All Forum Posts by: Travis Barron

@Alex Silang Warren Buffett.  There's your example, save for the fact he's a billionaire, not a $100 millionaire.  Didn't invent a product, and didn't start a company.  Berkshire Hathaway was a company he purchased, not started.

In line with an earlier response, he knew how to acquire investors, organize funds and where best to allocate it.  Also of equal importance, he knows how to evaluate risk and determine if its real, or simply perceived.  If you can do those four things, be it in real estate, venture capital, private equity or as serial entrepreneur...you've got a shot at $100 million.  

A friend once asked me why I was so passionate about personal finance and wealth creation.  I replied, "Who's the most innovative, successful businessman alive today? Most would say Steve Jobs, after all, he brought us the ipod and itunes, then the iphone and ipad, but even more importantly he made technology simple....However, in spite of all his innovations and marketability, Warren Buffett is still 8 times as wealthy as he was at the times of Jobs death,....and all Buffett has ever done is invest."

sorry, should read, "Personally I've thought a commission of a few % for finding a property, getting it going and such is fair, but I've no experience in this area."

@Alex Silang Are you looking for a 2/20 split? 2% annual mgmt fee, 20% of total profits at exit? :-)  I've thought about this myself.  Personally I've thought a commission of a few % for finding a property, getting it going and such.  As for an annual investment fee, depends on how you split the workload, in my opinion. If you'll be managing the PM, handling all the financials/taxes, etc. Then you're managing the investment and should be compensated.  Again, in my opinion.

@Bill Gulley Very valuable view point. The short-term financing for long-term needs of using a HELOC for REI is a concern of mine. I never really considered a second mortgage and to be honest, did not know it was an option, but will look into it. Thank you for the informed opinion, and hope to learn more from you as I go.

@Andrew Syrios Thanks for the input.  How do you define 'over-leveraging'? This is something I've been working to define myself for planning purposes but am interested in your opinion.

@Garrett Poshusta You are the third person to recommend this avenue in the past 24 hours. Based on Shaun's comments above about timing and the HELOC recommendations, I'm actually leaning to not refinance and do the HELOC when the time comes. Thanks for the input! Good point about closing costs as well.

@Shaun Weekes excellent perspective from the risk management side.

This reminds of my time at a national bank in Seattle, 2010.  The majority of our clients were not only maxed out on their mortgages, but had $50k+ lines of credit, etc. on their residence.  At the time I thought, "no way would I ever let that happen."  Your points about years 3-4 and exit strategy are a great reminder.  Thank you.

Hello BP Members, I'd like to hear your opinion.

Currently my wife and I are looking to refinance underlying mortgage on our primary residence from a 30 yr fixed @ 4.5%, to a 5/1 ARM @ 3.375% based on received rate quotes, as we will be moving out of NYC within 5 Yrs. We have an opportunity, at least based on preliminary discussions w/ our mortgage broker, to pull out an additional $40k (approx.). I've done the analysis, comparing the cash out refinance vs. a lower monthly payment, and we would need to earn an avg annual return of 7% or more over the next five years on the invested cash out funds ($40k) for it to make sense from a purely dollars/net worth aspect.

Given present somewhat high valuation of equity markets, i consider moving the money into equities significant risk with minimal upside. however, investing additional funds in a single family rental and obtaining a mortgage, i estimate (somewhat conservatively) we could earn an avg annual return of 12%+, at a minimum. Albeit at a much higher risk level given the increased debt.

Btw, our present plan - without additional funds - is to buy one rental property by year's end, a second by end of next year. If we do the cash out option though, we would aim to buy by end of Oct or Nov this year, second property by Apr or May 2015, and a third by Dec 2015.

Current DTI ratio is 19%, and would remain 19% if take cash out option as monthly payment is virtually unchanged from current payment. From a risk management perspective, we have 9 months of living expenses in a savings account.

Which option would you choose? Thanks! 

@Jeremy Hoffman Overall the property seems a solid investment. I would strongly recommend following Eric's advice to post in the deal analysis section if you've not done so already.

Per more knowledgeable w/ tax situation, I'm sure I know more than some but less than many others. Just trying to continue learning and gain understanding. My advice on these types of matters is take a piece of advice (like mine) and don't trust it 100%, but rather try to prove it by research. As you go, you'll learn much more.

As for a link, i just found the following on biggerpockets. Also, i found Frank G's book excellent for all things financial and consider it a must read.

http://www.biggerpockets.com/renewsblog/2013/04/15/income-tax-benefits-real-estate-investors/

http://www.amazon.com/Every-Estate-Investor-Financial-Measures/dp/0071603271/ref=sr_1_1?ie=UTF8&qid=1401899436&sr=8-1&keywords=frank+gallinelli

@Jeremy Hoffman

I'm a newbie myself, working on purchasing my first property in the near future so don't take my comments as gospel, but here are a few thoughts:

Your Total Monthly Expenses exclude any budget for maintenance/repairs, or anything other than mortgage payments, insurance and taxes. I could be wrong, but I believe the 50% rule estimates operating costs at 50% of monthly rent, excluding mortgage payments.

That would lead to the following:

$750 - Monthly Rent

($375) - Operating Exp (50% rule)

($260) - Mortgage Pmt

$115 - Cash Flow/Month (close to your lower $130/month estimate)

or $1,380/yr on $12,000 for 11.5% CASH YIELD - not, return. In additional to this income, your return would include:

1. additional paid-up equity through each month's mortgage payments, as well 2. additional income as a result of tax savings derived from mortgage interest paid.

3. Price appreciation

To summarize, IMO 11.5% Yield is not bad and your return, if you receive this yield, would be higher still, assuming the house does not depreciate.

More experienced investors, please, if I've misjudged a point call me out so I understand it more clearly.