All Forum Posts by: John Blackman

I bought three lots on 'Oak Springs Rd.'  Built three homes, all with core samples and engineered foundations to meet specs.  Two years later a dormant spring (pay attention to street names) popped up and moved one of the three houses a full 3 inch tilt!  The marble raced to the door when you put it on the floor.  Fortunately I had an engineer's stamp on the plans, had to get attorneys involved, but the engineer (who let his insurance lapse) ended up buying the home, leveling it and reselling it.  Bullet dodged. I felt bad for the engineer.

I don't like IRR because you have to speculate the sales price which you just can't know. You're playing with chicken bones. If you can cash flow it from day one and understand your expenses well enough that your cash flow is real and the deal works from the day you buy it, then count it as a performer. Some will do better than others and you can still speculate about what your exit price will be, but there is always going to be some factor of luck. If you keep the fluctuation above your profit line then you are going to be looking at a range of IRRs that are all positive. IRRs to me are a bit of a distraction and I always treat them with suspicion.

Plan for all of your replacement costs for your holding period at purchase time and be prepared for a few negative years if you have a major expense show up.  You can still be satisfied during that year because you planned it up front.

If your assets are cash flowing then you don't really need to do anything except hold.  If the market prices (on real estate) drop, as long as your purchase price worked and your financing can make it through the turmoil (no ARMs) just ride it out.  Many folks are expecting increasing interest rates, so all of that long term 30 year debt at 5% or less is going to look great on your books as prices and rents go up. 

I also like owning first position debt as it moves with rates.  Even if prices go down, the rates will go up.  Conventional financing gets harder so we will likely see more loan opportunities.  There is always an asset poised to do well in any market.

Buy it right and perform to the plan.

Regular banks also take about 30 days to underwrite a loan. A good HML can make a decision in a week or even less sometimes. As everyone before me has said, have an exit strategy and a plan B, and a plan C. You don't want to lose your equity if something goes wrong.

We haven't done a custom build, so we complete all of our projects before listing them. So the price is whatever is negotiated and we just have to make valuation which hasn't been a problem lately.  I can see why the bank would do that, although I certainly wouldn't want to sign that either @Lynn Currie.

@Karen Margrave advice is great, just take non refundable payment for upgrades and change orders up front which is painful for the client and when they do choose to go that route they are more likely to close.

@Robin Boyer with that kind of cash I would look at commercial property again.  If your last commercial deal worked for you, why switch gears?  Do what you know.  You get much better economies of scale with Commercial property as well.

There is always a strategy for every part of the cycle.  That being said, our properties average days on market are increasing year over year for what its worth.

A litmus test I use is how much I could make compared to just being the agent for a comparable deal.  If I can generate enough leads to manage a buyer or seller client, then 3% of the sales price is a great return on time with no money risked.  Now this assumes you have a realtor license.

Otherwise if I am going to put a lot of capital and time at risk, I will want to aim for at least a 20% un-leveraged return that makes more than I could make just listing or buyer a property as an agent.

Those rules apply regardless of the price, so fill in your own numbers.

For my family of 4, I was paying about $1,600 a month for a $12,000 deductible policy.  That was two years ago.  I still prefer the less expensive high deductible plans + and HSA card to cover basics.  This way I get true disaster insurance as we keep our medical bills pretty low each year.

The best medical insurance in my opinion is a plant based diet, no smoking, at least some exercise.  A healthy lifestyle will keep you out of the hospital in the long run and is a lot cheaper.

Sounds like my experience with warranty companies as well.  

The best insurance is a regular checkup on your HVAC and water heaters every 6 months.  This is usually about $200 a year (I use ARS, but there are plenty others) depending on where you are.  They will catch all sorts of small issues before they become big ones and can extend the life of your mechanical systems for many  years.  It doesn't feel good to add it to your Schedule E, but I've found it to be worth while in the long run.