All Forum Posts by: Duncan Taylor

Depending on how you title these properties and how strong your income is individually and your wife's income is individually you may not get past 10.

The good news is once you get into the commercial financing world things get much easier really fast. But, that is a discussion for another time.

All she has to do is rent to you with a clause allowing you to sublet.

Jeremiah,

With four properties currently mortgaged, you are going to have both of these options taken away from you as you currently know them in the very near future.

You are going to be forced into commercial financing. When that happens, find a lawyer and a CPA familiar with that world and let them help you navigate the waters.

As a strategy, high leverage can be a good thing when you are starting out, but once you reach critical mass, it becomes an albatross around your neck.

If your planning shows you need the income from 40 sfh rentals to support you through retirement you want those paid for as soon as possible after purchase.

With each paid for house you do two things, you improve your financial strength going into any future deal and you reduce the real risk you face when things don't go as planned.

A couple of years ago, we had the start of a major real estate correction. I say the start because it was prevented from fully correcting. The correction will complete, I think it will do it within the next 5 or so years and I have put my money where my mouth is by selling out all interest in real estate investments in the US. The only real estate I currently own are our houses, all 100% paid, and the building in Seattle where the offices of the software company I run is located, again 100% paid for.

Given what I firmly believe is coming, those using leverage need to be keenly aware of its risks and the warning signs indicating the need to reduce that leverage. Timing the market at the micro level is a crap shoot at best.

Now, having said all that, if you are going to continue to buy in this market to hold long term, then for the next couple of years at most, I would buy with 25% down. Then start piling up cash. Once the real correction happens, you can join the real investors like me who will snatch up deals that are considered unimaginable today.

Donald Trump is an arrogant, self aggrandizing, jerk. But, you should definitely follow his lead on this and others like him... PILE UP CASH IN INFLATION PROTECTED EASILY LIQUIDATED ASSETS if you want to have the time of your life as an investor in a few years.

First, remember that licensing, in any profession, is less about protecting the public and more about protecting the livelihood of those holding the license.

Wholesaling is NOT and could never be made illegal under our current legal structure. Unless and until the US Constitution is revoked, you can sell any unrestricted asset you own, at any time, for any price.

Anyone can buy real estate and sell that real estate, on their own, without the help of any professional. Personally, I think it is a mistake, but you can do it.

Wholesalers aren't typically doing their transactions that cleanly. The walk a thin line by trying to independently negotiate both sides of the transaction before actually taking title. In many instances, they don't sell the property to the ultimate buyer at all, they merely sell their interest in the purchase contract.

There is nothing wrong with that as long as the two sides have really been negotiated independently.

When the wholesaler crosses the line and the two transactions become one, then there can be problems. By lining up a list of buyers and asking them to tell you what they want and then going to find those properties for them, you make it much harder to keep the transactions independent and much more difficult to prove they are independent if you are caught.

I think you are confusing investing with creating a business. Flipping houses is not investing. At best it is a business you actively work and at worst it is gambling. Yes, I know a lot of people make a lot of money flipping houses. That does not make them investors any more than the guy working the counter at the dry cleaners he owns.

For a real investor, there would never be a consideration to quit their 'day' job and work in their real estate. If they do that, they transition from investor, or building towards being an investor, to small business owner and being their own boss/employee.

The advantage of being an investor, a real investor, is you are able to establish multiple streams of independent income and the investment income requires oversight and monitoring but no active day to day work IN the business. You literally make money in your sleep, when you are awake, playing with the kids/grandkids and even responding to a post on a forum. :)

Here is a good rule of thumb to use... Assume you don't have a day job, could you take a 1 month vacation where you were totally cutoff from making any kind of decision about your real estate and it not be a problem?

If the answer is yes, then congratulations, you are an investor. If you aren't already, you should start to diversify.

If the answer is no, then congratulations, because while you are a small business owner and not an investor, you are still ahead of most of the rest of the population. If you haven't already, you should really start investing some of your profits for retirement.

I'm sure many here will take extreme exception with my comments but I can assure you well over 90% of the people here are not investors, they are small business owners and work in their small business each and every day.

