All Forum Posts by: Matthew Terry

@Bonnie Low

I invest in the Phoenix area and Oklahoma City. OKC is traditional buy\rehab\rent where Phoenix I rehab my primary residence, live in for a few years, and then turn it into a rental. Two places with very low property taxes. However, we will see how the surge in Phoenix-area home prices will affect property taxes next year.  

Hello BP Mates,

I'm hoping for some insight\advice on my situation:

I closed on an SFH in April and there was about $12K in repairs that were negotiated. This money went into escrow, but for some reason, the title company decided to pay the contractor 100% upfront instead of paying in phases when work was done and inspected. It is now August and I'm just finding out that the contractor dissolved their LLC and disappeared, having done none of the work.

There was a negotiation done without my knowledge or participation between my property manager, title company, and a different contractor. The contractor said they can do the same work for $9K, and the title company agreed to send me a check for half. I'm left with paying the other 50% to get the closing repairs done. I was told the title company used to pay in installments, but they changed that because of issues stemming from COVID. I was not made aware of this change.

A few questions:

Do title companies normally pay contractors upfront?

This title company was recommended by my property manager and they are one of the largest around and have good reviews so I didn't think twice about using them. Did I miss an important part of the due diligence process by not asking how they pay contractors for closing repairs?

Has anyone experienced this? What actions did you take?


 

@Jackie Jake

I wouldn't trust anyone but your own research. I spent a solid 8-10 hours digesting podcasts, youtube, and white papers before making any decisions.

I honestly can't remember the last time I used paper fiat money to buy something, its all electronic, just like crypto. You aren't "buying" digital money, you are exchanging one digital store of value for another with much higher potential to grow in value.

Hello BP Mates,

I'm a new REI investor, started at the beginning of 2020 and I now have a portfolio of 6 SFH acquired over the last 16 months. I'm taking a pause to see how the portfolio runs, to save up cash to expand into small commercial, and to hopefully see some cooling in the market over the next year or two. Cap rates are stupid low and I don't have the time or the network to look for off-market distressed opportunities right now.

I'm now investing relatively small amounts in cryptocurrency and I've made the decision to have 10% of my net worth in various blockchain technology assets. It is the wild west with very high risk and even higher returns and I'm investing with a mix of pure speculation and dedicated research into each project and how competent the management team is and what problems they are solving in the world. Just like people who invested in Etherium or Bitcoin 10 years ago who are now millionaires many times over, I anticipate massive profits for me over the next 5 years. If\when I hit the lottery, I will cash out a large portion of it, pay my taxes, and invest the leftovers into RE, reducing my net worth exposure to crypto back down to 10-15%. I see it as a very risky, but much less time-consuming and much higher risk\reward ratio alternative to flipping to raise capital for buy and hold. I started investing in crypto about two weeks ago and I have a 1300% annualized return, but I chalk that up to dumb luck that coincided with a decent dip in the market when I started investing. (BTC went down to $46K now its over $57K, other coins are doing even better)

I'm curious if other RE investors are investing in cryptocurrency and how this might work into your REI strategy for gaining capital. I've also been researching how blockchain technology can be leveraged in the real estate industry to provide more efficiencies and there are some fascinating use cases, like: tokenizing deeds, instant loans, more efficient insurance, etc.

Ring requires an internet connection. Are you also going to pay for your tenant's internet? If not, then you need their permission to use their internet to use your Ring camera. 

Ring is a cloud storage solution and all video is shipped off to some data center somewhere. They are under scrutiny for all kinds of privacy issues between collecting and selling end-user data to the private video being unencrypted, do you want that liability on your head if you force your tenant to use Ring?

Many of these new cloud security device providers are targets of hacktivist groups, and every year some IP camera manufacturer is in the news because of a major hack where private video was seen by people who have no authorization.

Cameras give a sense of security to the user, false or otherwise. If the internet is shaky or goes down and the Ring device does not record or alert on an event properly, or latency delays the alert of a person breaking a motion plane or person detection analytic and this person destroys property or hurts the tenant, you may be liable, as the person who is forcing the tenant to use Ring.

