All Forum Posts by: Kenneth LaVoie

Good Morning

I am pretty familiar with CAGR and IRR though no expert. I'm about to sell a 7 unit building I've owned for 13 years and I want to know what my "annual rate of return" was on the money invested. I'm thinking IRR is the best because the "cash flow" will be like the "dividends or interest" ... the "all in" at the beginning will be the initial deposit. And if I put any owner contributions that will go in as "deposits", then of course the final cash out at the end. Does anyone have some feedback on a good spreadsheet for this?

Thank you very much. 

As an update we sold that 7 unit that we initially backed out on, held 15% of proceeds as seller financing, rest in cash, helped manage and maintain for a year, and my maintenance person is now "managing" it for the buyer. THAT buyer is now under contract to buy another of our buildings. We have a built in circuit breaker, in a way: If it appraises, great, we sell it and take another step toward sailing of into the sunset.... if it doesn't, great, we keep it!

As the day progresses (and more back and forth with our agent), bits and pieces are coming back. We bought many of these properties very cheap and pretty distressed (duplex, all renovated ready to rent for 27K, 11 unit for 180K, couple 7-units fully rented for 160K ea. etc.) The cash value limits were up in the half million range for these properties and I believe at the time it would've been just fine regardless of full or partial loss. But over the decade, we've upgraded steadily, and even though the values stagnated for the first 5-6 years, the uptick in values started in late 2016 and i think that's why I'm suddenly realizing we've a little underinsured. I am considering putting feelers out however.

We use state farm and have "cash value" coverage. They've explained 20 times what that means but I find I forget over time. It has started me thinking that maybe I should shop around? We're die hard State Farm clients (30+ years) and love the hand holding we get from our local agent but I'd like to have a better understanding. 

Does anyone have any strong opinions on insurance companies or types of fire / damage insurance to have?

Thank you.

We've got an interested party in our multi unit portfolio. My wife and I have basically decided to "hold on" to our last 22 units just due to A.) too young to be 100% living off our portfolio (not true, but it's a psychological thing...we expect to market to drop 99% the minute we put all our money into stuff we have no control over!) and B.) We paid 62K in state and fed taxes for 2021 for the audacity of selling ONE 7 unit building. So we really don't like the tax bite. Like our net worth drops 20% the minute we sell. So its' almost like selling and taking a tax hit has the same consequences as our buildings dropping 20% in value. But all that aside, one idea this gentleman had was something I've never thought of. 1.) Do cash out refi on our buildings using an assumable mortgage for 70% or so LTV. 2.) Sell the properties, but "bundled" with the assumable mortgage, 3.) We seller finance 10-15%, buyer coughs up the rest. Now, does the assumable mortgage mitigate the tax bite? I mean I'm STILL selling the properties...but he seemed to think the value of the assumable mortgage would somehow reduce the gross sales price (almost as if we'd seller financed). Any thoughts appreciated and I apologize in advance if I've left anything unclear.

 No financial decision should be made using numbers alone! This sounds like a "Mungerism" and if it goes viral, let's share the credit! (I get you completely...and this is what my wife and I talk about every time..."Leverage is the ONE thing that makes RE lucrative over stocks n' bonds, but ... we're doin' OK WITHOUT it, and it sure feels good to be debt free)

Thank you. I thought of a HELOC, though my impression is that they tend to have a higher rate PLUS they can "go away" sometimes even if you're already signed up. I don't know that, only speaking from bits and pieces I've heard, probably not true. I LIKE the idea of taking, say 500K, putting it into ONE account that is either "cahs" or a combo of properly diversified short term instruments, (some short term investment grade notes, floating rate notes or funds, maybe even some crowdfunded or P2P ... sort of create a portfolio of things that by themselves have downside risk of 10% but together have almost no downside risk). BUT ... despite LIKING the idea, I LOVE the feeling of being debt free so it's always a struggle...I've probably asked this question 20 different times over the past 10 years.

This white sounds like a silly question, What is it ever a good idea to do a cash out on a free and clear rental property just for the sake of locking in some cheap money? Even if there's no immediate plan for it. Figure losing whatever the % number for inflation is until I put it to use. (Isn't it funny how with 3% inflation we just talk about percentage return on investment but when inflation is in the news, suddenly we use it in every CAGR calculation...I mean I always factored 3% anyway, but now it's part of every calculation vs. just the more geeky calculations...but I really really digress!)

We have a home mortgage of about 40% of our home value, then 1.2-1.4M in rental properties (two 7's two 4's) with zero mortgage. I LOVE the IDEA of debt free...but love the intelligence o borrowing money at 4% while the debt "depreciates" at 7%. That said, I say that like it's ALWAYS going to be 4% (rental property loan are almost never locked in more than 5 years) and 7-8% inflation (It has to stay this way for the whole 20 years or at least 15 of it, for this to be smart. 

Any thoughts welcome! I am pretty sure this is one of those "no one right answer" questions. 

My wife's parents (mid to late 70's, one terminally ill with COPD), have just sold their place in Florida and are going to need to find a place here in Central Maine. They've always lived in mobile homes, so it would be a lower end purchase, maybe 100K or less. We'd like to help if we can. We were thinking that if they paid cash, we could work out a reverse mortgage for maybe 60% of the value. This way, no payments for rest of life, they can do a little more, spend a little more, etc. We are financially self sufficient, so when they passed on, if there was any liquidity in the estate we would forego anything above our payback and split the estate between the two remaining siblings. 

However, is there any other way that would help them and help us tax wise, etc. The way I see it we have 3 choices. 

1. Buy it for them and sell it to them using rent to own

2. Buy it for them and sell it to them using seller financing

3. They buy it and we provide a reverse mortgage (private)

I'm probably missing something simple here and I really have only begun to think on this...

 Thank you! As it turns oout the deal we had to sell 3 of the 4 remaining fell through and I'm sorta kinda glad. The REASON we would sell is to be completely free of the responsibility (actual and psychological). We're probably the best property managers within 50 miles and I say this with complete humility. We just really "own" it. I owned a lawn care business catering to upper middle class doctors, lawyers and such for nearly 30 years and I carry that "No mistakes on my watch" attitude into this business (while still being unflinchingly strict on the other side when I need to be). So I honestly don't think we'll ever "PM" out. We sort of "hack it" now. That is to say our maintenance guy handles calls, we allow tenants to call the heating company themselves if they can't get hold of him, and I handle the landscaping, and minor things, even cleaning because I like it. So 22 units takes us on average 2-5 hours per week to manage. And much of that is sitting in the office. 

But the more I think and think ... and think (actually mind-f*** it to death!) I conclude more and more that these ought to be held forever and left to our uninterested daughter (as penance for so many sleepless nights!) I mean shoot, I can SELL and pay 25% of that to the government OR take out 50% of what I'd get for selling via cash out, and pay NO tax. I probably should do that NOW while rates are still reasonable but that's not a very conservative thing to do. What would I do with it?? I think I'm a 25% better investor than I really am, so I'd probably get myself in trouble with an extra 500K! But LATER ON I can see if making complete sense. Perhaps pull out 500K, put half in an annuity, half in Vanguard Wellington and call it a day (or take out 500K and get that dream condo!)