All Forum Posts by: James Orr

Join us for our weekly Northern Colorado Real Estate Investor Group class.

In this class James will present How to Acquire a Multi-Million Dollar Investment Portfolio while Earning Just $5,000 per Month, based on a book he just wrote of the same title. This class will further showcase Nomad Calculator 3 so be sure to not miss it!

Agenda:
5:45pm - Registration opens
6:00pm - Class start and Introductions
8:00pm - Class ends/Networking Begins

Class is free but RSVP is required as space is limited.

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/

Join us for our weekly Northern Colorado Real Estate Investor Group class.

This class discusses the importance of maximizing rent and will discuss how small increases in rent accumulate over time in various portfolios.

Agenda:
5:45pm - Registration opens
6:00pm - Class start and Introductions
8:00pm - Class ends/Networking Begins

Class is free but RSVP is required as space is limited.

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/

Join us for our weekly NCREIG meeting. This week we are taking a break from our usual classes and are meeting up at Bad Daddy's burger bar for some casual networking and enjoyment of the gorgeous Spring weather. Please feel free to drop by and hang out. There is no charge to attend but we do ask that you are a good patron to Bad Daddy's and purchase food/beverage while you are there since they are hosting us for free. 

We will be there from 6:00 PM to 8:00 PM. You do not need to be there right at 6 so come by whenever is convenient for you.

All are welcome but please RSVP so we can tell them how many to expect.

https://www.meetup.com/Northern-Colorado-Real-Estate-Investor-Group/events/246298658/

@Matt Scott... you wrote:

> I was following all of your comment, but got lost at "+ 15% return (if you're seeing 3% appreciation)" can you explain that again?

Let's look at a $100,000 property. If you're appreciating at 3% a year, that's $3,000 per year in appreciation. Since you put 20% down payment, you put $20,000 down. $3,000 on a $20,000 investment is 15% return on your initial $20,000 investment. That's how I got the 15% return. If you put 20% down, you multiply the appreciation rate by 5 to get your ROI from appreciation.

> and just to push a little on the debt paydown angle, i get it, but it's really a choice of the owner whether that money earned from the renter is used for principal paydown, or used to help purchase a new property, or buy anything else really if they wanted?

This is NOT extra debt paydown... this is the normal debt paydown you get automatically by getting a 30 year amortizing loan. If you're making your mortgage payment, you're getting this return from debt paydown.

If by saying it is the choice of the homeowner to get an interest only loan or a 30 year year amortizing loan as to whether they decide to get debt paydown or not, I would agree with that. I think many investors are getting 30 year amortizing loans since it is the most common loan I see. Not sure I've ever seen stats on that, but my guess is that is the most common. Anyone know of stats that show that?

Does that help? Thank you!

Sorry... duplicate post.

@Mechelle Detres ... what @Bill S. said is really good advice.

If you need a recommendation to a good Colorado contracts attorney, let me know and I can refer you to one.

I suspect others will have very different opinions on this, but in my opinion, if you plan to be a professional when wholesaling, you should get professional advice and professional tools and that means talking to an attorney to protect yourself. A little bit of money up front can save you a lot of headaches later.

The other thing to be aware of in the Colorado contract when wholesaling is section 4.4.2:

4.4.2. Time of Payment; Available Funds. All funds, including the Purchase Price to be paid by Buyer, must be paid before or at Closing or as otherwise agreed in writing between the parties to allow disbursement by Closing Company at Closing OR SUCH NONPAYING PARTY WILL BE IN DEFAULT. Buyer represents that Buyer, as of the date of this Contract, [ ] Does [ ] Does Not have funds that are immediately verifiable and available in an amount not less than the amount stated as Cash at Closing in § 4.1.

Specifically, the spot you have to check for "Buyer represents that Buyer, as of the date of this Contract, [ ] Does [ ] Does Not have funds that are immediately verifiable and available in an amount not less than the amount stated as Cash at Closing in § 4.1."

You should discuss with your attorney how they suggest you deal with this if:

1. You don't have the money for closing on the deal yourself should you not be able to find an end-buyer.

2. Your end buyer (the person you're assigning the contract to) is using hard money and does not have the cash personally.

It is not a deal killer, but different attorneys may advise you differently on how to handle this.

By the way, it looks like the original question by @Larry Lee also included some questions on how to find off-market deals. I am sure in the last 8 years, he's got the answer to that from others on BP, but if anyone wants a spreadsheet I built for analyzing the business flow of marketing for off-market deals, I have a good spreadsheet for that and happy to share/give you the spreadsheet and a video of me walking through the spreadsheet.

Hope that helps. Thanks!

@Joshua D. You wrote:

> Thanks so much for the response. What does it mean saying sounds like you have a tiger by the tail?

You're welcome. I meant it sounds like you're in for a fun, wild ride with your business having a lot of success... embrace the craziness and enjoy.

@James Wise I love when people remember principal paydown as one of the four areas of return when investing in rental real estate.

1. Cash Flow

2. Appreciation

3. Tax Benefits from Depreciation

4. Principal Paydown

Is @Matt Scott suggesting that the turnkey investments he's considering are getting 7-10% cash on cash return? That's much better than we see here in my local market where cash on cash return on investment with 20% down payment is very close to 0% when you use real numbers including mortgage payment, taxes, insurance, maintenance, vacancy and capital expenses (assuming you're managing it yourself). Having a property manager, it is worse than 0% cash on cash.

