All Forum Posts by: Paul B.

Heh! No argument from me on this one. I am just thankful that there are still people in the world who live up to their obligations, no matter how painful that ends up being.

Reading this post, however, really helped put me in the shoes of someone who was terribly underwater. (We're not talking 10-20%, either, but almost 50%!) As staunch a "pay your debts" person as I am, even I would have to think about whether to keep this one. It's a lot of debt to repay with no asset underneath. But I like to think I'd do the right thing here.

There are many terms. For me, ROI means the return on the entire investment -- its total cost. ROE means the return on your equity in the deal.

Some people look "cash ROI" or "cash ROE" because they want to know how much money they will have each month and year to put in their pocket.

But you're right, money paid to principal is actually part of your earnings, so to have a true look into ROI and ROE, you'd look at your income, which is not reduced by principal payments.

Note: I have no idea what your numbers mean. You mentioned a 5% down payment on a $100K deal, but then you talked about a $2K investment...I'm confused.

I think this is a terrible idea. You are under the illusion that your only expense with the second property will be the mortgage payment. The reality is that, at best, you're going to break even on it, so you're not helping yourself at all with respect to your original house, which is bleeding you of $5,000 a year.

Let me ask you a question. You are upside down on a property by more than half its value; the house you paid $270,000 for is now worth only $100,000. (What exactly do you owe?)

So, here's the question. Why don't you just walk away? I am not suggesting you do this, but why don't you?

No, you did it right -- the numerator is net operating income before debt service,, and the denominator is the price. I didn't notice the OP's error.

If you're using the income after debt service, then the denominator would make more sense being the equity; this would give you an ROE number. Of course, there's no equity in this deal, since it appears to be 100% financed.

I maintain that forecast expenses are still light.

I think the first few terms all mean the same: You close on a property as the buyer, then instantly sell it to someone else waiting in another room. Personally, I've never done this. I think it's most common when you'd really prefer to just assign the contract, but either it's not assignable or you don't want your buyer knowing what you paid for it.

Transactional funding probably refers to hard money mostly, which means it's just funding used to close on your transaction (although that does not necessarily need to be hard money); it's not a long-term solution to a financing need, should you have one. Hard money is best suited to deals where you plan to flip the property or have a solid plan in place to refinance the property with longer-term funding elsewhere.

Well, J.'s a brilliant guy, so it only goes to reason that his "Coming Soon" sign would also be, well, brilliant!

It's a great way to generate a little awareness and buzz without having actual showings of a less-than-finished product. And I intend to steal it, should I ever get into the flip business again.

I agree, also, that you should not show houses you intend to retail until they are completely finished.

I still don't follow why the need for all these wraps (unless we're talking cheesesteak).

Buy the house, sell the house back, etc. Why?

If your plan is to sell the house to get your money, then front the cash to get the loan caught up, have him deed you the property, then sell it. There's no way I'd have money in this deal without getting the deed.

I think I just experienced my first brainfreeze without drinking a Slurpee. I've never claimed to be the sharpest tool in the shed, but what are you trying to achieve here?

Why don't you just advance him the net $6K to cure his arrearage and have him deed you the property?

Your expenses sound light to me. Even a modest vacancy will chew up most of that number.

Your cap rate sounds incredibly low. It's only 7 bps above the cost of debt. I'm not sure why you'd accept a debt-like return for an equity-like risk, although I understand that if you foresee an increase in rent and valuation, there's upside there, too.

Ah, I now see that you're assuming a 100% LTV loan...is that right? Ergo, no equity...

Do you think it's realistic to assume that you're going to buy a $380,000 building with no money down and make $28,000 a year clean and clear? (I don't, but I'm asking...)

Bottom line, the way I see it, is that your expenses are way off. What's the source of these numbers? Have you seen a tax return?

I was talking to a friend about how I think now is a great time to pick up some SFHs and small MFs on the cheap (we're talking about an average of $40K per door), and holding them for current cash flow (rents of 1.5% to 2% of cost) and long-term gain (VERY long-term).

His reply was that he thought there was still a significant overhang with a lot of real estate that needs to be foreclosed on and sold. His gut tells him that we'll see another 20% to 30% decline as all of this inventory hits the market, so he wants to wait a year, maybe two, until he sees a positive trend.

My thinking is that the lower-priced, NOO properties don't have much more to go down, and if they work for me at today's prices and I'm going to own them for 10 to 20 years, I don't really mind if I miss timing the absolute bottom by 20%. Plus, I'll likely still be a buyer in a year or two, so I'll still get the benefits of that slide, should it happen (sort of like dollar-cost averaging for real estate).

He agrees that it's impossible to time the absolute bottom, but he'd still like to wait until he sees a reversal in the price trend. I think he's applying the same philosophy to real estate that he does to stocks, which is that he's content to miss out on buying at the bottom IF he's convinced that prices are header higher. I get that, but I wonder if that strategy makes sense in real estate. Maybe it does, and I'm being too eager.

Also, for those of us who are going to borrow money, you have to consider that interest rates could be higher in a year or two...

Your thoughts?