All Forum Posts by: Gary Parilis

city-data.com is very useful.

Population by year, median income by year, median home prices by year, crime index by year, job growth

Thanks for your thoughtful response. Cash flow is no issue if no mortgage. To me, without leverage, much of the benefit of real estate is gone. I won't count on appreciation, and so equity growth comes from mortgage paydown. If all I'm getting is 6% or 7% CoCR and no equity growth, I'm not doing better than the stock market (though more stable, of course).

8% would be a very high rate. I can get rates below 6%, but with 1.5% fee and at most 60-65% LTV. I also have to put away 6 months expenses in escrow for reserves. All these details vary by lender, but this is about the best deal I can find.

Actually, the ideal situation would be seller financing, but that's hard to find.

Separate question: are you saying you self-manage? You're not permitted to do that under a solo K, right? I know you can't under a SDIRA.

 I suppose with sweat equity, good numbers are possible anywhere.

@Jacob Chambers, I live in NJ (30 miles form McGuire) and invest in other markets -- NJ isn't a great place to invest, both because of rent/price ratios and because of landlord/tenant laws. If Pensacola is good, why not buy more there? I won a couple in Daytona.

How did you decide on Pensacola? I'm looking for other markets to focus on. I don't know much about Pensacola, but some basic stats seem pretty solid: 

median income growth 37% since 2000

median home value growth 77% since 2000

crime fairly low and declining

population declined 2000-2010, but flat since 2010

12 month job growth is -3.8. Negative, but not by much relative to other markets during covid.

He can roll it into a SDIRA and can invest from there, though there are complications in doing so. @Brian Eastman is a very helpful resource for some of these details. 

And as @Sean Fillmore says, the CARES act allows him to withdraw up to $100k out of a retirement account any time in 2020 with no penalty and with the ability to pay taxes over three years. It requires that he's been financially impacted by Covid, but the definitions of that impact are pretty vague. He'd be wise to do some reading and talk to an accountant to see whether he can do that.

The advantage of the SDIRA is that his taxes will still be deferred, because he's not withdrawing the funds yet.

Hi @Luca Mastrangelo. For sure they shouldn't sell if before deciding how to invest the $750-900k they'd get. But what would they do with the $400k they'd pull out of a refi? They shouldn't refi without figuring that out either.

On the question of sell or refi: To me those rental numbers don't look so good. To begin with they fail the 1% rule by quite a bit (monthly rent divided by purchase price -- or in this case, sale price). It's just a rough rule of thumb, but it suggests the property doesn't cash flow so well relative to what they'd get if they sold.

If they take out $400k, they're leaving $350k-$500k tied up in the property. If their net income is $16,744 per year, the cash-on-cash return ranges from 3.3% ($16,744/$500k) to 4.5% ($16,744/$350k), depending on how much equity there really is. That's a pretty weak return. They could do better with a conservative mutual fund.

I don't know your market and whether any better deals are available, but I'd consider alternatives. However if this return will support their lifestyle and there aren't better alternatives, it may be wise to refi. I'm not in a position to judge those things.

I've considered it, but my objective is to own properties.The problem with lending is that you have to have a consistent pipeline of borrowers or else your funds sit idle. I'd be interested to know how others manage that. 

I agree with @Mark H. Porter. What you do now (if you haven't already) is... figure out your strategy, assemble a team, find a path to credit, find deals. The LLC isn't important at the outset. At least, don't let it slow you down.

One thing to be mindful of, beyond the UBIT issue, is that you can only borrow from non-recourse lenders. There aren't many and the most you'll be able to borrow is 60-65% LTV (and with higher rates than other lenders). Don't even consider this for a BRRRR, because they will generally only lend you that LTV based on the purchase price, not appraised ARV.

SDIRA is still a good way to make use of your retirement funds, but don't expect to get nearly the cash-on-cash ROI you'd get in other cases. In my view, the great advantage of real estate comes from leverage (having tenants pay down your mortgage) -- and you get less of it under your SDIRA. I have funds in a SDIRA and I've had a tough time finding deals that will cash flow enough to be worthwhile.

I got two this year (on two diff properties), one through Fulton Bank and one through TD Bank.