All Forum Posts by: Kevin Yoo

@Eric Gabriel

1. Are there properties that you can get more than 11.6%?

2. Can you not sign up for more than 1 year? And what happens after 1 year?

3. Interesting.

4. It will take a lot of these to make $100,000 a year.

5. My wife was born and raised in Korea. She has a brother there who owns an apartment. I have contacts that could help. But I want to know how you do. When you are ready to help others, I would like to partner with you and finance your efforts. Our minimum returns that we seek is 12%, however.

@Eric Gabriel

I have read your post several times with great interest. 

So, if I take your $50,000 condo/apartment that you are subleasing in South Korea for $500/month and if you have no expenses, then this comes out to be 12% CoC ROI. Am I correct?

1. Are there truly no other expenses?
2. What is the typical vacancy rate do you think?
3. Is the 12% ROI typical or can you get more or less on the average?
4. As for taxation in South Korea, why would anyone chose any rate but 6% for rental income?
5. Can you as a foreigner borrow money from a South Korean Bank to put down as deposit?

Thanks for posting this very interesting information on real estate investing in South Korea.

@Account Closed

I think the general answer here is to pay it off aggressively unless I plan to get more properties and debt in the future correct?

Sort of yes. It depends on how many properties you want to own. If you only want a few, you don't need debt to make you happy and enjoy good safe returns. If you plan to own many, then debt becomes very helpful. 

how about other deductibles such as depreciation or itemized deductibles? are they affected by early mortgage payments as well or will i still get the benefits if i pay aggressively?

No. Depreciation and itemized deductions are not affected by how much debt you have on the property.

For example, I have a friend that insists that it makes sense to only pay the minimum on her credit card because she will get the interest back on her taxes(not sure if thats true or not). 

Personal credit card interest payments are not deductible.

does it mean that because you put in more money, the returns percentage wise are technically less? 

Yes, it does mean that the returns are less. Look at this link for a property we are considering purchasing in Chicago, Illinois.

https://www.dropbox.com/s/w17g38sss8xoh1t/7718%20L...

On this property the cash on cash return goes from 9.96% with all cash purchase to 20.35% with 25% down payment. Significant difference.

wouldn't that even out after you finish paying the mortgage in 30 years?

Not really. Think of all the lost opportunity for generation of other income because you had all of your money tied into one property. Again, if you do not want to or more importantly have the ability to look for and take advantages of other opportunities, then paying down the mortgage is fine and good idea. But if you have the time, skill set, and desire to pursue more, you must use GOOD debt.

Hmmmm. It seems as though either there is a failure to understand debt and leverage by the BP Community or some members of the Community simply are so debt aversive that they do not care about the different types of debt and the power of leverage. I am OK with the latter but I would be disturbed if the commenters to the original question simply failed to understand the former. This would mean that many in BP fail to understand the simple concepts of debt in real estate investing.

@Account Closed. THE ANSWER TO YOUR QUESTIONS IF THERE ARE OTHER TAX BENEFITS TO SLOWLY PAYING OFF THE MORTGAGE IS NO. However, I hope you read the rest of this and find it helpful. There is a big difference between your student loan debt and the debt on your investment property as mortgage. Kiyosaki called them bad debt and good debt. The student loan debt does not generate for you any wealth (except for tax deductions on interest paid out). This is bad debt akin to owning a yacht, big screen television, or carrying a balance on credit card.

The mortgage on your rental is good debt because it generates wealth for you. I hope I am insulting your intelligence when I say this because the reasons how it does this are really obvious.

1. Interest deductions: I know many have discounted this and yes, it is only a fraction of what you pay, but if you have 500 rental properties and are in the highest tax bracket possible, this will be very very valuable. If you plan to only own a few rentals, then I understand why you would want to own them free and clear and that is totally OK.
2. Depreciation: I know this has to be recaptured at time of sale and you have to pay taxes on that, but again if you own many many rentals, this is a tremendous deduction. Again, if you want to own a few rentals forever without ever selling, then paying off your mortgage quickly is a fine strategy.
3. Higher Return (IRR): If you have $100,000 into your rental because you paid off the mortgage as opposed to only $30,000 because you put a mortgage on the property, then the net income you get as a return of the cash you invested is higher with the second scenario even after taking into account the mortgage payments. If you have all paid all cash for a property, the returns are very typically in single digits. If you leverage with a mortgage, then the returns are typically in double digits many times in 20 or even 30%ile.
4. Leverage: If you spend all $100,000 to own a property, you have all that money tied down into that one property. If you have only $30,000 sunk into that one property, you can go and own  two more properties like this one with 30% down. Your returns on your money is again much much higher.

There is, no doubt, tremendous benefits to owning properties free and clear. I wish I had all my properties that way. There is no doubt there is great danger in having mortgages. I have learned that lesson the hard way. But I plan to own thousands of income generating properties. I cannot get there without using debt, at least not in my lifetime. Therefore, I spend a lot of time understanding debt and mastering the use of it, so that I accomplish my real estate investment goals.

The philosophical way to answer your question is for you to answer how big of a portfolio do you want. If you want to stop at a few properties, paying them off is safe and just fine. But if you want to own a large portfolio, be as aggressive at learning how to create good debt and use it as you were so aggressive in paying down your student loan. Just acquiring debt without understanding it, is in my opinion, as stupid as paying down your mortgage as fast as you can without really understanding how that is affecting all of your other finances. Lastly, don't ever worry about how much interest you are paying to the bank because it is definitely a lot and thinking about it will only drive you crazy. Just realize that this is part of doing business and instead realize that you are not paying the interest. Your tenants are.

