All Forum Posts by: David Kramer

@Doug Spence - When’s the next one?!

@Charles Cowin - You mention contributions into a taxable account for index funds in addition to your Roth IRA contributions. These contributions buy you flexibility and can be accessed prior to retirement. They are relatively liquid when compared to your pension and Roth IRA. As such, if an opportunity comes along that has the potential for outsized returns, you can jump at it from a position of strength with the increased liquidity that these taxable account contributions give you.

I don't think you are over-saving for retirement because you don't need to wait until a traditional retirement age to use those funds! Hope that helps! 

David - Great questions. I hired a very reputable home inspector to take a look at the mechanicals, wiring, foundation, and other structural components to ensure that the building itself was sound. An old house doesn't necessarily mean a dilapidated house. 

I made my offer knowing that it was going to take a new roof, and even with that cost built in the numbers worked. That is a function of the market being significantly more favorable to cashflow than San Diego. I understand that the appreciation rates are lower, but I am not building my models to chase appreciation. 

The property had been listed for a number of months, with the price slowly ticking down towards what I believed to be a favorable purchase price. The original listing was closer to $175,000, which would not have made sense at all based on the location and necessity for a new roof. However, at essentially $143,000 (after seller concessions), a new roof would still allow for an acceptable cash-on-cash return. 

Thanks @Evan DeVisser! I am looking to add another property in 2021 (either SFR or small multi). Currently, I am consuming as much literature as possible on multi-family properties to build my knowledge base.

Investment Info:

Single-family residence buy & hold investment in Grand Rapids.

Purchase price: $145,000
Cash invested: $41,000

My wife and I closed on our 3rd rental property in December, 2020 after about 3 months of searching and offering on multiple properties in the Grand Rapids area. Despite the hot market, we were able to find a property that provides just over 9% cash-on-cash return, after accounting for future expenses and vacancies. We decided to use conventional financing due to the low interest rates, putting down 25% to get a 3.125% interest rate.

What made you interested in investing in this type of deal?

We have 2 other single family properties in our portfolio that have performed quite nicely. Single family properties continue to be extremely desirable to both renters and homeowners, providing cashflow while remaining relatively easy to offload if the need arises.

How did you find this deal and how did you negotiate it?

I found this deal after a previous offer had fallen through due to the buyer second-guessing himself. After running the numbers, I made a quick offer, and only asked for $2,000 in seller concessions to assist with the closing costs.

How did you finance this deal?

I utilized a conventional 30-year mortgage with 25% down.

How did you add value to the deal?

After closing, I replaced the roof prior to listing the property on the rental markets.

What was the outcome?

The property is scheduled for move in and will rent at a rate that provides approximately $360/mo of pure cash flow.

Lessons learned? Challenges?

The Grand Rapids rental market in the winter is significantly slower than the summer, adding to my initial vacancy expense to the tune of $50/day.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

My agent, Jake Thomas, continues to be responsive and is a valuable source of pocket listings and investor specific advice and experience.

Investment Info:

Single-family residence buy & hold investment in Grand Rapids.

Purchase price: $145,000
Cash invested: $41,000

My wife and I closed on our 3rd rental property in December, 2020 after about 3 months of searching and offering on multiple properties in the Grand Rapids area. Despite the hot market, we were able to find a property that provides just over 9% cash-on-cash return, after accounting for future expenses and vacancies. We decided to use conventional financing due to the low interest rates, putting down 25% to get a 3.125% interest rate. The property needed a new roof, and some minor maintenance before being ready to rent out! This acquisition was a nice way to wrap up 2020.

What made you interested in investing in this type of deal?

We have 2 other single family properties in our portfolio that have performed quite nicely. Single family properties continue to be extremely desirable to both renters and homeowners, providing cashflow while remaining relatively easy to offload if the need arises.

How did you find this deal and how did you negotiate it?

I found this deal after a previous offer had fallen through due to the buyer second-guessing himself. After running the numbers, I made a quick offer, and only asked for $2,000 in seller concessions to assist with the closing costs.

How did you finance this deal?

I utilized a conventional 30-year mortgage with 25% down.

How did you add value to the deal?

After closing, I replaced the roof prior to listing the property on the rental markets.

What was the outcome?

The property is scheduled for move in and will rent at a rate that provides approximately $360/mo of pure cash flow.

Lessons learned? Challenges?

The Grand Rapids rental market in the winter is significantly slower than the summer, adding to my initial vacancy expense to the tune of $50/day.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

My agent, Jake Thomas, continues to be responsive and is a valuable source of pocket listings and investor specific advice and experience.

There are definitely some pros and cons (some covered in the above replies to this thread) for purchasing with all cash.

Pros: 

-Being a cash buyer allows you to negotiate a better price with the seller, as the property will not be contingent upon an appraisal or financing. This is less of a benefit right now, as mortgages are relatively easy to get and appraisals are coming back strong.

-Your cash flow will be strong right from the start, as you will be cutting out the financing costs. Right now, these costs are at historic lows - rates even 10-15 years ago were 6+%. 

-You leave yourself a ton of options after closing. You could use that property as a collateral for a HELOC, refinance into a conventional mortgage, utilize lease options or seller financing sales without fear of the bank calling the note due, or hold for the strong cash flow.

Cons:

-Scalability. Using 100% of your own cash will slow down your acquisitions. 

-Lower ROE. Without leverage, you will not be able to supercharge your return on equity. However, this lack of leverage also offers a downside protection. It is a lot more difficult to lose more than the money you put into the deal when you take the leverage piece out (only repairs, tax levies, and transaction fees will cause you to lose more than 100%). 

Overall, the decision is based on what you are looking for. Are you looking to scale the number of units quickly, or are you looking for strong current cashflow? That should guide your decision-making process. 

@John Mocker - those are also great points. Specifically for this property, I’m putting on a new roof, and it has updated circuit breakers, furnace and water heaters. I’m updating the waste water drain line, but there is PVC and flex plumbing everywhere else. 

@Will Gaston - thanks for the advice. I'll definitely be reaching out to a couple of different brokers for a second/third opinion on this. @John Mocker - I will keep an eye out for any Coinsurance clause and push for a RC policy to avoid the depreciation involved with a ACV policy. 

@Will Gaston - The comps show a lower assessed value for similar properties in that specific community. However, it has been a few years since those have been involved in transactions, likely hitting the upper limit of annual assessment increases that the county has.