All Forum Posts by: Account Closed

@Brendan Lawrence

"My question here is what happens when housing prices officially rise to the point that you can no longer find the 1% rule anywhere?"

You sell if you own.  As the general 1% indicates, you don't buy.  There are other ways to invest in real-estate without maxing out your personal liability.  One could also ask what happened to the 2% rule...  That used to be the mantra on the forum 5-years ago.  Then it was the 1% rule, then house hack, and now we have hit the peak mania via remote flips.  

"A house will rent for $2,000-$2,500 pretty easy but what if none of the houses in town meet the 1% rule anymore? What happens when the whole state finally exceeds it?"

Well, that just means a lower Return on Investment. At that rent rate and sale prices, what is your theoretical net each month? Assuming you have cash-flow goals in mind, simply put more down. Instead of putting large down on a high-priced rental hoping it continues to be more unaffordable, I realized I could loan the funds for a year or less, create more cash-flow than with my capital leveraged, and have the legal right to foreclose on the property if terms are violated. I'm talking about SFR in the Portland Metro area. Oh, and you don't have to manage a contractor crew, property manager, or tenants. The sacrifice? Fixed return. Do you want to be the one buying on the MLS at the peak? I assume you are not referencing off-market deals which can work no matter the cycle.

@Dave Foster

The operator's fast talk and overall bubbly personality were making me a little suspicious.  Could be a great operator or an industry scammer (I don't think he is) but very difficult for me to know the difference at this point.  Flipping rocks and learning more.  Didn't know you could 1030x these investments.

@Bruce Lynn

The agreement was offered by the Operator. Dry well from the 50's.  He's confident he can get something out of it and illustrate it in a prospectus. Not moving forward with this particular agreement, rather trying to learn new ways to invest.  Royalties look a lot more interesting or less risky. 

@Don Konipol 

Thanks Don.  I was thinking about it as a tax credit and not a deductible. 

@Ethan G.

Thanks Ethan!  Have you invested in such agreements before?  Looking into it more.  Wish I had a higher tax liability to do a few but not there quite yet.

Any Texas, Louisiana, and Oklahoma Oil Industry folks on the forum?

I was looking into an investment opportunity involving the oil industry and was wondering if anyone has experience with oil exploration Participation Agreements? More specifically, buying Working Interest on an oil/gas prospect. Is this common in oil country or a scam? 

Totally out of my depth on this and interested to learn more.  I have an opportunity to invest in the Working Interest through a Participation Agreement on an oil and gas "development".  However, no drilling is required and costs are to refurbish a dozen of the existing sites with about 20 operating.  The terms are 1% of the net revenue of after lease and operator expenses for $9,000.  

How common are participation agreements in Texas and other heavy oil states?  Is this a scam or a great opportunity?

What prevents the operator from taking the money and just provide a story over the course of a few months with no oil to show for it?

Do most operators use banks to raise capital on performing assets?

The "innovative" idea... One could buy the 1% shares equal to their federal income tax bill.  Before years end you execute the agreement and write off 100% of the cost of the shares.  Best case:  It's profitable and you turned your tax bill into an income stream; Worst case: It produces no profit and you don't have a tax bill so no different than just paying the income tax.  Is this idea viable?  

"One thing I read in the regs is an individual for their personal portfolio is exempt if they make 5 or less loans in a year or have 5 or less in their portfolio.. this tends to be the rules in most states it allows private folks to use their IRA money to make a few loans as alternatives to other real estate investments." -  @Jay Hinrichs

Jay - This rule has allowed me to use my self-directed IRA and ROTH funds on real estate filps in Portland OR.

With mania level housing prices, surprised people on BiggerPockets don't talk about this strategy more often, e.g. lend 2nd position note recorded via Trust Deed. The trend is to flip SFH out of state. In my opinion, this is way riskier for a novice then doing short term notes on a local flip.

@Jesse Munos

I don't have experience with tax liens, however, you may look into promissory notes via trust deed. I sold my SFR rentals making around $1k a month and rolled the funds (trapped equity) in a note backed by real estate, instead of buying a bigger rental (can't sell high and buy low very easily), and now netting $60k a year. The collateral is an RV park in Vancouver WA. I have more details on that in my profile along with several smaller note I've done. I also have notes in my self-directed ROTH and IRA making a minimum of 15% a year.

The due diligence mainly focuses on assigning a conservative value on the collateral and doing a rough estimate of your investment coverage, e.g. ARV of $500k - $200k (1st position) - $60k (2nd position - your note) = $240k (post-foreclosure potential surplus). We don't plan to foreclosure but that is our legal means of security. In this simple example, I would suspect you would sleep well knowing you were making 8-15% and your principal is covered by over 4 times your principal. I do this locally so I am more familiar with market trends and collateral values, however, doing remotely you could hire local experts to weigh in. I use a local real estate agent and a title company to confirm project assumptions and takes a few hours for me at this point.

A common question I receive is "why would a flipper use such expensive hard money?" The answer requires to switch rolls with the flipper. Say you are starting 1-2 flips a month. At some point, you run low on funds/credit. For me, that would be month 1, others may take years. Now if you were in a position to buy another property but your funds/credit was tied up, would you pass on the deal? Wholesale it? Or use other people's money? The acquisition requires fast and reliable funding to seal the deal in all markets at this point in the mania. This is where a reliable capital partner with the direct means to fund a note within a few days is more than worth a higher rate versus leaving profits on the table. Conventional or more institutional HML have too much internal red-tape and too many levels of approval. Not saying these sources aren't used, however, adding a capital partner to the mix greatly improves business stability.

@Peter Thielemann

Let us know what you find out as things progress.