All Forum Posts by: Max Briggs

I am interested in hearing about them too. When I check their ROI numbers against my spreadsheet they aren't even close. They either make some assumptions that are way off of what I assume or they are pumping up the ROI to make the investments seem more attractive. Also, they are selling houses for & $90k - $100k in areas with comps in the $50k - $85k range. Maybe they are especially nicely renovated but if so, I would think that they would advertise rents that are higher than what they claim. Not saying they're wrong, just saying their numbers don't match mine.

https://smartland.com/investment-properties/en/rea...
https://www.zillow.com/homes/for_sale/pmf,pf_pt/gl...

I recently had a lot of interest in one of my houses during a showing and received a couple of applications from some qualified tenants and I am trying to make the right choice and wanted to get the opinions of the bigger pockets forum:

Applicant #1 - a couple that was incredibly enthusiastic about the property, filled out the application and gave a security deposit at the showing (I told them I didn’t want it until I screened the application, but they said that I was free to tear it up if I went another direction, and they just wanted me to know they were serious. One is a self employed contractor with a verified income of about 7x rent the other is a yoga instructor with a verified income of 3x rent. Great landlord references. The contractor has mentioned his handiness and ability to do maintennace as a potential benefit, I’ve heard that this isn’t necessarily a positive. One has a lower credit score due to having almost no credit history, but absolutely no delinquent payments. The others has good credit. They are willing to sign a two year lease. 

Applicant #2 - three graduate students that are looking to sign a 3 year lease. They each have fairly low wage jobs, but are well above the 3x rent level. They are young and have been living in dorms, so their rental history and credit are not established, but have good references from their schools in terms of their tenancy in dorms (for whatever that’s worth). The benefit for this group is clearly the three year leaden term.

Applicant #3 - a Doctor and his working wife that want a 1 year lease. They make plenty and have good credit, and good references honestly not sure why they’re renting. They are currently my lowest priority just because I’m sure they’re going to leave afternoon one year to buy a home.  

I’d love to hear any advice from the forum. 

I was able to find a lender willing to offer a conventional mortgage. Pushes my cash flow positive and solves my problem. Thanks to all for the input. 

I started buying rental properties last year and purchased two in my area that have been profitable thus far.  I am looking to purchase another property but the house only costs $27k and I cannot find conventional financing for it.  I am considering taking out a personal loan from a bank at about 8.5% interest to purchase the home as well as make the necessary repairs (~$5k).  The term of the loan would be 3-5 years, which makes my cash flow go negative, but after the three years it would produce roughly $400-$450 per month in profit (after taking into account maintenance and vacancy).  I do not have the money to buy the house cash.  Should I take out the personal loan and use the profits from my other rentals to pay the loan back ASAP, or should I seek another means of financing, or should I hold off until I accumulate enough funds to pay cash, or find another home that I can purchase with conventional financing?  

@David Nutakor and @Collin Schwartz

I think it's great that so many people found it inspirational.  I personally did not and found the book almost insulting because the narrative comes off very condescending while also not providing anything that I would consider an original thought.  Perhaps this is due to my background.  I am 33 years old and have a good paying full time job.  I have been investing substantial percentages of my income for a number of years, almost exclusively in mutual funds and most of that in tax advantaged retirement vehicles. I am a pretty technical person and understood very early on in my life and career the importance of investing, the effects of compound interest, the value of diversification, etc.  For a number of nerdy analytic reasons I started to become pessimistic about long term stock market returns and was looking for another investment vehicle to diversify my stock holdings and began considering real estate.  Two books were recommended to me by my brother who already owned a few rental properties.  One was Rich Dad Poor Dad, the other was The Book on Real Estate Investing.  I'm not sure that I had a specific expectation going into reading RDPD, but I can tell you that I found it very frustrating to hear him say 1000 times that the middle class isn't wealthy because they buy consumables or depreciating assets (which he of course doesn't like to call an asset for reasons I find silly) instead of investing.  I considered that to be common knowledge for anyone even remotely familiar with budgeting or investing.  I guess I was also looking for actual real estate advice, which I got none of in RDPD, aside from the advice to go for it.  In my opinion The Book on Real Estate Investing did everything that RDPD was trying to do but did it better.  It made an attempt to inspire the entrepreneurial spirit, had inspiring anecdotes, useful examples, some actual analysis but not so much as to make it unreachable for regular people.  That book was the book that gave me the courage to go out and buy my first two rental properties despite having no prior exposure  to (and actual a strong aversion to) real estate.  

To answer your questions more concisely, I expected some concrete advice which there is none of.  Its basically him just telling everyone not to be a loser like his biological father and to invest their money .  If I had to point beginners to introductory books I would choose basically any of a slew of books on personal finance or  investing blogs such as Financial Samuri and Nerd Wallet or even investopedia which can give an effective overview of basic investment strategies and drive home the effects of compound interest and opportunity cost.  After that, if someone comes back and says that they are specifically looking to get into real estate I'd point them to The Book on Real Estate Investing.  I can't see myself ever recommending RDPD to anyone for any reason.  Maybe I just don't get it.

