All Forum Posts by: Dan Johns

I'm needing some advise:  I currently have three sfh investment properties. I'm purchasing a 4-unit property and have several financing options.

The first is a seller financed deal that looks great at the start. Rate is at 6%. Requires no appraisal, low acquisition fees. The seller wants 25% down. Also, this is only for 10 years, so between now and then we will need to refinance and spend those extra, saved fees anyway.

The second option is to use our broker. Rate is at 5.62% 30 year, but with all the traditional appraisal and associated fees.  Also 25% down.  This is where my question comes in.  This is a $450,000 purchase.  I have $50K ready cash, but like most investors, most of my funds are tied up in other properties and I've pretty much leveraged them. So I need to come up with roughly $90K to close the deal.

I have 401K funds that come available penalty-free in 1 1/2 years to cover all options.

What are my options and how would I structure them?  

The way I see it I could borrow from family/friends, but those funds will need to be traced, so unless I'm sneaky and get "gift letters" this won't fly with traditional financing.

I could structure a deal and make them partners to the investment, but I want to I will want to pay them off within 1 1/2 years.  I also really don't want them on the deed/title as I'd likely have to go through this again to get them off said deed/titles.  I'd like your take on how this deal might be structured.

Thanks for your input.  Dan

Ryan,

Your thoughts help clear my head.  As Mike D. stated, I may be suffering from endowment., among other things.

No capital gains to offset, but losses I can't take now will rollover, so eventually I'll catch them.  Most important is to get our money working better for us.

Thanks to all for your input. Dan

David, my thought exactly.  I've already had my CPA involved and he's in agreement.  Thanks for responding. Dan

My wife and I have been following Bigger Pockets for the last couple of years including a few podcasts. I’m writing because I need a sounding board. 

I'd been involved in REI a number of years ago and in the 2008/2009 downturn took hits along with everyone else. I came out of the mess holding two prior homes that became rental properties due to being upside down. Cap rates and rental values aren't good on either of these.

Regardless, since starting to follow Bigger Pockets, over the past twelve months, we’ve closed on two more income properties and are starting to rebuild our portfolio.

However, my current opportunity has me talking myself in circles and not gaining much clarity. I’d greatly appreciate your feedback.

Here’s the situation:

The two investment homes I mentioned above in the north Phoenix area. One was purchased in 2005 for about 317K. Today it is work just about $280K; 8 years after the crash!

The second was purchased for 485K and is just about back up to about that same market value.

Both of these properties were originally my homes and became rentals when I moved and couldn't sell them. Neither one cash flow and I feed them every month. Of course, at tax time, after depreciation and the losses, I do get the benefit from Uncle Sam.

I no longer live in the area and the two properties I purchased this past year are in my new home town…not a booming market, but a growing, rural economy, with housing price escalating quickly with local factories and processing plants expanding; although this might be short-lived as we know rural areas can do..

What I’m considering is selling the two Phoenix properties, either on a 1031 exchange or via a Deferred Sales Trust arrangement and putting the proceeds into a few smaller houses closer to my current area.

So, the facts:

• -Both homes are still under the value I paid for them
• -Both homes have negative cash flow, cap rates hovering around 2 – 2.5%
• -I’ve taken significant heloc or refinance out of each to buy other properties, but have in the ballpark of $120 - 140K equity/profit after selling (both)
• -I never plan on much appreciation, but the Phoenix housing market should be adding 4% annual today.

I keep telling myself that it makes sense to sell these, get out from under the large debt and negative cash flow and put the funds into multiple smaller places that will cash flow, but may not appreciate as much.

But then I turn the table and say “but what if the Phoenix market does rebound at 4% plus per year”

Talking in circles…any words of advice? Or how could I effectively do a comparison?

I greatly appreciate your time and and words of advise.

Thanks, Dan

I'm Dan, 57 and still working for a living.  Planning on doing so for a few years yet.  

I was involved in real estate investing in the Phoenix area in the late 90's and up through 2008.  We all know what happened then.  I ended up holding onto two income properties in nice areas of the valley and they produce minor cash flow today, but not significant and the property values are still less than I paid for them.  

However, I'm not daunted by the experience and am wanting to begin building my portfolio again. I am actually just closing on my first property (SFH) in southern Idaho, near where I live.

BTW; I've always used property managers, as my work keeps me away from home mush of the time.

For you experienced investors out there, my question is this:  What advise do you have for an older investor looking to build a real estate portfolio? How agressive should I be