@Account Closed

As to how taxation works can be worked out in a Joint Venture Agreement. You could split the capital gains tax 50:50 or you could offer to pay for his capital gains tax if you were so kind and/or desperate. Not being on the title does not mean you do not have to pay capital gains tax. This tax must be paid by someone. 

@Account Closed

We lend money for such projects as yours so my answers to your questions may have a bent towards the viewpoint of a PML. 

1) How do we structure this deal between the two of us. How does he protect himself if I were to skip town ,die, or just decide not to pay him? Do we write up a lien? How is that done?

There are two ways the cash partner protects himself. One, the property. Two, you by which we mean your personal assets. As for the property, your cash partner can protect himself by either purchasing the property himself and he being on the title or by you purchasing it with his money and he filing a lien against the property. It is also possible that both of you be on title together. If you are not on title, you should file a lien against the property but this is harder to do unless you have some reason to do so like having worked on the property or lent money against the property. Until you have filed a lien, you are not protected in case your cash partner wants to dump you. If it is OK with your cash partner, I recommend you both being on title.

As for your assets protecting your cash partner, he may ask you for a personal guarantee. If he does not, then he is taking on more risk than a typical HML would. If you were to borrow this money from a HML, most likely you would have to give a personal guarantee. If he does not ask for PG, it would be only right that you offer it to him.

2) What is a normal percentage to pay to a private lender?

If I give my money to someone to flip through Crowd Funding, I would typically get 10%. If I give my money to someone to flip through a HML, I would typically get 12%. If you borrow from a HML, you would typically have to pay 15%. So, I would offer low teens to be fair. 

When we give money to someone for flip, we typically charge 36% or 50% of the profits which is very expensive but we are simply highly selective. And interestingly enough because we are so easy to use, we have people that borrow our money again and again. And so, don't be offended if your cash partner ask you for 50%. This is also very typical in the real world.

3) How do we go about putting in the best and strongest offer? Does the seller need to know that the money isn't my own? Does he give me the loan before the closing, or does the money go directly from him to the seller at closing?

The best and strongest offer is all cash and quick closing such as couple of weeks with no contingencies. But you best make sure that there are no major issues with the property. Otherwise, you would have lost a lot of your cash partner's money even before you started the rehab.

The seller does not care whose money it is especially if you have your cash partner as the buyer. You should not take your cash partner's money into your own account (unless required by seller such as a bank) but have it go directly to escrow. If I were your cash partner, I would insist on that. It is cleaner and faster. 

I hope this helps. Using an attorney is very important and recommended. But make sure you have thought things through, talked to your partner extensively, and maybe penciled out a rough agreement. Otherwise, you will spend thousands on attorney fees prior to even doing a deal. Make sure you minimize what the attorney needs to do for you. I have attached a link for you for a JVA that we use that may help you. 

https://www.dropbox.com/s/pdbvxu5kz3y6mds/JV%20Agreement%20Template_01-24-2016.docx?dl=0

@Jonna Weber

Jonna, a voice from the past. It is good to hear from you. When will you be ever ready to be our Partner in the Boise market? My COO loves that town. We would love to buy properties with you there.

@Joseph Whiting

We own over 150 units all around the country, but we live in California. We are also very much into cash flow. We try very hard to live by the 2% for rent to purchase price. And it is not that difficult to buy at CoC a-ROI of 15 to 20%. Investing in out of state is very rewarding but is also very difficult and dangerous.

BP is no doubt a great resource and virtually all of our success had something to do with BP. Our greatest failures, however, were also a direct result of working with BP members. It is like anything else where you have to take the good with the bad and just be careful.

The common thread you should be recognizing in all the responses so far is that you have to have a good team on the ground. In our opinion, having an operator(s) that can find, rehab, rent, and manage the properties is a must. We go into a market only after we have established such a team and do not look at any properties until the team is in place. In other words, we do not invest in properties or markets. We invest in people.

Lastly, we also realized that the members of the team must be treated equally and with incentives in place. So, we try very hard to make the operators all partners and equally accountable and responsible for the success and failures of our properties. Typically, we give half of the deal to the people on the ground which is a lot but it ensures that we can build a solid portfolio and we make up in volume what we give up in each property. All this takes years to develop and we are still perfecting it. 

Owning a property or two in a far away state is very difficult without a good team in place. Turkey operators seem to fill this void, but not all turnkey operators are the same. Some are just terrible. Good luck and be careful.

@Gregory H., @Reda Akbil, @Jacob Felder, @Mark Callazzo

Gentlemen,

I see that there are some very active investors in Philly doing well. 

Since I am looking to buy in Philadelphia, can you tell us what part of the city where you have had the best investing and what part of the city you did not do so well?

@Willie Morales

I have no properties in Philadelphia, but I just visited that city to meet with Jay Walsh and ABC Capital Investments. We are currently in process of drawing up agreements to buy and hold properties together hopefully in the hundreds. I think I have a good understanding of the Philadelphia market now at the least in the segment that ABC operates in.

I have asked BP Community of their thoughts on ABC Capital and only got one response directing me to another thread which I read already. Strange how little people are willing to share or how such a giant community knows very little.

I would be happy to share with you what I know about Philadelphia and learn from you. We should do it here on line so that others can learn from us. But you can contact me privately as well.

I see that you are from NYC. I understand that there are a lot of NY investors going to Philadelphia and some say Philadelphia is the next NYC particularly in real estate prices. Do you see this as well?