All Forum Posts by: Jason Hull

Dina--

It's going to totally depend on the advisor. Just getting a securities license doesn't require knowledge of real estate laws/taxes. After all, those licenses are for stocks/bonds/other securities. I don't recall any real estate questions on my series 65 exam.

CFPs should be a different kettle of fish, as real estate is covered in the basic courses, and there were questions on the CFP exam about real estate.

That said, the amount of ink devoted to real estate is scant compared to the amount of ink compared to stocks, bonds, insurance, etc.

If you're paying someone to manage your money based on a percentage of the amount of money you have invested with him, then he has no financial incentive whatsoever to get you into real estate aside from REITs. The more money you have in real estate, the less money he has to manage, and the less in fees he earns.

I talk about it in the BP podcast #53.

The long-term math behind the invest/pay off mortgage decision, historically speaking, says that investing the difference makes you better off about 2/3 of the time.

That said, there's a very strong psychological bias we have called loss aversion. Basically put, the pain from losing an amount of money is much greater than the happiness we get from gaining the same amount.

In other words, if you invest the difference and get a lower return than the after-tax interest rate, you'll have a lot more heartburn from the loss than you will happy dances if you do better.

Additionally, if you do perform worse for having invested in the market, you'll be more likely to take additional risk in subsequent investments to try to make up for the loss. You'll be doubling down.

So, from a mathematical perspective, the correct answer is usually invest the difference. From a psychological perspective, the answer is usually pay off the mortgage.

Perhaps there's a happy medium?

Hey, Jameson - sorry to be so late to the game here! Congratulations on your progress! See if you can either a) get a little higher bump in the next raise, or b) squeeze that side hustle a little bit more to generate more income.

In most situations, I think of real estate as an investment category, just like stocks or bonds. You'd not quit your job to become a full-time stock trader. The same should go for real estate deals. Use the time that you have between now and being debt free to practice and get smart. Identify some properties that you'd be interested in and set a price that you'd pay. Then see what the properties actually sold for. If you're not handy, go to Home Depot or Lowe's and attend the classes so you can get smart on basic home maintenance.

Or, better yet, get enough income going from your job and your side gig so that it's worth your time to contract out all of that work. Remember, there's an opportunity cost to doing the repair and renovation work yourself; your goal is to make your time so valuable and profitable that it's the correct decision to buy the time.

Great work on knocking out that debt! Just imagine how it will feel when you're done. Don't forget to set up some meaningful reward at the end for accomplishing that goal!

Gotcha. Yeah, next time I have a big renovation project, I'll let you know - that's a very kind offer! We're in the process of getting a writ of possession right now on my last purchase, so who knows what we'll find once we get occupancy.

Hey, Carlos--

I don't do a lot of buying myself. My property manager and her contractors handle it. Most of the time, the receipts come from Lowe's or Home Depot. If a contractor has a good in with a supplier, then he'll use that one, but I can't point you to a place where you can get sweet deals on drywall or lumber or anything. Sorry!

This.

You're making $50k a year. Hopefully you get a raise each year, but let's assume you don't. You bought a place that required 50% of your income. Let's say that you have a 15% tax rate, so you keep $42,500 per year. If you can save 25% of your income, you could buy one of those properties every approximately 2 years and 3 months free and clear. Use 50% of the net income from the property to add to the war fund, and lather, rinse, and repeat.

You only need 6 1/2 houses free and clear for 50% of your annual rents (at the same numbers/rates) to buy you another free and clear property every year. You could reach 40 with 10 or so free and clear rental properties if you're patient and disciplined.

Hello PIRE.

Not many people will be in that position at 40 or at 80.

Jonathan - maybe this is too simplistic of a view, but can you sell the property/properties (including commission/closing costs) and purchase properties that provide a higher ROI than what you're getting now? If so, then sell. If not, then don't.

Morgan - I've used Victor Sedinger for several years, and he and his son are very thorough inspectors: http://www.houseexamdfw.com/

Hey Carlos - I'm on the other side of DFW from you. Along the lines of what Shawn was saying, could you get another property for $30k? If so, perhaps a HELOC for the $30k and then use the FCF from both of your investment properties to pay off the HELOC. Once you've done that, lather, rinse, repeat. That way, you're not highly leveraged.

According to Bankrate, you could potentially get a 4% HELOC if your credit is good. That would be a $303.74 payment for a 10 year term. Your net profit from the rentals, using the 50% rule, would be $650/month. If you could throw that at the HELOC, you'd have it paid off in 4 years, 3 months. If you could throw an extra $650 a month from your other sources of income, you could pay it off in 2 years.

Even if something doesn't work out, as long as you're comfortable with that HELOC payment, it seems like this approach would be a low-risk way to use a little leverage to build your portfolio. As the portfolio grows, it should take less and less time to pay off a HELOC. Once you get to the point where the portfolio throws off enough FCF to pay off a house in a year, don't use the HELOC. Instead, save up the money from the properties to buy another one with case. That's what we do, and while you want to be doing deals all the time, the reality is that if you can get to the point where you're buying a rental property with the numbers like you're getting once a year, you're going to be in a great position!

Mark - Don't try to make a deal happen where the numbers don't work. It's easy to get psychologically caught up in the deal-making process (which is a particular psychological bias that males have) and think that you have to make a deal soon!!! You don't need to. Even if you only do one deal every couple of years, it's better to be in deals where you know the numbers work even with contingencies (e.g. the 2%/50% rules of thumb) than to be in ones where you're depending on appreciation or nearly full-time vacancy with tenants who keep the place spotless to make the deal work. Those will give you sleepless nights and cause bile to burble up in your mouth when you write checks.

You can take some gambles when you have a deep enough portfolio to support the misses, but when you're starting out, you really need that first one to be right, even if it means biding your time and continuing to build your war chest.

The worst deal I've done recently was one where I convinced myself that I could make the numbers work rather than waiting for a better deal to come along. It's much easier to say don't get trigger happy than to not get trigger happy, but that said...

Don't get trigger happy!