All Forum Posts by: Michael Swan

You know what is really amazing to me is having part or all of your loan being non-recourse.  I am purchasing my 5th apartment complex in about 60-90 days.  It is 75% non-recourse and 25% recourse.  The loan is for about $900,000 or a little less.  Only $200,000-$225,000 is recourse. It is in a B class area.  We are assuming the 23 years remaining at 8yrs at 4.37%, then a 3yr option and 3yrs later another 3yr option and 3yrs later another 3yr option etc... Until 23 years. An insurance company holds the loan.  On our $350,000-$380,000 down payment we are expecting $35,000-$40,000 tax deferred cash flow right out of the gate and rents are approximately $80.00 under market rents. Purchase price is $1,250,000.

Swanny

@Ghenia Flewellynyou are soooooooo right about leveraging those single family and refinancing or 1031 into more cash flow.  I mentioned earlier that you want NO more than 50% equity stuck in real estate.  When you calculate the ROE (return on equity) you will have a very low percent on that dead equity.  Get it out at these lower interest rates and the results can be like mine in no time at all.  I will never pay off another property again.  I love to be able to write off interest on my loans.

Have a great night!!

Swanny

Thank you @Ghenia Flewellyn!! It is not all hats and horns and it takes real persistence to be successful.  Today I got a call from my property manager, that one of my 8 unit apartment  complexes had part of the flat roof partially torn off in the 50 mile winds and water is leaking in the attic.  I can't wait to see what the cost will be on that one.  We have a $5,000.00 deductible for our insurance.  You have to make sure you have reserves in your calculations for unforeseen events like this.

Never a dull moment!!

Swanny

@Marcus Johnson

I have purchased 4 apartment complexes in the last 10 months using 1031 exchanges. That is all figured into the money I put down on each of these apartment complexes.  Any overage, that we don't use of the 1031 money is taxable.  That has been pretty minimal on the four apartment complexes.  Maybe about $25,000 was taxable for the overages.  Soooo, we will only pay taxes on that $25,000.  We will need to recapture depreciation, pay reg taxes too etc.. on that $25,000.

Swanny

Hi Tracey,

Now you need to leverage those single family residences and get loans on those single family and use that leverage at those low interest rates and buy an apartment complex and really utilize all the loopholes that the governments allows and practically pay NO taxes and defer those taxes as I have suggested earlier.  I will never pay off another property in my entire life.  Leveraged debt at low interest earning sooooooooooo much more taxed deferred cash flow is the way to go!!!!  Try to keep NO more than 30-50% equity in your properties and utilize the miracle of the 1031 exchange or refinancing and buying more properly leveraged tax deferred cash flowing properties with that money.  DON'T BUY LIABILITIES with that refi money.  I will have 1 million in tax deferred cash flow in the next 8-10 years coming in every year.  As Brandon suggested earlier it may be a little lower, due to the basis erosion he speaks of.  However when you see that my W2 earned income for my wife and myself gross, before taxes has never been higher than $80,000 in 25 years of teaching, that is a significant paradigm shift.  Don't you think?

Swanny

Swanny

@Dave Foster

Thank you Dave.  That was what I thought and read and researched.  Brandon had me second guessing myself for a moment there.  I am most certainly buying more depreciable basis.  Thank you for confirming this.

Great job!!!

Swanny

@Brandon hall of course we are putting in 5 times the amount of capital when we 1031 exchange into a multifamily deal each time.  We put down $34,000 on the original single family and now we are putting down $140,000.00 on this 12 unit we close on tomorrow.  Is that what you mean by more capital?  Of course with the larger and larger property you acquire and still put 30% down, you will always on a trade-up be 1031 exchanging more capital than you originally invested.  Make sure I am reading this correctly.  That is the power of the 1031 exchange.  Right?  Next exchange 2-5 years down the line, we would be able to purchase at least a 1.5 mil property with 30% down and that would be about $300,000-$400,000 on that deal.  That is more capital.  Right?

Please clarify for me.  Do you mean I would have to take more capital out of my own pocket, besides that $140,000 that I 1031 exchanged? 

Thank you for clarifying Brandon,

Swanny

Great points as usual Brandon. If I were to start all over again with what I know, I would have never started contributing to those IRA's in the first place. The returns I am getting and the rules I follow of NEVER LOSE MONEY and it MUST CASH FLOW and put money in my pocket now have been a total paradigm shift for me. Remember, every so often we will 1031 exchange and use 60-70% debt on each new property we 1031 exchange. We have discussed my plan before and since every 2-5 years by trading up, that new property starts that depreciation and cost segregation etc... Not to mention writing off the interest on the loan, property management fees etc.... If you do real estate the right way, you can defer, defer, defer, defer and die and then your kids inherit at a stepped up basis and depreciation starts all over again. I just will not give up control to financial planners ever again!! Burn me once shame on you, burn me twice, shame on me!!

I love this stuff.  I have researched this stuff and follow  Loopholes of Real Estate by Garrett Sutton and listen religiously to Del Walmsley at Lifestyles unlimited and they have been doing this same thing for 25 plus years.  That real estate professional deduction is very interesting too.   Doctors, Dentists, Lawyers should have their spouse use that loophole.  It is amazing!!  You may want to talk about that in one of your blogs Brandon.  The average real estate investor doesn't even know that loophole exists.

Swanny

Hi Marcus, 

I have over 4 million in property value and $2,000,000.00 in net worth.  Although, I would never straight sell any of these properties and cash out.  I will keep 1031 exchanging to larger and larger properties that throw off more and mor tax deferred cash flow.

That is the plan,

Swanny

Hi Chris,

If you buy properties with the proper leverage, you get depreciation, management fees, maintenance, interest on loan etc...  These write offs allow you to have a loss on paper and that cash flow is tax deferred and through the power of the 1031 exchange you keep deferring your taxes as you keep buying larger properties and 1031 exchange thos for larger properties.  That is how if you do this right, you never pay taxes or very little taxes.

What a country!!

Swanny