income and invest in stocks lightly, so I'll just have more to invest in stocks when the next, larger, market correction does come ..??? 

What are your thoughts on a state muni bond fund as a safe investment? Is $250k a lot to be putting into just one single bond fund? Any alternatives or other points of view from experieince? Would love to hear some thoughts on any or all parts of my spiel. Thanks guys! 

I mean the nerd term affectionately. I say it with pure humor and respect for math way over my head. Help with the below...

The idea of someone investing in my property investing came up. Although in this case it is a relative, let's not focus there because it will be a business relationship. They don't want to become investors like us weirdo's on BiggerPockets, but I think they want to try to dip their toes in and see if anything bites their feet off.

Hypothetical scenario, please comment freely.

Someone offers to invest in a BRRRR that I have lined up. They give 5K which is 10% of of the 50K house I buy with cash. So (sorry for the Kindergarten math) they're in for 5K and I'm in for 45K. Investor puts a lien on my title.

We do 15K in reno that I pay for.

We get a tenant, paying 1K a month rent. I'll use round numbers to make the math easier for me.

We can refinance at 6 months, for 75% of the ARV.

ARV is 125,000. Yeah I know fantasy land, keep reading.

Cash out REFI is 93,750

I get my 45K back because I said so.

Dude get's his 5K back.
I get my 15K in reno costs back.

I realize I haven't discussed operating costs while unoccupied, just consider that in the reno costs.

That leaves 28,750 on the table.

Investor get's 10% of that right? So, 2875?

He/she also gets 10% of the monthly profit. So if the rent is 1K, and the note is 650, he/she gets 10% of the 350 profit (I know I forgot vacancy, CAPEX, etc assume that's in the 650) which is 35 a month.

What is the value of this investors interest? Is that the right term?

If I want to buy him out????

Is it 10% of the appraised value to buy out their interest?

On month 1, there's 31,250 in equity fair market, do I just buy out ten percent of that part?

The part that really made me cringe, what if after five years (est) they want to be bought out. Accounting practices say the value of an item is its value at purchase until you are selling. So dude or dudette wants me to buy them out, do I use the purchase price?

Make them pay for a current inspection, and then use that price?

Make them pay for a current inspection, and then offer them less than their share of the current value in an attempt to negotiate the best value for myself?

Clearly the person initiating the buy out is paying for the inspection...IMO.

Educate me oh accounting nerds. :P

Am I way wrong here?

Now that I've written all of that. It's a relative, well an In-Law for me, who wants in...they have nothing...this would be like, be their shot out of minimum wage forever kind of stuff. The catch is that they'd have little to no say at the beginning. The idea is that, my wife can throw her little brother a bone, without....hmmm....putting us at risk.

Discuss...I'm looking for all the differing strategies here, but please understand that there won't be any family favors going...it's business.

Thanks team!

I am getting started with investing in BRRRR. I haven't found a property that I like to invest yet, but I want to identify the lenders, get pre-approved and get all the paperwork done and out of the way. That way, I will have a couple (3-4) of lenders that I can shop around for the best rates, after the rehab is done.

I know the lenders will want to pull my credit score/report. I understand this will lower my credit score and as multiple lenders each get my credit score/report, I am concerned that it will heavily impact my credit score negatively.

Are there strategies that you recommend to workaround this or is there a way to do this effectively without heavily impacting your credit score?

I am trying to get into my first deal which happens to be a fourplex in Miami Florida (neighborhood of Allapattah). My strategy is to use FHA financing to allow me to put down 3.5% to basically get me in the game, live in one unit for 12 months, and get out of there to rent out the fourth unit. I am looking on the MLS for most of my deals that works with my price range. I have a total of 25k for a downpayment.

Currently FHA allows a max price of 550k for any residential property with 1-4 units (I am sure you already know this). The property I just made an offer on has an asking price of $550,000. All the units are currently rented out at $1,100 per month (month to month leases). All expenses are reported at $13,000 (25%) by owner. Vacancies were reported at 0%. My mortgage payment is 30 years at 5% ($34,190 annually - principle plus interest). With those numbers I would cashflow $2,969 per year with current rents from year 1.

According to most strategies out there for investors, it is best to bump up expenses to 50% and vacancies to 10% so if anything happens like an economic downturn or something breaks I wont lose my shirt.

So for my analysis I bumped up the expenses (to 50%) and vacancies (to 10%). With that said at that price of 550k I would negatively cash flow annually $-10,670 ($47,520 gross rent - $24,000 expenses - $34,190 mortgage). Its also worth mentioning that rents are nearly at the top of market at $1,100 for comps in the area. So I bumped the asking price down to the cap rate of that area 7.8% and got a price of $301,538 and made an offer at $300,000.

That puts my new price of $300,000, expenses ate 50% ($24,000), vacancies ($5,280), and mortgage ($18,649). I would cash flow $4,871 annually or $405 per month. Thats not a huge number but its something I could definitely work with assuming something doesn't go wrong like bad roof or plumbing (which owners says is in good condition). Its also worth mentioning the owner bought this property last year from previous owner for $490,000. After my analysis I can see why they might be wanting to sell so soon.

So my question is, did I analyze this correctly? What are your thoughts on my asking price and the way I got my numbers? Am I on the right track here?

Thank you!

Jordan

Hi BP, I'm a RE broker who's looking to purchase his first investment property. I think there's great upside potential in East Harlem and Northern Manhattan (Hamilton Heights, Washington Heights, etc), and as a single guy, I love the idea of doing a house hack. Is it possible to buy a 2-4 family townhouse/SRO that needs a total renovation and BRRRR/house hack it?

I'm running the numbers and I can't quite make it work, so if anyone has any insight or experience in the neighborhood, please share. Thanks in advance!