All Forum Posts by: James Orr

@Kristen Chapin... depending on what specifically you are looking for in a real estate financial advisor I might be able to point you in the right direction. Are you looking for someone to create a custom financial plan with real estate as a core piece? Or, something to give you guidance on how much you should allocate to each asset class? Something else and if so, what specifically? Thanks in advance.

@Polly Feeney... you had also mentioned going over ROI numbers. For Nomad, here is the raw return in dollars including appreciation, debt paydown, cash flow from depreciation and cash flow using relatively common properties in NoCo.

If you divide these returns by your initial investments to acquire all the properties, you get your return on initial investment numbers. That's this chart.

I like ROI for the instant you buy, as soon as you start having any appreciation or debt paydown and the equity you have in the property increases it becomes a poor measurement for comparing what you could do with that money by investing it elsewhere. Who cares what the return is on your initial investment 5 years ago? Really, what we want to look at is: if you sell the property and take all your money out, what return could you get and how does that compare to the return you're getting now on the equity you have in your properties. That's why I prefer to look at return on equity on your portfolio once you own it. Here's that chart.

Does that help at all?

@Polly Feeney... some of the advantages of Nomad over saving up for 20% down payments: 1/4 the down payment (or you can buy 4 times the number of houses with the same down payment), more leveraged means you get amplified returns (this works both ways though so all returns are amplified), better interest rates which means improved cash flow, allows most people to acquire properties faster which means they tend to hit their financial independence numbers faster.

Here's a couple charts comparing doing Nomad 11 times with 5% down versus buying 1 owner-occupant property with 5% down then doing 20% down payment 10 times. In both situations you end up with 10 rentals and 1 owner-occupant property. But with Nomad you move 10 times and put up 5% each time so you end up acquiring properties sooner. That means you get your returns early.

One measure of risk is Debt To Net Worth. With this measurement, you have more risk earlier with Nomad since you're buying properties sooner with 5% down, but you end up having lower risk later on with Nomad.

As far as True Cash Flow(TM), which includes cash flow from the tax benefits of depreciation as well, you end up with a little worse cash flow with 5% down earlier on, but much better cash flow for a much longer time later on because you end up acquiring properties and fix in your mortgage costs sooner with Nomad. Plus, you have a better interest rate with Nomad than 20% down payment (and yes this model does take into account the PMI on putting less than 20% down).

I won't cover it here, but you could also sell off part of your rental portfolio and pay off the remaining properties to hit your financial independence numbers earlier. In those cases, buying the properties sooner helps a lot because you're paying down the loans and letting them appreciate while you own them longer.

Nomad gets you to your goal of financial independence 6 years earlier in our modeling and gives you a higher standard of living once you get to financial independence.

These are some of the charts I did for a presentation I gave at our local investor club in Fort Collins about achieving FI/RE in NoCo.

Does that help at all?

Welcome @Polly Feeney. Yes, you're right that Fort Collins is harder to get good strong positive cash on cash ROI with 20% down (although interest rates dropping a bit in the last couple weeks is sure helping). Our overall ROI numbers even using a very modest 3% appreciation are approaching 30% per year when you take into account cash flow, appreciation, debt paydown and depreciation. If you use the actual appreciation we've seen in the last 5 years, it is well over that.

The two best strategies working in NoCo right now are Nomad and Lease Options. Even if you decide to invest our of state, I'd recommend doing Nomad in parallel here locally if possible.

Hope to see you at the local investor club meetings on Wednesday night.

What do you do if your tenant stops paying rent? What if they have turned the front yard into a junkyard? Or maybe they want to break the lease. What do you do? We will be answering these and other questions about dealing with tenants and their problems in our class this week.

Join us at the Northern Colorado Real Estate Investor Group on April 3rd for Solving Challenges With Your Tenants.

Agenda:
5:45pm - Doors Opens
6:00pm - Class Start and Introductions
8:00pm - Class Ends/Networking Begins

Class is free but RSVP is required as space is limited.
http://bit.ly/SolvingTenantProblems

We teach a different class every week so check out our calendar to see what topics are coming up next!
https://www.meetup.com/Northern-Colorado-Real-Estate-Investor-Group/events/calendar/

Specializing in real estate and real estate investing in Fort Collins, Loveland, Greeley, Windsor, Timnath, Berthoud, and all of Northern Colorado.

Thanks @Account Closed!

> but wait, what if I wanted to purchase properties in Dickson, Ashland City, or Clarksville, TN, where property is much cheaper?

Yes, that could definitely change the numbers there significantly. Do you know the purchase price, rents and expenses for properties there? Happy to run those numbers for you; just let me know. I'm not familiar with those markets personally.

> If I wanted to use aforementioned ~300k (still don't want to use the full amount on the first project) to purchase flips in those areas in TN?

We can model flips, but that is different than the Nomad (buy and hold) model I did. To model flips, it would look like you are earning extra money (the money from the flips) so it could be either a replacement to the income we have you earning with the current job or as an additional side hustle. If you let me know how much you are earning from the flips each month on average, I can add that too.

> Nashville has been booming but Clarksville is about to undergo some interesting business developments.

Awesome. Not familiar with those markets.

> Virginia is a separate plan, I still like the numbers but to do both simultaneously?

Love it. We can do that... just let me know and I can add the flips to the plan I just put together already.

> Also, considered becoming a real estate agent in VA to earn additional income specifically for investments.