Oh, and as for a day job, I still have mine even though my investments have done very well over the last 30+ years.

Early on we made the decision to hire in house rather than use a management company.

Over the years, all of the partners would sit down from time and time and we would discuss, debate, argue and evaluate using external management companies verses keeping it all in the family. We even did two tests using outside management but abandoned them both after a short period of time.

Two managers and two maintenance types is way too much for 20 units unless there is some geographic factor in play. A property manager will spend approximately 15 to 20% of their time on overhead type tasks. That means they will have about 32 or so hours each week available to everything most people think of as managing a property. The maintenance types will have less average overhead, somewhere in the 10% to 15% range but it could be more due to travel time as they go from unit to unit.

Given that, for 20 units, one part-time manager and one part time maintenance resource is more than enough. It could be the same person.

Also, you definitely want them to record their time each and every week. You want it to be specific showing what they did, yes even the overhead time, and on what property the time was spent. You should start this now because you intend to grow and as you do this type of data is a must to manage your investments as you transition from working in your rental business, which is where you are now, to investing in and monitoring your rental businesses, which is where you want to be in the future.

You will know you have made the transition when your income from your 'investments' is passive instead of active.

Sell the rental and payoff the debt.

You are clearing $200 a month on the rental BEFORE taxes and if anything goes wrong with the rental, like a water heater or HVAC system needing major attention you are in a hole.

I guarantee your monthly payment on that $20,000 in debt is more than $200 each month.

Once you pay it off, start putting aside the payment you were making on that debt before and you will find you can pay cash for your next car long before the ten years you are expecting now.

Also, with a $100,000 income and only $50,000 owed on your home as your only debt, you should be able to save a large sum of money each year.

I am an inactive CPA and have an MBA and I have never done my own tax returns.

I completely agree. We have removed most of the incentives to getting off assistance.

1. We have removed the social stigma of being on welfare. Now, it is even considered cool by way too many.
2. We have removed the financial incentive because assistance pays far more than actually working, and the work to keep and increase the support is easier - just show up at the polls every couple of years.
3. We have made it politically incorrect for those of us who pay the bills to stand up and say, "Hey, this is not fair to them. It is certainly not fair to us and it is unsustainable!" (You may have noticed I'm not all that constrained by political correctness. Some call it a character flaw, I just call it character.)

And yes, just like before programs like Section 8 existed, private charities and non-profits would fill the void.

By the way, I would encourage everyone to read Boundaries by Henry Cloud and John Townsend

http://www.amazon.com/Boundaries-When-Take-Control-Your/dp/0310247454

I can remember a discussion I had with a coworker when I was just about to graduate from college. This was long, long ago, before they had even issued the patent for dirt and before the launch of the 'Great Society' in the 60s. :)

This person was in their late 40s or early 50s. They had a family and while not rich by any means, they were able to make ends meet. But, you could tell, they had worked hard for everything they had. They said to me, "It is very expensive to be poor." At that time, I thought he meant monetarily. However, as I grew older and wiser, (though my wife might disagree with that bit) I realized the expense of being poor isn't monetary and cannot be solved by throwing money at them and expecting them to make less expensive decisions and choices.

I know we are way off topic and if the moderator sees fit to delete this, I certainly understand.

But, basically there are two approaches you can take to 'helping' others. You can figure out what their short term pains and needs are, work with them to alleviate those and work on a longer term solution to improve their situation. Or, you can say, "Here is $X, you go figure it out." The second approach is the one our government takes. The first approach is what is expected of us Christians.

The poor will always be with us. Sound familiar? The problem we have today is it is perennially the SAME poor. It is one thing to run into a rough patch in life, experience the discomfort and work to improve your lot while using the safety nets available to survive. It is an entirely different situation to fall into that safety net and decide it is a rather comfortable hammock.

Those paying the bills are finding the hammock too expensive to maintain and yet we are not willing to go through the difficulty of reaching in and pulling out those in that hammock one by one if they are willing and maybe using a little 'tough love' to kick out the ones unwilling or afraid to make the effort.

Nature understands this, which is why the baby birds are booted from the nest whether they think they are ready to fly or not.