Lately, in our market we've seen unsustainable appreciation rates between 5% and 10% per year. A much longer historical average of same house over house appreciation is closer to 3 or 4% per year which means if you're putting 20% down payment, you're seeing a 15 to 20% return on investment per year from that. By the way... the 3% or so per year from appreciation matches Case-Shiller's long-term numbers and makes real estate appreciation look an awful lot like just inflation (since that's before inflation numbers).

I think the point @Jay Hinrichs was making is that it is the minority on BP that really consider the appreciation part of the return.

If your turnkey property is not seeing appreciation, that return may truly be closer to zero. I don't know and you'd want to research that from whatever source you like, but I might suggest trying the one you're already paying for from our government:

https://www.fhfa.gov/DataTools/Downloads

Back to returns. The tax benefits from depreciation (after tax) are a little more challenging since you typically take the value of the property (excluding the land) and divide by 27.5 years to get the amount you can depreciate each year. The really, really rough (never use this on your tax returns... but it is a good way to impress your friends at cocktail parties) is to just take 3% of the purchase price to estimate your gross depreciation for the year.

Then--and this is controversial since I am mixing pre-tax and post-tax returns--multiply your gross depreciation by your effective tax rate. Further controversial since some would argue you should use your highest tax rate since that is the one you're really reducing paying in. So, if you're buying a $100,000 house... really, really rough math says you might be seeing $3,000 per year in gross depreciation times... let's say you're in a 15% tax bracket because my math with 16, 17, 18 and 19 times 3 isn't great (even though all real estate agents can multiply by 3%)... that means you're saving $450 per year on your tax return in what I call "cash flow from depreciation"... that is a fancy way of saying you didn't have to pay that amount in taxes so you got to keep that much more.

$450 per year on a 20% down payment or $20,000 down payment means you're getting a 2.25% return on investment (after tax) on your investment from depreciation.

And finally what prompted me to chime in... James' comment on principal paydown. I'm tiring of typing, but let me know if you want me to send you a whole class I did on the math behind this, but the short answer is the return you get from a 20% down payment loan being paid off over 30 years is 5.51% per year.

So... if you add up the returns for a turnkey property it might look like this:

7% from cash flow + 15% return (if you're seeing 3% appreciation) + 2.25% from depreciation + 5.5% from debt paydown = about 30% per year (if you squint really hard and don't check my math... because these are exact numbers to begin with)

Now... we had A LOT of assumptions in there... if cap ex is much higher (which it can happen on the lower end properties), cash flow can be a lot lower than 7%. If you don't see 3% appreciation, which is totally possible... there goes half your 30% return. As James points out... the 5.5 from debt paydown (paying down your loan) is about as close to a guaranteed return as you can get (without us ever daring to call it guaranteed) and provided they don't change the tax laws... the depreciation is probably a reasonable assumption as well.

If you want, hit me up and maybe we can run some numbers in my new real estate modeling/simulation software for the turnkey stuff... I've not turn that before.

OK... off to watch some TV with my wife and eat a late dinner. Hope that helps someone. Thanks!

Hi @Joshua D.

> So i started my real estate business up about 4 years ago me and my wife and took over are area.

Congratulations... it does take hard work and effort to succeed in this business, so you must be putting in the effort to make it happen. That's commendable and a great example for folks here and locally.

> Now my family and friends come to me asking questions and starting to try and do exactly what i do.

I can relate. When we started investing in my local market in in the early 2000's we had lots of folks wanting to grab lunch and pick our brain about what we were doing, how to do it and how to make it work. We eventually turned the lunches into a once a month networking meeting which eventually become our local investor club with about 950 members.

> They never had any interest before now i started from bottom and came up.

I think it is human nature to be attracted to success and to be skeptical and wary before you've proven to be successful. So, that would not surprise me.

> Literally i started a big thing around here and people are doing it and mostly family and i really feel annoyed especially the ones who mever had a job and have been given everything.

I can certainly appreciate you feeling that way. I've definitely met a few folks that I felt were all take and no give, but I have found the overwhelming majority of people to be exceptional nice and full of value. Sometimes they turn me on to a great new source of money, or deals, or a resource or become a buyer or advocate. It is not everyone. Some get info and decide it is not for them. Some get info, put in partial effort and move on to something else. Personally, I'm happy to share. More often than not, I feel the more I give to others, the more I get back.

> How would you guys take this?

I consider the help I provide to the few people that take and take without even a thank you as a gift from me to them with no strings attached. Sometimes when the takers continually ask for more and more help my natural inclination sometimes is to protect my time, especially since I tend to be an introvert, but I am actively working on trying to be better about being willing to help even more. I do struggle though from time to time as I'd imagine many folks who are busy would.

I do hope that helps with at least one person's perspective who's been asked by a large number people for help and guidance over the years. I am sure there are other perspectives out there as well.

Keep working at it... it sounds like you've got a tiger by the tail... keep up the good hard work.

Our last few episodes of the Nomad Real Estate Investing Podcast have focused on Property Management. To close out this segment, this week we discuss the most common issues landlords have with tenants and how to resolve them. 

Listen as our expert property manager and some of our club members share some of the problems they have run into with tenants and how they resolved them. 

If you have tenants or plan to in the future Solving Tenant Challenges is well worth a listen.

https://itunes.apple.com/us/podcast/ncreig-2018-solving-tenant-challenges/id1338925560?i=1000409962746&mt=2