All Forum Posts by: Kenneth LaVoie

That is interesting re not using C's money. I have a situation where I own a house and rented it to a contractor with a separate lease to own contract. He's selling it to a 3rd party after having renovated the house. We're working out the details now on how we're going to do it. I'm selling the contractor the house for 46K and he's selling it to the new buyer for 105K (he's borne the renovation costs of course). He's counting on the buyer's funds to pay me (i.e. C's funds will pay A) ...

I live in Central Maine and 1952 is my NEWEST building. I had one that was built in 1790, 30 years before Maine became a state (so this building was built in Massachussets originally). I think how it factors is determined by area. Here, it's a given. EVERY building is old. It's an old mill town. But I bet it depends on what the average age of buildings are in your area. I've had very good luck with mine BUT have had some very strange and expensive things to do (sills, leveling, joining two apartments only to discover it used to be two buildings that were joined and the floors were 36" different levels!) 1952 though...piece of cake! If I had to GUESS, it's probably more solid than anything you'll find built from 90 on . 

You CAN do what we do and create a blended situation. Instead of hiring a property manager per se, maybe you take care of all the office work, and you have a maintenance person or company and have them agree to take tenant calls directly. 

We have a similar situation with our 31 units here in Maine. I LOVE paperwork (I know..I'm a weirdo...), so I create all the leases, documents, & electronic communication with tenants and contractors. I have a great maintenance guy who derives 50-70% of his income from us. Our buildings are old so there's always something. He can work 1 hour or 60 hours. His rate is $30 per hour for maintenance, $23 per hour for painting. I bonus him well and treat him like gold because he takes all calls and completely "owns" the maintenance and troubleshooting. 

We have a really expensive heating and plumbing company who does the same. I updated them with a list of keycodes, etc. and they use common sense with regard to coming after hours, etc. Our electrician, same. 

In exchange for our 6 figure income, I work 2-4 hours per week, most recently in efforts to sell some of our buildings. My wife handles the leasing, and where our occupancy has averaged 98% the past 10 years, so she doesn't even work most months.

I probably didn't need to go into such detail but I thought maybe it would put a seed in your mind about what's possible. 

@David Beard - I resonated with your thoughts about selling. We have a portfolio we put together starting in 2009. My first few properties were "meh" deals for us. However, we held them, improved them, amortized the loans over the past 9 years, and are now unwinding and putting the excess equity toward amortizing mortgages on existing buildings. 

This is working out nicely, because the trade off is about equal (i.e. our cash flow increase from paying off the other mortgages offsets the decrease from no longer owning the building). Plus, that increased cash flow is rock solid vs. variable (i.e. owning the building, we might have a bad year, but paying off a 5% mortgage locks that in for the remaining term of the loan). It's also strategically sound for us timing-wise. Because we'll need MORE money over the next 10 years, (teenage daughter, college, wedding, exploratory travel, etc.) We are trading increased cash flow NOW for the loss of that cash flow later. That is to say, if we use $50,000 to pay off a mortgage that's costing $525 per month, P&I, that's a "12% return on cash" year over year for the remaining life of the mortgage. (About 11 years in our case)This may not technically be true but it's just a way of looking at it that I think makes sense. 

So many strategies and so many ways of thinking about things, it's baffling sometimes. 

@Calvin T. Thanks for this thorough information. I have a question. Where can one get such low margin rates?

@Calvin Thomas - It's a relief to hear someone else talk about not liking mortgages. My wife and I sold a couple and used the equity to pay off two multi mortgages. In doing so, we raised our CF back up to ALMOST make up for the loss of income from selling the building. This is our plan until we get to 0 balance. Our 28 units F&C will cash flow as much as 50 leveraged, more or less, and this is what we're looking to do (maximum cash flow, least number of units). Although we do at least want enough units to take advantage of various "scales of economy" (i.e. having a couple of contractors we can keep busy, etc.) 

I sometimes doubt my plan because so many investors present leveraging to buy more units as if it's the only option, and to do anything else (like, gulp, paying off my mortgages early and completely) is cause for headscratching, wailing and gnashing of teeth. Thanks for chiming in. 

@Javier D. I like your thinking. 

Thanks all, and yes, I was only asking a simpler question, BUT I enjoyed reading about "equity stripping". I'd never heard of this exact ploy and I like the sounds of it! Very interesting. Not that I'm quite in the position to go to those lengths, but it's nice to learn about new things. Thanks all, and especially to the attorneys for weighing in. 

Thank you @Damon Pendleton - It didn't make sense to me at all to even factor in risk of lawsuit in deciding whether or not to be leveraged, and you put the icing on the cake. I mean really ... if I sell a building and have 250K extra cash leftover, I have 250K ... whether I pay off an existing mortgage and end up with a free and clear building OR put it in the bank. I wouldn't think either one would be any easier to discover than another, honestly. 

I did it 1-2 times with small stuff, and it never really worked in our favor. I did it ONCE successfully with a multi year tenant, but it was the exception. He was a very honorable middle aged man, getting his master's degree. But I would agree with everyone here: It's in about the same category of "bad ideas" as letting a guy you just met stay at your house and borrow money who just got out of rehab for crack addiction.