I'm a security technology junky and it's been my career since 2007 working with hundreds of people and companies and selling millions of dollars in equipment every year. I did think about it, but decided not to offer intrusion, access control, or camera technology in my rental properties because of the increased cost, maintenance, and liability. 

Large multi-family and townhouses\condos are different. I'm seeing many new developments offer Ring or Arlo or Nest cloud cameras as an upgrade option when the house is being built. STR is also different because that is a hospitality business with short stays and most hotels and resorts have cameras in places that don't impose on privacy.

Hello BP Mates,

Looking for advice. I have a rental in Phoenix that I owe $210K on and it's estimated to be worth around $400K. It has a brand new AC, water heater, garage door opener, garbage disposal and it has a foam roof that will last another 30+ years as long as it is maintained. I'm renting it to great tenants for $1850 and it is in a great B+ neighborhood in a great central location relative to the entire metro area. 

On top of that, I can sell this without capital gains because I lived there and owned it for 2 years out of the last 5 years. I will pay only a year's worth of depreciation recapture. The lease is up April 2022, but speculators are buying vacant homes because appreciation far outpaces the PITI, so I think having a tenant in place is actually a benefit.

My "why" in REI is to subsidize my commission income when I have bad sales months in my 9-5. So immediate cash flow is more important than appreciation, but I also realize a hybrid model is important because of this exact question I'm posing.

I think about the saying "pigs get rich but hogs get slaughtered" and anticipating some market cooling in the near term because of the American Jobs Act, inflation\rising interest rates, tighter lending, ending foreclosure\eviction moratorium, etc. 

If you were in my position, would you sell now and capture the 100% in profit and reinvest it into a midwest market small multi-family with better cash flow, or keep it for another 10+ years since it is stable, has new major systems in place, and there is no indication of a major drop in market price any time soon?

@Ciji Masser 

I have a baby and a toddler and about to turn 40. I started investing at the top of 2020, although I started my REI journey in 2016.

I think the most important thing is to base most decisions you make on your goal of real estate investing. Before you make a decision, ask yourself "Will this decision get me closer or farther from my goal?" Some examples:

"Should I watch Netflix or play video games tonight for 3 hours?"

"Should I continue spending $4 a day on a Starbucks latte?"

"Should I keep hanging out with the same people every weekend, who are super fun, but have no interest in real estate or finance"?

"Should I keep my current 9-5 that pays enough to get me by"

"Should I keep putting income into my 401K, when I can't use that money for another 30 years and taxes will almost certainly be higher then"

I think you get the point. If you start making better financial decisions, cut out the instant gratification products\services that provide no real value, eat healthier\excersize to reduce medical costs, expand your personal and professional network, learn new skills and\or look for a higher-paying company to work for, and get a side-hustle or pick up gig shifts (like Amazon Flex, Uber eats), your ability to find capital will exponentially grow over time, whether it is personal income or third party income. 

In a nutshell, make decisions every day that will reduce expenses and increase income while you are meeting more people and learning more about investing. I did this over 4 years and was able to start investing from a position of financial strength. This was necessary for my personal situation to convince my very risk-averse wife that we should get into REI.

@Gerardo Hernandez

The mistake was not taking it. That is an above average deal in this market. Once you pay down mortgage insurance and after a few years of rent rate increases and you are golden.

@Michael Glist

Yes, I'm leaning towards DSCR. From a few lenders I've spoken to 1.2 DSCR is the minimum and if it is a portfolio loan, they will take the average DSCR, so if one property is only 1.1 and the other is 1.3, it averages out.

@Caroline Gerardo

Thanks for your insight. I'm curious, why would it not help my DtI? My conventional loans would be wiped from my credit score. Even if the lender asks for a personal guarantee, it doesn't show up on my credit, or do I have this wrong? I would still report all my W2 income, but none of the mortgage debt the next time I go for a conventional loan.