All Forum Posts by: Michael D.

Ricky Lopez, you say that she's motivated. By what? Why is she considering selling without a plan for where she'll be living afterward? Being "tired of the area" isn't enough of a reason to leap without looking. Maybe there's something she's not telling you yet.

Michael

Jim Kaufman, I don't think there's any particular "resolution" to be had in this case. There have been a lot of other issues that I've been working through as well. That said, I've been making a lot of improvements to the building and have also recently switched managers. I'm hopeful that with new management in place and some forced turn-over, things will improve. One thing I've discovered, for example, is that tenants in one of the units installed a clothes washer in the kitchen. Learning all the time...

Michael

Tevis Verrett,

All else being equal, higher rents produce more income, which increases the value of the property. But all else is NOT equal. We're talking about a world with much higher interest rates, most likely forced by inflation. That means costs will be rising as well. You might see higher income, but then again maybe not.

Even if income goes up, there's still another important factor in determining property value: cap rate. In general, cap rates follow interest rates. An 8% cap rate looks great with treasuries at 1-2%, but horrible when treasuries are at 6-8%. It is very possible that even with higher income, the value of the property could remain stagnant or worse. I'm not saying that it's a certainty, just a real possibility that OP should consider.

I'd be interested in hearing from others active in RE way, way, way, WAY ;-) back when interest rates were over 10%. Were the cap rates then much higher as well?

I think this is what John R. was implying when he said he'd be forced to sell the building. I.e. if he refinanced at the higher (then) current interest rate, his cash flow would be negative. If not, he wouldn't be forced to sell.

Tevis Verrett, what makes you think there will be any appreciation at all, especially considering the higher 9% prevailing rate that we're assuming? If anything, higher rates push prices down. And why would an investor pay 14% just to acquire a cash-flow negative building? If the building wasn't cash-flow negative, then John's problem wouldn't be a problem.

John R., I think you're right to be concerned about this exact problem. I have one of these today myself, and my belief is that higher rates will be driven by inflation, and that same inflation will be pushing my rents northward faster than my costs. I hope. And if not, maybe I can get a new loan with a longer term than what's left on the existing, thus keeping my payment down. Otherwise, yes, it's going to be a problem. Worst case, I always have it in the back of my mind that I need a way to come up with the payoff somehow.

Michael

"third-party engineer" - Oh, is that what they're calling it these days? ;-)

Beginner question: How do they ensure that the tops of the forms are all level with each other?

Sean Reynolds, I completely agree with Nechelle Vanias. Nice to stick with principals if you can, I'm in that boat now - but not when the other party is leaving you holding the entire bag.

Best do something about it as soon as possible. One thing you might consider is reaching out right here on BP to see if you can find an investor or listing agent in your area that can help speed you through the short-sale process.

Are you both on the loan and title?

Best of luck!

Michael

Junior Salters - No, the owner is a matter of public record. You should check with the county. Most have a website that you can go to and just plug in the address to find out.

Michael

Kennedy Williams - Congratulations in advance on your upcoming graduation. That's a big milestone, and hopefully will add value to your life in some respect. If Real Estate is your calling, I can absolutely guarantee that your accounting degree will not go unused.

I'm a big believer in the power of keeps options open and pursuing multiple paths. This makes you very flexible in what you can do and the opportunities that you can take advantage of. A job is a powerful thing to have when starting out in real estate.

My humble suggestion is to put 100% of your effort into an accounting career, perhaps even going after a CPA license. Put the other 100% of yourself into real estate, maybe with this mentor. Working full time, continuing your education, and building a RE empire on the side will keep you busy, but you will not be poor. Think of your job as your RE accelerator. You'll build cash reserves faster and get much better financing. Plus you'll be networking with other professionals that may also help in RE somehow. As a buyer or seller perhaps.

So, so many advantages to having a job, especially one that demonstrates proficiency with dollars.

Best of luck, and keep us in the loop on your progress.

Oh yeah, your mentor buddy doesn't sound too expensive. Could be worth it, or he could be wasting your time. The key is to figure out if he has actually done any profitable deals in the last 12 months.

Michael

Great tale, but when you're talking about paying down debt, I hope you don't mean those low-rate 30-years mortgages you just raved about.

The only break you should be taking is to save up your next down payment.

By the way, I've been doing a bit of investing in the Pittsburgh area recently. Are you close?

Michael

Yes, please learn from my pain. Sell it. You can always become a landlord later with a property that actually has cash flow.