All Forum Posts by: Rick Fowler

30 year fixed is the lowest risk. You can always pay more if you want to pay it down and you have extra cash. If you don't have extra cash, then having a smaller required payment is nice (lower risk). The investors who crash and burn are the ones who can't afford to hold a property because they can't make the payments. One benefit of holding a mortgage on a property is the inflation hedge. Later on, your fixed payments are made with dollars that are worth less. That is, when you pay principle early, you are using dollars that are worth more. Even at 3% inflation every year, that makes a sizable difference over 30 years.

Thank you all for the insight. I am leaning toward dropping the price to sell it faster mainly because I don't want to kick the can down the road. A couple of clarifications:

- The large master bath in the basement was already there - I didn't spend a dime on it. 

- The wholesaler estimated ARV of 445k last April, which I originally thought was high. There were many solds of similar size in this area much higher than that, but the key was to figure how much the busy street and nearby commercial mattered. Those of you investing in Denver know the market is insane and that 3-6 months adds still more appreciation, and the insanely low inventory has led to bidding wars, cash offers over list, etc. That happened on my other investments last year. I ran my numbers on ARV of 445k but set the list price 7 months later based on my listing agent's analysis. Note: I got it under contract with wholesaler in early May and closed early July and listed mid November.

- I definitely missed that the gas station would be visible from the house (a walk up to the main floor) because I bought it in the summer, and the trees blocked it mostly. Leaves fell in the fall/winter when I listed it. Adding more of a barrier to the fence or adding more trees I don't believe will help much because the main level is above the ground 3-4 feet, and the sight line to the gas station awning is upward.

- The flip next door started at 475k and dropped price twice and sold in early January, so the sold price was not available when I listed mine. They were about a month ahead of me. I viewed it after all finished, and the work and materials were not as high quality, basement ceilings are less than 7 feet. Really, it's not as nice. But I understand the location is going to trump on this one. The neighborhood is desirable, but my lot is not.

Expensive lessons, but good ones nonetheless. Thank you all again for the feedback.

Rick

I'm looking for advice on what to do with my flip that won't sell. It's 1375 Locust St, Denver. Because of extra rehab and holding, I'm getting close to my breakeven, so I'm looking for my best options. Here's what I've thought so far

- drop the price faster until I sell it and take a loss (but at least get some of my money back to invest elsewhere)

- refi and rent it (rents 2500-3200/mo); maybe a renter will care less about the busy street? Still have the selling problem eventually
- refi and sell with lease option; maybe a tenant/buyer is having a tougher time buying in this market because most sellers don't have to fiddle with buyers who aren't ready? This strategy looks like the best numbers to me.

- work harder to find the ideal buyer who wouldn't care about the busy street; who might this be at this price point?
Two questions: 1. If lease/option is a good strategy, then I'd like to discuss with someone who's done them since this would be my first 2. What other strategies should I consider?

Some facts
- 4 bed, 2 bath, 1 car detached garage, alley access - it's on the corner of 14th and Locust; 14th is busy, not like Colorado or Monaco - 80+ showings since week before Thanksgiving - Original list: 474,950, lowered to 459,900 early January - consistent feedback: love the rehab; hate that 14th St is busy and gas station behind the alley; priced about right or slightly high
- the flip next door sold for 432k in January but is not as big or as nice a rehab; gave a concession for landscaping to accommodate for gas station behind the alley (my listing includes this concession as well)

I am grateful for any insights. Thanks!

Rick Fowler

@Michael Barbari - thanks for your insights.

I can hold onto it, but it's slowing me down (unless I can find other ways to move forward). I am working on fix-n-flips and wholesaling in the meantime. 

I'm not a tax expert, but as I understand it, the depreciation reduces the cost basis, and the IRS sees the taxable gain as sale price less the cost basis. So if my loans are more than the cost basis, then I have a taxable gain that is greater than my sale proceeds. Am I seeing this right?

I bought this Chicago duplex to live in just before the market topped in 2006. Then I lived in it while the market tanked, and I rented both units when I moved to Colorado because I couldn't afford to sell it. Now it's fully rented - never had a vacancy. But since I bought it too high, it's negative cash flow. By the time I file my tax return, it's close to breakeven for the year, but it's negative real cash flow about $500 monthly. This is a terrific neighborhood for rentals, and duplex conversions to SFR are common in this area. (North Center/Lincoln Square if you know Chicago. Major cross streets, Western and Montrose) The market is coming back - it's about 10% down from when I bought it. Finishes are rental level, and I have raised rents on turnover. Equity is about 10%. This market will probably appreciate - it's established and solid - came back much before many other Chicago neighborhoods. But it's not going to be a screamer probably ever.

Bigger picture, my major goal is to build passive cash flow for the long term. This albatross raises my DTI, so adding new rentals to my portfolio is tough (as far as I know).

Two loans on it
380k at 5.125%
80k at 4.75%

I refi'd it in 2010 when banks were rushing to do refi's before the government made them do something drastic.

I would have to bring about 60k to get the loan balance down enough that a 4% loan would bring cash flow to breakeven. That includes discounting the soft expenses (vacancy = 0, which is true, reserve is 0, maintenance is 50/month, management is 120/month).

One more kicker. Since I have taken depreciation every year, I will have a sizable tax bill when I sell it even if there are no sales proceeds.

I'm looking for some ideas about what to do with this property. Address is 2471 W. Pensacola Ave., Chicago, IL, 60618.

Sell it?

Exchange?

Hold it and raise rents?

Lease option?

Something else?

I'm looking for any ideas. Thanks!

Hey Garrett,

I'm just starting, and my only goal is to complete my first deal so I can learn from experience. I'd like to hear more about your first deal. How did you find it? How did you put it together?

@Anson Young That's exactly the kind of analysis I need to do so I can select an effective strategy. I'm building models and looking at the market. Still learning how to look at it.

What criteria are you using that tells you fix-hold won't work in Denver Metro?

What are the most useful market data sources you have found?

Although I manage a rental in Chicago from Denver (with a property manager on the ground there), I'm unsure about building a new REI business investing remotely. Is that what you plan to do, or are you going to change strategies for Denver Metro investments?

Thanks, Johnny! I just took a brief look at investfourmore.com - looks like he is doing both buy-hold and fix-flip, so definitely someone I can learn from to see if that's a good strategy for me.

What are your goals?

Hello BP,

I've considered REI since 2002 and have a 2-flat in Chicago that I bought in 2006 to live in and rent the other unit. Now I live in Evergreen, Colorado, just outside Denver and still have the Chicago 2-flat - can't afford to get rid of it yet.

My background includes an MBA from University of Chicago, software engineering for mobile phones, web site development, information technology consulting, and business coaching. I am a certified professional coach with the International Coach Federation.

Why REI? Why now? I'm creating my own freedom through self-reliance. I work my *** off, and now I will do that for myself instead of an ungrateful employer.

I am building my business plan now, which means I'm learning as much as I can from BP, and I'm starting my networking and market research. I expect to mix buy-fix-hold and flip, but I am still doing research to determine the best strategy for me and the markets where I am.

Biggest areas for me to learn:

- how to do deals even though I have little capital of my own

- how to determine what strategy I should use for my market

Looking forward to connecting with you all.

Rick