Very cool. That, similar to flips, would be extra income and we could model that too.

> Thoughts?

Love it. Let me know if you have numbers and want me to run one or two for you. Or, if you prefer I can send you a private message with this plan I did above you can change the numbers and play with them yourself. Either way, happy to help.

Thanks!

Thanks @Account Closed! You are very welcome.

I ran a really, really, really rough version of what buying 11 properties as a Nomad *might* look like. I don't know the DC market nor its numbers at all. If a local DC real estate agent wants to correct any of my assumptions, I'm happy to run these numbers again for you to see how it changes.

Here are some of my assumptions.

• Modeled for 720 months (60 years)
• 24.71% effective income tax rate (based on a $70,000 per year household income)
• Saving 30% of your income
• 3% inflation rate
• 3.25% yearly safe withdrawal rate (SWR)
• $4,083.33 target monthly income in retirement (in today's dollars)

Summary of assumptions for the account in this scenario.

• Account Name: VTSMX with CAGR of 8.97% over 1871-2017
• $0 starting account balance
• 8.97% yearly rate of return based on what the VTSMX has averaged from 1871 to 2017
• Store all your savings in this stock market until you use it for down payments

Summary of assumptions for the property in this scenario (at the start of the scenario).

Property Address/Description: Typical Family Home - 5% DP

• This property is a dynamic, resuable template of a property that we can buy multiple copies of.
• This property is a Nomad™ property that you live in until you buy your next owner-occupant property. When you buy your next Nomad™ property, this one becomes a rental.
• This property uses dynamic rules to determine when we buy/sell it in the scenario.
• Account for down payment, income and expenses for this property: VTSMX with CAGR of 8.97% over 1871-2017
• $350,000 property value and purchase price and it goes up at a rate of 3% per year.
• 5% of purchase price for down payment.
• 2.5% of purchase price in closing costs at time of purchase. This is paying a one-time upfront mortgage insurance instead of paying it monthly
• No seller concessions.
• 4.375% is the mortgage interest rate with a term of 360 month mortgage term.
• $2,000 per month in rent but rent increases at a rate of 3% per year.
• 3% of the monthly income is the assumed vacancy rate.
• 10% of the monthly income is the assumed maintenance rate.
• 1% of the value of the property each year is the assumed property taxes rate. Based on the initial value of $350,000 that's about $3,500 per year in property taxes at the start and it changes as the property value changes.
• 0.4% of the value of the property each year is the assumed property insurance rate. Based on the initial value of $350,000that's about $1,400 per year in insurance costs at the start and it changes as the property value changes.
• This is a residential property and 15% of purchase price is considered the value of the land (when doing our depreciation calculation).

I assume you save up until you can buy an owner-occupant property (described above) with 5% down payment. Live there for at least a year but really until you save up enough to buy the next 5% down payment property.

When you move out, convert the previous property you were living in to a rental. Repeat this until you have 10 rentals properties.

Here's your cash flow and net worth charts. And it looks like you hit your financial independence goal in 24 years. Let me know if you want to see anything else.

If there is a local real estate agent that can help with my ASSUMPTIONS above the numbers in your market, I can rerun this. Thanks!

Hi @Account Closed!

> I am relatively new to investing and I have a couple of options in front of me during the next year.

Welcome to investing! :)

> I need to chat with someone who can help me understand the implications of these decisions on my financial health.

OK.

> I have one rental that I'm basically breaking even on.

OK. Is this breakeven with vacancy and maintenance or breakeven with just rent and mortgage payment, taxes, insurance? What about property management? Personally, I like to include vacancy and maintenance in that calculation in addition to mortgage payment, taxes and insurance.

Some people... especially in markets where it is harder to cash flow might even include cash flow from depreciation benefits.

> I want to purchase a house in Northern Virginia, with my VA, for personal use.

Excellent. I like the VA loan.

> This will likely be a house hack down the line, I intend to rent it out in about 3-5 years. Maybe sooner.

Excellent. By house hack, do you mean that you are going to get roommates or is it a duplex, triplex or fourplex where you are renting the other units? Or, do you mean you plan to live in it and then convert it to a rental as a Nomad in 3-5 years? Nomad is buying houses sequentially. House hacking is when you get income from your property while you are living in it.

> I've been speaking with a lender who can offer up to 300k personal loan to get started,

What will you be using this for specifically? VA loan is a 100% loan so you shouldn't need a down payment for that purchase specifically.

> 7% APR with a 5-7 year term (I wouldn't want the full amount), and also a 250K business credit card.

Sounds like it might be a personal, non-secured loan at that right. Is that right? Unless you're doing fix and flips and using that instead of hard money, not sure I would personally use that to invest.

> My day job is in the DC area, and it can be quite busy.

OK.

> So I don't want to take on more than I can handle, and also if my finances become ruined, I also lose my day job.

Yes. Then I am not sure I'd borrow the personal loan money. Instead, I'd do the VA loan and hoard as much cash as I could to have at least a full 6 months of emergency reserves. If you can get good reserves, you could do Nomad to acquire properties... one per year... by moving in and converting the previous ones to rentals.

I don't know DC that well, but be careful about your cash flow numbers.

> Advice is much appreciated!!

Hope that helps.

@Colin Clark... got it. That makes sense to me.

@Colin Clark... are there specific questions you are looking to have answered?