All Forum Posts by: Kevin McGuire

Have you tried finding one this way?
https://www.biggerpockets.com/business/finder/property-manag...

The property management company I work with recommend the following:

First Avenue Law Group, PLLC

321 First Avenue

Seattle, Washington 98119

Hi Sean,

I think you actually have two different goals:
1) Learn how to buy, rent, and manage a property.

2) Build a portfolio.

Regarding #2, I agree with others here that your best opportunities are almost certainly out of state. You'll need to build your core team to do so, most importantly the property manager.  

However, that's bit of a hill to climb as a new investor. I see two ways to mitigate this, to do step #1:
A: Find a good turnkey provider. They'll give you access to a property that's ready to be rented and set you up with a property manager.

B: Find something local. Here you're optimizing for learning, not for cash flow or appreciation; these still matter, but they don't have to be the best possible. The lower returns (versus out of state) are just the opportunity cost of learning, and that learning is way easier to do locally.

Tiffany, I'm sure everyone here feels your pain.

I take the attitude with my single family rentals that I'm running a small business. Like all businesses, having the right staff and the right processes will make the difference as to whether it runs smoothly or not. I'd focus on getting a better property manager, their job is to shield you from most of these headaches and to prevent them in the first place through tenant selection and doing regular property inspections. Additionally, I have a professional accountant do my taxes, as you said they're complicated. My goal has always been to be able to operate the business from a sailboat in exotic locals. A few months back I was on a sailboat in Greece electronically depositing the rent checks and exchanging a few messages with my property manager, and I thought, "That's it, I made it!".

I think this gig requires a personality type that's intrigued by owning and running a small business. To me, that's the most essential question. If you answer, "yeah, that's kind of cool" then folks here can help you streamline it. If you're like, "no, I just want the passive income" then as others suggested there's other ways to invest in the asset class of real estate that are truly passive (REITs, syndications, the latter of which I also invest in). 

Perhaps a better word would have been "speculating" (versus investing).

I think of real estate investing in terms of creating a business. Let's say I came to you and said, "Hey Alex, I have an opportunity for you: I'd like you to invest your money into a business that's losing money every year, with a single asset (thus ultra low diversification), and where I'm banking on appreciation over an unknown time scale because 'values always go up'?". How appealing an opportunity does that sound?

For me the answer is "no thanks" because that sounds like speculation and I'm not a speculator.

A few things to consider:

1: You need cashflow to sustain an investment over the long term. Without it, you put your personal finances at risk. As with all investing, you need enough buffer to avoid being forced to sell in a down market. Cashflow gives you that. Worst scenario is that in an economic downturn you could lose your job, rents could drop, and home values could drop. Would you be able to hold on?

2: Mortgage = leverage and that alone creates risk. So now you have two sources or risk. How will you mitigate them?

3: I'm not sure if you've factored in costs for vacancy and repairs. Again, having some cashflow, and building up reserves, provides you resiliency to withstand short term financial problems.

Now of course some people get rich speculating, but more lose money. You'd need to be clear on your risk tolerance and financial ability to withstand loses. Without knowing you, my advice would be to pass

I have long term rentals in Ottawa (my home town) and now live in the U.S. so I have a mixed view.

@Anthony Therrien-Bernard the economics you laid out is correct wrt supply and demand. There's a very short mention of this in 4.3 Million Reasons Why Multifamily is a Buy in 2022, as I recall the person being interviewed referred to it as "winning the lottery". 

I bought my units in Ottawa knowing there was rent control and accepted it because I wanted to invest in that market. I'm now torn. 

On the one hand I'm sympathetic because, as a landlord, I have control over my tenant's home. Being forced out of your home because of rent increases just seems like such a terrible position to be in. So this asset class, rental properties, is different in nature than the pricing of pretty well any other product except maybe food. I understand the government wanting to protect the average citizen.

At the same time, boy have I had it with the Ontario Rent Control Board! Normally they set the legal rent increase based on the CPI change. That doesn't necessarily equate to my cost increases, but ok. In 2020 they froze rent increases during the pandemic. Meanwhile, my tenants remained gainfully employed, most in stable government jobs, so this was a benefit in perpetuity that none needed and meanwhile all my operating costs went up. Finally, for 2023 they set the rent increase to below inflation (2.5%, should've been 5.3%). Again, a discount in perpetuity. They effectively gave my tenants money by reaching into my pocket. Now, if the government wants to provide subsidies during a pandemic, or tax rebates during high inflation, that's fine, that should come out of the government's general ledger, not mine. As time goes on, my NOI is effectively decreasing because my revenue isn't keeping up with operating costs. All I ask is it remain neutral, I don't need to jack up rents above my cost increases.

Rant aside, here's where it's left me: I've been considering selling those properties and investing the proceeds in the US in "landlord friendly" states. And to your point @Anthony Therrien-Bernard that's to be expected from the economic incentive system: investors will shift to more favorable locales, which reduces the stock of rental units, which creates a rental housing shortage. Tenants who remain in place win, landlords are disincentivized to do upkeep, those who are looking for a place probably pay higher rent because supply is low. 

