All Forum Posts by: Josh Collins

I would say it seems like you are putting the cart before the horse.  You are speculating that mj will be legal in your state and then you are speculating that the land you purchased will be allowed to be used for growing mj.  That seems ultra risky unless you just want to get into agricultural land to bank some cash and get farming lease rent (which is approximately $125-175/acre in Minnesota).  The good news is that property taxes on farm land is typically pretty minimal so your land lease should pretty easily cover that.  However, I don't see you making much long-term wealth on 2 acres of land.  Granted, I'm guessing you won't have a huge outlay of cash for the 2 acres so it's not a huge risk.  However, you're much more likely to swing and miss with picking your land for mj if you don't know where the approved grow areas will be once mj is legalized in your area.  Not to mention, if you buy in TownX, there is no guarantee that TownX will even allow it in their city, further making it difficult to hit on your speculation.  I like the idea (maybe not inline with your plans) of buying farmland slowly and steadily on the outskirts of cities (in the path of progress, as they say) and speculating that way.  You can park some money, make a little income from land leases to farmers and possibly sell to a developer or maybe get lucky with the ability to use it for mj farming.  Otherwise, if you can find some farmland that has future commercial zoning, you could put up a mini-storage and make rent immediately (with some investment, of course) while you wait for laws to change.  You can even get an SBA loan for a mini-storage.  I'm guessing you'll want to figure out a way to buy out the SBA loan before converting your mini-storage into a grow house (the feds are likely not going to be happy that you're using their small biz funds for mj).  

I live in MN and own storage facilities in WI (which doesn't have a very good chance at legalizing mj, by the way) and I figure that this might be a possible exit strategy someday.  I'm not banking on that, but if it gets legalized, I'm guessing there may be a scramble for covered square footage.  

So that's a couple ideas for making the strategy of buy and holding farmland that make a bit more investing sense (in my opinion) than buy and hope.  

Lastly, a great series on this subject that was on Netflix a while back was called: "High Profits".  It's based on a medical-turned-recreational dispensary in Breckenridge, CO.  They actually got kicked out of town even though they had a great location that they had leased before recreation mj became legal.  So you never know what kind of pressure TownX will put on you.  

I'm beginning to sense some faulty logic.  If you rehab and don't have any capital gains taxes, that means you didn't make any money.  You have to keep the house for 1-2 years to get the benefit of capital gains taxes rather than ordinary income taxes (15% vs. something likely higher for your ordinary income).  I don't really see a good way of reducing your capital gains taxes unless you spend too much on a rehab.  

My suggestion would be to refinance your investment properties at a very favorable rate (possibly as low as 3.25%) and skip the HELOC. When you are done with the rehab you could refi the new property and pay back the other properties or use the money to finance the next rehab. But upon sale, it should be your goal to pay as much in capital gains taxes as possible. That means you made a lot of profit on the flip.

However, if you decide to hold and rent, you get to write off the depreciation against the income you earn on the property.  However, this also reduces the value of the property so when you sell, you'll pay more taxes on the difference between the depreciated value and the sale price.  No way around that except....

You could 1031 exchange the house when you sell it and roll all of the profits into a new flip or rental.  That might be the best way to reduce your capital gains taxes when it comes time to sell.   

Okay, I'm going to turn convention on its head.  Should you be pursuing a Masters if you plan on being a real estate professional?  I would also question whether the additional income you will generate with your Masters will have a good return on investment.  I know it isn't in Civil Engineering or Real Estate Investing.  If it is a Masters of Business, I'd recommend you start a business and get your education through the school of (not so) hard knocks.  If the answers are yes, I should be getting a Masters and yes it will provide a good return on my investment, then I would say you should let your future earning potential pay for you Masters while you take your current capital (cash and equity) and invest it in cash flowing properties.  If you make reasonable investments (not, great, reasonable), you should be able to equal or beat your interest rates on your past student loans.  

Because even if you just equal your 7-10.25% interest rates in cash-on-cash returns, you still have phantom gains in equity getting paid down and the possibility of appreciation.  

If I were you, I would save the $20K as a rainy day fund and then take out 50% loan to value mortgages on the two properties you own and rent them out.  Then look for two (or more) more properties that can cash flow a decent amount of money.  Ideally you could find a multiplex (duplex or better) and house hack it as an owner-occupant.  

In the end, the best part of acquiring another couple properties is it can "diversify" your portfolio so to speak.  Even if you acquired the new properties in the same area (you could buy in another area to diversify locations), it allows you to diversify your risk into more units.  If one property goes unrented, it's only 1/4 of your portfolio as opposed to 1/2.  That's good business acumen if you ask me.  

On the issue of poor credit score, I would recommend discussing your plans with a couple smaller, local banks and see what they say.  If they knew you were willing to put 50% down on your new property, I bet they'd be much more apt to listen.  There isn't a lot of risk for them to loan out 50% of the value.  Even if things went sour, I'm sure the bank could see that they're isn't any risk of getting their money back.  And in the end, banks are really just weighing their risk.  

All of my suggestions are based on mitigating the risk of taking cash out of the existing properties by only taking out 50% of the value.  You can certainly ramp things up by going to 90% loan to value (assuming the original poster (op) would qualify for the loans naturally) on a number of properties but it doesn't sound like the op is open to that at this time.  Plus, I think leaving a margin of safety is a good thing and a 50% margin of safety seems very reasonable to start with.  

And lastly, if the op can't get traditional financing, that's when they could get into private lending (hard money, etc.) to work out some creative financing with property owners like owner financing.  You have some serious collateral (2 properties) to get some sort of loan.  The terms may just be a little less than ideal (although it's doubtful that they'd be impossible to overcome).  

I'm sure you could get homes for a good price here, but if you don't have a lot of experience in the area, I'd probably buy time by buying in another area that is a bit more stable.  I really like the area of NE Mpls specifically looking in the areas just north of downtown (which will likely be a bit more expensive), between Marshall and University from Broadway to St. Anthony Pkwy, and lastly the area around Broadway and Central Ave.  My feeling is that these are the up and coming areas of Mpls.  They might already be there, but I see young families that want to be downtown moving here from their condos when they have kids.  

I'd be curious as to hear what area realtors have to say about these areas.  I know you aren't going to get a house for $40K like you might be able to in Near North, but I would focus my attention in the above referenced areas for solid cash flow and future appreciation.  

Whether you go for it all at once or take baby steps, I think real estate investing is the perfect "part-time job" to create wealth.  It can work in the background for you.  What I like is that you don't have to make the decision immediately to quit you job and only pursue real estate, you can do both until you're comfortable making the switch.  And depending on how much you like or dislike your job, it may motivate you to work harder to make the switch.  I can't imagine a scenario where you started small and wouldn't be better off for giving it a try.  

And I see you've posted this a while back.  Do you have any follow up information on what you did, how much rent was, and how quickly it rented?

Thanks.

I have a similar building (same size actually) and I rent it out to an electrician.  $600/month but mine doesn't have water or heat.  I'd say splitting it into two units, one smaller, one larger and having an externally accessed bathroom with a punch-code handle would allow both units to use the bathroom.  If there were vacant shops/warehouses all over the place, this might not be a great option but if you're asking this question, I'm assuming you think you can rent it out as a warehouse.  Also, a big thing in my part of the country is boat storage.  That way it would literally free up a garage stall or parking spot at home.  And if the doors were tall, RV storage.  I like the idea of a hot rod or workshop co-op too.  Otherwise you could set it up as a woodshop and treat it as a co-op or maker space.  Okay, I'll stop....   ;0)