Cara,

Thanks for your response, and I think that your point about timing and availability of information is well taken, but I find it hard to believe that the concepts of leverage and investing and rental properties were completely foreign to the populous in the 90's.  The internet may have been in it's beginnings, but there were still books, libraries, radio, and TV and those methods have been in common use for at least centuries if not millennia.  If someone says that the book is intended for an audience that has never even considered investing before then maybe I can see value as a very cursory (although sometimes factually dicey) overview of why people should invest.  But I feel like anyone that understands even basic concepts of investing like compound interest is wasting their time with that book.

The book Rich Dad Poor Dad is frequently sited by people as being a great book for real estate investors and I have no idea why.  I read the book and I found it to be poorly written, incredibly repetitive, lacking anything resembling real advice.  The entire book can be summed up in one sentences:  Investing money is better than spending it all and just about anyone can be an investor.   The rest of the book is just braggadocios statements about the money he has made, bad accounting practices, and a terrible attempt at a narrative involving his friend and his friend's dad.  Not to mention a completely condensing attitude toward his biological father, who while not a particularly savvy investor, did manage to afford him a pretty well-off upbringing that may have influenced his ability  to take the risks that he did in his own life.  I am astonished that the book gets credited with anything except possibly a mild attempt at inspiration.  It has less information than an introductory paragraphs of a personal finance or investing  book.  In my opinion everyone's time would be better spent reading "The Book on Real Estate Investing", visiting the Financial Samurai or Nerd Wallet, or equivalent blogs, or any rags to riches biography.  Please tell me what I'm missing, because in my opinion the book is just awful.

just saw this article come across my email from bigger pockets. It’s relevant to this discussion. Its a good article and actually discusses the possibility of losing the rental income exclusion for self employment tax, which was mentioned a while back. 

https://www.biggerpockets.com/renewsblog/tax-plan-real-estate-investors/?utm_source=newsletter

@Patrick M. I have no intention of opening a resteraunt. And I’ve already bought a few rentals, because I agree with you that it is a good way to go. But I’m not sure I share your unbridled enthusiasm. And maybe I’m misunderstanding your argument. 

When you buy a house with 20% down you have a 100k asset for for 20k, but you also have $80k in debt. It isnt until this debt is paid off (30 years from purchase) that you have the full equity. So your analogy of buying 2 shares and geting 8 only applies after the loan isn’t paid off. 

You can reinvest the dividend immediately, but, not necessarily into another house, because the cost of buying and repairing houses is high, so you could reinvest into other things, but not into the original investment, the way people typically do with dividend stocks. 

As for selling and reinvesting tax free, that happens in any tax sheltered stock account (Roth or 401k), so sure it’s nice, but not unique to real estate. 

Allowing someone to pay for your investment sounds nice, but in the end it all just amounts to rate of return, which can be good for real estate. So we’re in agreement there. 

And as for the low tax rate, it’s no lower than any other capital gain, including stocks. 

@Ryan D.  I agree that is another option, as I said later in the post "I guess the alternative is to use the equity to buy more property, which may be the way to go...".  So your point is well taken.  Although with the properties I have now, my cash on cash return is about 14%, since my anticipated 10 year stock market returns are miserable because the Shuiller PE ratio is so high, this looks especially good.  My point about selling to buy stock is simply that if the Shiller PE ratio goes low enough that my anticipated stock market return is average to above average (10-14%) I would rather do that and be more passive with my money.  What I actually do will depend on the returns in the real estate market compared to my anticipated stock market returns.

@Patrick M.  I too like real estate as an investment strategy, but I don't necessarily think that the benefits that you mention are exclusive to real estate, or are quite as magical as your post seems to indicate.  I like your comparison of real estate to a dividend stock.  Could I find a dividend stock that yields 14%, probably not, so I agree that is a big edge for real estate.  But a disadvantage is that I cannot easily reinvest that dividend.  I have to wait until I accumulate enough money to buy another house and get it rent ready if I want to enjoy the compounding benefits of the dividend and that could take years.  And yes, for every two shares I get 8, but I only get those additional 6 if I wait 30 years, and it accumulates very slowly in the beginning (when most of my mortgage payment is paying interest on the loan).  And I agree that as I put money into the house I can reduce my taxable income, but that is not unique to real estate.  If I owned a restaurant and bough better tables I could deduct that expense and that would also increase the value of the business.  So, I'm not disagreeing with you that it is a good investment tool.  I am just trying to understand what elements of the tax code are specifically favorable to real estate, as opposed to other businesses.  

As others have mentioned, depreciation and 1039 exchanges are two elements and are good examples.  Thanks to everyone for your responses.