The thing that's caused me to hesitate is I'd actually feel quite bad for my tenants if someone bought the unit to live in and evicted them.

One thing's clear, I'll not be investing more there. 

I agree, I meant to mention this in my reply too. Use judicious leverage when building the portfolio. Down the road when you want to live off the income, reduce leverage to increase net cashflow.

Hi Akushla,

It's indeed a complicated decision because of all the factors to trade off. But first, let's address your comment on "overthinking and not taking action out of fear". As a fellow overthinker I totally get that! Real estate investing has a lot of risk inherent, especially when you're getting started, and it's important to be cognizant of the risk. Only then can you determine how to mitigate it, usually through portfolio design which includes reserves, cashflow/expense budgeting, and judicious use of leverage. Understanding your risk tolerance is super important, and that fact that others here may have a different tolerance doesn't make yours wrong. Fear is the brain's way of self-preservation and you should learn from it but of course not be paralyzed by it.

To that point, it's great that you're taking the approach of having a reserve fund. This is a place where investors get themselves into trouble since repairs and vacancy can turn a marginally cash flowing property into a real personal finance problem. I always want to ensure that my investments don't create risk for my personal finances. This is especially true for you with a baby and all the ensuing costs. Plus there's the emotional stress of financial risk and I'm guessing you have enough on your plate :) Basically my advice is, don't screw up your life because you're in a hurry to acquire wealth. As you said, real estate is the long game, "get rich slowly", and the role of wealth is to make our lives better.

I'm financially conservative so take my advice in that context.

Regarding the options you outlined, personally I'd pick waiting until I had the 20% down. I'd not touch the ROTH because the effect of tax deferred compounding is quite powerful and often underrated. Plus when you withdraw from the ROTH you can't replace it, it's a one way street.

Second to that I'd consider the vacation property financing approach, but I pick that second because as you said the rates will be higher which then puts more pressure on revenue and reduces slack for unexpected expenses.

I've never used hard money but my mental model is that it's typically used for short periods with a clear exit, for example doing a fix-and-flip. The rates tend to be high (I recently spoke to someone who lends at around 12%). This just feels super risky.

Another option which you've not listed is borrowing against your tax deferred accounts. There's some discussion of that here.

Quote from @Carlos Ptriawan:

Quote from @Kevin McGuire:

Quote from @Carlos Ptriawan:

Quote from @Lane Kawaoka:

I put money into the 401k/roth options from 2007-2014. Despite what everyone says it never made much sense to me because when you invest in that vehicle you are stuck with only garbage options. Think for yourself and take the money out once you get proof of concept with alternatives. If you need any help me know.

 The most problem with 401k is you could enjoy your money only when you have (possibly) cancer, heart attack, stroke , knee issue ,etc.

We want the result of investment like 4-5 years. Not when we can no longer walk.

You should have different investment vehicles for different time horizons. If you want the money in four years then a 401k isn’t the right option. By contrast, a common concern in retirement is longevity risk (running out of money before you run out of time and are not able to produce labor income) and for that a long term tax deferred vehicle is appropriate. 

I know. I still have it all (I'm options trading as a sidejob). What I'm saying is I agree with Lane, if we compare the investment hypothesis between real estate and 401k, real estate is way way way way better. 

In fact, I could say having a mortgage is much more needed than having 401k.

The only good thing about 401k is only because the company is also chip in free money to the table. But after a certain point I'd rather move that 401k as loan to fund RE or self-direct IRA,etc.

If you’re into options trading then you have a very different risk appetite than I do so my comments may not be useful. 

The place where I hesitate with the line of reasoning is that it’s comparing two different asset types AND changing the tax vehicle at the same time. It’s comparing stocks to real estate, plus forgoing the tax deferral (exchange aside). Real estate may do better, or not, but the risk is higher for various reasons: single asset type versus diversification, singular asset versus say an index, unpredictable costs, and presumably leverage. Thus it’s a big portfolio balance change and personally I’d start with a clear portfolio strategy. As an aside, I find we often focus on returns and don’t discuss risk enough, I find myself more and more pondering risk return.

If you’re pretty set on making the move then loaning yourself the funds from your 401k seems the most preferential mechanism since you won’t deplete your 401k, an action you later can’t reverse. I’d then treat the loan as fixed income in your portfolio (you’d sell stocks in your 401k and instead buy a bond which happens to be to yourself). 

Wishing you investment success!

Quote from @Carlos Ptriawan:

Quote from @Lane Kawaoka:

I put money into the 401k/roth options from 2007-2014. Despite what everyone says it never made much sense to me because when you invest in that vehicle you are stuck with only garbage options. Think for yourself and take the money out once you get proof of concept with alternatives. If you need any help me know.

 The most problem with 401k is you could enjoy your money only when you have (possibly) cancer, heart attack, stroke , knee issue ,etc.

We want the result of investment like 4-5 years. Not when we can no longer walk.

You should have different investment vehicles for different time horizons. If you want the money in four years then a 401k isn’t the right option. By contrast, a common concern in retirement is longevity risk (running out of money before you run out of time and are not able to produce labor income) and for that a long term tax deferred vehicle is appropriate.