All Forum Posts by: Henry Clark

Quote from @Marcus Auerbach:

@Henry Clark, happy to see I am not the only person to order red with fish :-)

Let me run with your numbers: $300,000 valuation, 65% LTV, $200/mo cash flow, rent $2,600, 7.5% interest, 5% appreciation.

Your PITI is about $1,800 monthly, 5% appreciation comes out to $15,000 per year, a 3% rent increase comes out to $78 per month.

If you take out $10,000 as a cash-out refi, principal and interest are $69, cash-flow still increases by $9 and your LTV is still slightly improving (You took out 10k and had 15k of appreciation). Compared to $200x12=$2,400 in cash flow, that's peanuts compared.

To take out $100,000 annually, you need 10 of those properties. The cash-out is not a taxable event.

In my mind, this is a retirement strategy for a mature portfolio. Typically, your LTV at that point is below 50%, maybe down to 30% or less. If your LTV is very low, you could even increase leverage 1 or 2% per year - basically like a reverse mortgage.

Traditional retirement advice is to take 4% out of your 401k every year so your stock portfolio should last you indefinitely. This is the same idea, but in real estate: your portfolio leverage does not increase, your cash flow does not degrade, you just maintain them both at a stable level. 

Here is my point to new investors: equity really matters, keep that in mind when you buy property!

OP change my summary as needed.  To use this approach for $100,000 after tax lifestyle:
1.  LTV should be lower than say 55%.   To cover bank loan LTV of 65%.
2.  10 properties or equivalents at $300,000, 5% annual appreciation, PITI using 7.5%. $200 after tax monthly cashflow.  

Somewhere in the above area REI should be able say this will or won’t work generally speaking.  

OP.   What is your family and lifestyle?  You will be far far ahead doing House Hacks where you live than doing BRRRRs several states away.  From a risk, return and taxes.  Especially being in Cal with a high cost environment.  You would need to do say 30 BRRRRs in Ohio to have the same after tax impact as a Househack in Cal from a monthly cash flow and appreciation.  With way less risk.  

My logic may be wrong.  Been drinking a lot of vino lately.  

OP just thinking thru the number mechanics I don’t see this approach working for 99% of investors.   Technically it is a path but not for most people.  

Change assumptions as needed:

1.   Interest rate of 7.5%
2.   Even no refi cost

3.  2025 equity appreciation of 5%.   2001 equity appreciation of say 10%.   Not using any value add approaches with 400% cash on cash%.
4.   Lifestyle $100,000 after tax per year.

5. Cashflow return of say $200 per month on a $300,000 valuation

6.  PI terms 30 year with no 5 year commercial balloon and new terms.  Loan collateralization at 65%.

Without doing the actual math. In 2025 or even 2001 appreciation levels. At 7.5% interest. I don't see a new or existing REI person achieving $100,000 after tax living mode. They would need, just throwing a number out of say $20mm in equity to do that. Don't even think $20mm equity would achieve that. The $100,000 would eat into their cashflow from renting and any future appreciation even at 10% pretax.

OP are you acting as the buyers agent or are they wanting you to seek out deals and make offers?

OP always use a Buyer agent.  

The seller pays the commission for them.

Even if this is an off market deal still use a buyers agent and you pay part of the commission.

For your type of REI pick the best realtor in your market as your buyer agent and stick with them. Always have them be the original point of contact, not you.

Never penny pench them.

They are now part of your team.

You will get more deals out of the blue from them and they will also know your business model and the rest of your team.  

Our realtors have brought or helped initiate over a $1mm of value add to our deals without us asking.  

OP. As Joe mentioned you have to do the math. Forget all of our opinions. Until you do the math anyone can be right or wrong. The things you're being told aren't opinions. They are based in many deal analysis and experiences. You have at least 3 different REI math analysis you need to be good at before even trying an REI deal And even then you reach a point where you just have to do a deal to advance your learning.

1.  Risk/return

2.  Cash flow, cash in cash, cap rate, return type calculations

3.  Financing-  let’s do financing since that is the one you are discussing  

You have $100,000 to invest      
A. $100,000 on one deal. With an LTV of 50%. $200,000 deal in total.

B. Do two $50,000 deals at LTV of 10% or two $500,000 deals.

If A and B perform the same which one do you have the potential for the most Appreciation and Cash flow the two primary REI metrics? If A and B value goes up 20%? If A and B cash flow at 1%?

Does A or B give you the best return?  Even with that answer you still have to consider 1 and 2 above.  

 In one of your posts your considering investing in Syndications.  Just the above are only about 3 out of 50 deal analysis questions you need to know and answer.  

Each responder has a different REI type, risk tolerance, return specs, stage of their investment career. You need to spell your background out then ask for input. You will get a great and useful response. All of the investors above have probably made over $500,000 of either errors, lost deals, etc. But that was part of our learning processes.

OP depends.  
What is your refinancing cost- appraisal, loan fee?

What are your interest rates- low going to high, staying the same, high going to low rates.  

What stage are you personally at?- Risk tolerance, equity creation, cash flow needs, time management, etc.

OP. All of these folks have different REI strategies, risk tolerance, stage of investing, strengths and weaknesses. All of their recommendations are correct even if they sound opposite.

You have to pick one and start making mistakes and learning.    There is no “Passive” investing.   There might be “Passive” ownership but not investing.  On another post you were talking about syndications.  Owning them is passive, but investing in them is extremely active.   Takes a lot of research and learning to know the right questions.  You are the Investment Banker.  

As mentioned by others. House hacking is your least risk and most passive investment since you have to do it anyways. First time out if you're doing a flip or BRRRR do an easy superficial one. Carpet, paint, landscaping, overhaul kitchen or bathroom. No structural flips. ADUs, wall moves, roofs, etc

Seller won’t accept any offers.  They want to sell from east to west.  Even at asking price.  Understand they want to keep as large a Portion as possible in case a large buyer wants.  We want the next lot over.  Will pass for now.  Will look if any other land can be purchased in this industrial zoning area.