All Forum Posts by: James Orr

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

This week we will teach you what you need to know after buying your first Nomad property. We will show you what it looks like if you stop versus doing one more (as well as a quick overview of the full Nomad). We will also discuss what happens when you stop moving in and start buying 20% down properties instead. In addition, this class will include "Marketing and Screening Tenants Lite" and "Property Management Lite".

These classes are open to everyone and curated through MeetUp.com. For additional details and to RSVP to this class please visit us at https://www.meetup.com/Northern-Colorado-Real-Estate-Investor-Group/. 

It's free but RSVP is required as space is limited.

Agenda:

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

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/

The live recording of our most recent class Tenant Screening which was taught to the Northern Colorado Real Estate Investor Group (NCREIG) is now up. In it we briefly cover how to market to tenants and then go over, in detail, how to screen applicants to help ensure you find good tenants while following all Fair Housing laws. You can watch it by following the link below.

https://JamesOrr.com/attracting-and-screening-tenants/

@Account Closed Yes, I totally agree. This is exactly why I am writing this software which will allow us to test various market scenarios using monte carlo simulations for both a real estate portfolio and stocks in the same scenario. You'll be able to test how your real estate and stock holdings perform on a myraid of situations. It is going to be amazing.

I'm starting to model some much more sophisticated scenarios of buying investment properties, but before I even got too far into it, I began modeling the impact of inflation on your paycheck and personal expenses.

For example, I ran four different scenarios.

1. No inflation on your paycheck and personal expenses: the $5,000 per month you earn is still $5,000 per month 40 years into the future. Your expenses after taxes remain the same as well so you can save $160 per month (until your real estate property taxes and insurance increase). Unrealistic, but super conservative as well.
2. 1% inflation on your paycheck and personal expenses from inflation. The amount you earn increases, but so do your expenses including property taxes and insurance. Your mortgage payment does get locked in.
3. 2% inflation... you get the idea.
4. And, finally 3% inflation.

This small change alone, has a pretty significant impact on your net worth if you assume that you put your savings into the stock market and could magically earn 8% per year from that (which I feel is optimistic).

Here's a chart showing the difference in net worth between the 4 scenarios.

And here's a zoom in showing just month 480 at the very end.

Much of the difference in the networth is from being able to save more money and invest it in the stock market (since the one property you own is the same for all 4 scenarios). But, it does show that the assumptions you make when doing your modeling about inflation's impact on your income and expenses can be far reaching over a 40 year analysis.

If it matters, this was based on a property in Severance, Colorado (near Fort Collins, Windsor, Greeley areas) but I don't think the property in this example has a huge impact on the difference between the scenarios.

In this episode of the Nomad Real Estate Investing Podcast we add a few new "flavors" to the different Nomad strategies. Originally, the Nomad strategy of investing in real estate was this:

1. Buy a property as an owner occupant and live there for a year
2. After 1 year, buy a 2nd property as an owner occupant and move in
3. Convert the previous property to a rental
4. Repeat the process until you own 10 or so properties

Since then we have added several variations of Nomad including Catch Up Nomad, Young Nomad, Little Down Nomad, College Nomad, and Legacy Nomad. Now, we have added two more which are:

• Flush Nomad: Has enough for 15%-20% down payment and does not need owner occupant financing
• Creative Nomad: Is willing to use creative financing (Owner financing, WRAP financing, Lease Option, etc) to acquire properties.

With these new strategies we have eliminated the need to move into the properties (one of the biggest complaints we've received from potential Nomads) while still acquiring multiple rental properties over the course of 5 to 10 years. 

You can listen to it by using the link below.

https://itunes.apple.com/us/podcast/ncreig-2018-how-to-do-nomad-without-moving-into-properties/id1338925560?i=1000404459085&mt=2

@Grant Shipman Thank you! I do appreciate it.

@Cara Lonsdale 

> That's great, so long as you are local, and still have a desire to be an active participant in your rentals. At some point (either over time/age, or location) you have to make a decision to include a PM as another tool in your toolbox toward growing a profitable portfolio, and gaining your time back.

I agree and have my properties either managed by partners and/or a property manager personally myself. Just wondered what the total impact was of hiring one to a portfolio. It is more than just the cost of the property manager because it impacts the speed at which you can acquire and the ability for you to reinvest the money you paid them. This analysis does try to take that into account as well.

I was a little surprised at how significant it was honestly.

I woke up this morning thinking about the impact that hiring a property manager has on buying a series of investment properties using the Nomad investing strategy.

While I used properties for Northern Colorado (Fort Collins, Loveland, Greeley area), I think the lessons apply to lots of other markets.

For my assumptions, I assumed everything was the same EXCEPT in one scenario I hired a property manager at 10% of gross rents and the other I self-managed.

If you're not paying a PM, you end up being able to buy the properties faster. Here's a chart showing how quickly you're able to acquire 10 properties via the Nomad investing strategy.

That means you start collecting rents earlier.

Which means you have better cash flow (including cash flow from depreciation here as well).

Which means you see more money in your account (which is why you can buy the properties quicker).

Net worth over time.

Net worth in month 480 that's year 40.

If you adjust for inflation, still significant in my opinion.

TLDR: Hiring a property manager costs you over $5M over 40 years.

Thanks @Brian Armstrong @Marshall Easlick... I do not have a chart already made for that stat, but I've done other charts that show the difference in price per sq ft of new construction versus 1 year old properties versus older resale properties so I am sure it can be done. Your real estate agent could also go and pull properties from the MLS that are not new construction or not built in the year they're sold to get you this data as well. Just some mnaual labor. I'd guess a couple hours of searches and writing down results in a spreadsheet. Hope that helps.

The recording of this last class has been uploaded to our MeetUp site if you want to check it out!

Thanks @Kevin Romines.

> Outside of Fannie Mae, some Non-QM lenders don't use income and employment on the application to qualify based on the DTI.

That is also good to know.

> They only look at the debt service of the unit.

So, they using DSCR for the property itself only? What are they looking for with that? 1.2? 1.25? I am calculating that as well. In our market, it is harder to get that high on a new purchase.

> Some of my investors will allow the loan if the rental income equals the PITI payment on that property.

Interesting.

> Other investors I have will want 110% of the PITI payment as the min.

That is also interesting.

> amount the lease will need to be. That's it for the debt ratio. They will do this at 80% LTV and down to scores of 580.

Thank you. I do appreciate that info as well.