All Forum Posts by: Martin L.

Originally posted by @Matthew McNeil:

I was introduced to Recasting by a lender after I completed a couple of REFIs on two of my properties. Recasting isn’t to be confused with a principal paydown alone, although that’s what it entails with the exception that you can request a re-amortization on the loan whereby the original monthly payment fee is reset according to the original interest and maturity date. 

Other BP members would balk at this and, trust me, I get it.  But that’s not my strategy.  I realize this is arguable, but I can put the same $50k as a down payment on another house and earn positive cashflow.  However, the benefit of Recasting is that the $250 gained due to the reset amortized payment is added to the original cashflow amount.  This accelerates my ability to revenue stream faster and pay off the house sooner – at a timeframe I choose.  And, it accelerates my ability to buy more properties faster because the revenue stream picks up steam and builds on itself. 

 Matthew, that really does sound interesting. I've also never heard of recasting. As for what other BP'ers would say, everyone is entitled to their own opinions, but there really is no "right" way to do this, regardless of what some people think. The reason I made my last post with the equity appreciation numbers is specifically because some people were starting to talk down about other methods, or people who are or aren't smart investors. I get what they're saying about their own strategies, and some of the stories I hear really sound good. At the same time, I watched HUNDREDS of friends, families, and acquaintances, and yes some of them were investors just like the BPers, lose their shirts during the last crash. They lost everything because they were overleveraged on either their single or multiple properties and let's face it... even with cash reserves, how many people were prepared to weather out the sheer length of that last crash? I sat through it and had enough equity that I never went "underwater" on my property... and then bought my second and third properties as prices were just starting to recover. 

But that wasn't even my first encounter with real estate implosion due to overleveraging. The first one was actually even more impactful, it was called the LA riots. Some of the most valuable real estate in the world at the time sunk like a rock from just a single event. My employer at the time had a very successful business and also significant real estate investment in the area. I don't know his exact net worth, but I'd be willing to bet that he was worth probably at least 50 million at the time, but everything collapsed because of... overleveraging. I'm okay with getting rich slowly. Strategies like BRRRR are too risky for my blood. I bought my first three properties on a 45k salary with cash flow negative spouse. I didn't want to risk my hard earned money on risky tenants.

I'm willing to diversify now and try some other markets and strategies because I feel that I have a relatively stable base now, and I can risk some of my new capital (I also don't want to get stuck in a single market, for obvious reasons). Don't let the haters get you down, I believe they all have good strategies and wish them all the success in the world, they're certainly working hard for it, but that's just not my jam. Yours either. I plan to keep working another 25-30 years until these initial mortgages are all clear, then 1031 the equity to some new, fully paid off properties for pure cash flow, and then retire. I'll keep investing from now until then, so hopefully I will be a multi millionaire by the time I retire, hah! At the same time, even if I lose all of the appreciation on these initial properties, I really and truly doubt that at least in the case of 3, the value will never fall lower than my purchase price, that will still be a decent sum of equity... that someone else paid for (the renters). If we want numbers again... let's assume that 200k property again. 40k down payment. After 30 years, with ZERO appreciation, you still end up with 160k for a 400% return, or 13.3% simple interest per year even if your rental income is only sufficient to cover your mortgage and costs (repairs, vacancy, etc) . Since it's just simple interest, it's not the best return in the world, but it still isn't bad. As I said, for me... any additional cash flow and appreciation are just gravy.

Please remember that everyone gets into REI for different reasons, and while there are better ways to do some things, it is not always better for everyone. A lot of things depend on market cycle as well as personal goals. All of my properties were purchased at the bottom or middle of the cycle, I was betting on wealth protection and building, and also working with limited knowledge (pre-BP) and the propertIes that I bought for personal use. My goal? Invest this money, have someone else pay my mortgage and build equity without adding any more of my own money. Oh... And do it with minimum effort. I’m lazy . Now let’s look at the numbers that I was basing my assumptions on. Keep in mind, I’m not a professional. This is just something I came up with: 200k house. 20% down = 40k Assume a modest appreciation of 3% annually = 6k. Keep in mind, the investment was only 40k so 6/40 means you earn a 15% rate of return on your investment because appreciation works on the value of your entire property, not just the amount of your down payment. 5% appreciation = 25% return 8% = 40% 10% = 50% Most years I’ve seen better than 11%. Keeping in mind, cash flow wasn’t my concern, just asset protection and hopefully some growth. The properties all cash flow, which is just a bonus.

@Caleb Heimsoth @Thomas S. I agree with most of what you've all said, but as I mentioned earlier, I really fell into all of this by accident. Two of my first three rental properties were actually occupied by me, prior to renting them out. The last one I bought was also before I found BP. Now I want to diversify and try some of these strategies, but I believe that I wouldn't have been able to ever move on a Class C if I didn't have these Class A's already under my belt. I do cash flow, but it's definitely not much compared to the value of the properties. However, the appreciation value has been tremendous. For instance, I put down 80K for one property that has appreciated by 250k in the last 5 years with a small net cash flow. 60k down on another property has appreciated by 80k in 2 years. Appreciation happens on the total value of the property, so the return on my cash down is fantastic.

Oh... so far my strategy has been more like "please don't go broke" :)

@Shane Boyd there are tons of reasons, most of which have been mentioned but I really believe it’s risk tolerance for many. If you think about it, for an outlay of your time you have a chance to regularly get 3% of a sale. The steps are pretty simple and reliable, and you don’t have to invest much, if any, of your own money. Then take flipping. Takes a LOT more time, filled with a lot more risk, and it’s all out of pocket. Inspector missed foundation issues? Someone stole the copper coil from your AC unit the same time you were closing?(happened to me) All these things add up into huge risk. You could get a great profit or just as big of a loss. Add all of the additional work you need to put in to learn the ropes... or, get 3-6% for no personal investment.

@Andrew Neal I was basically like that, mainly because I started by accident, renting out my previous homes as I upgraded. You could basically say I currently have almost only done A. Except for one, the rest are less than 20 years old, one brand new. In my experience you can cash flow immediately, but it won’t be much. Rental rates have been about .6-.8%, (but I typically rent sightly below market) appreciation has been good, and turnover is very low with high quality tenants so far and almost no vacancy. Also no major repairs needed so far. The drawback is that it’s much slower. Needing to build up 100k or more in downpayment plus reserves before you can pull the trigger on the next one, so it’s definitely slower to ramp up. Compared to what some of these people are saying, you could buy two 50k cash outright with beter cash flow. I feel it’s built a good base for me to start so now I’m looking to diversify and get into some more of these higher return markets to supplement, but I personally would have never gone straight into those markets if I didn’t have a stable base first.

I'm looking to buy additional properties, but on an indeterminate timeline (never know when a deal will pop up), and I'm wondering if it's better to go through the mortgage dog and pony show or just buy cash and refinance after? I'm leaning towards the second, but wondering if there is any drawback to that (ie. higher rates or harder to refinance than getting a mortgage from the get-go). Am I correct in assuming that if I get a pre-approval letter from a lender, it's only good for about three months, after which point I will have to get a new one with additional credit hard pulls?

Also, will a lender balk at refinancing if I used too much of my cash reserves to purchase the house in the first place?

@Todd Tyler look into PenFed. If you're former or current military, you qualify.  If you're not, then you can join a military "support" group, there will be a small fee involved, and also qualify.

PenFed requires you to be a member, but you can just sign up (and pay a small fee) for one of the military support clubs and qualify.

For me, a 401k is only as good as it's company match. Any more than that is wasted opportunity to put into better investments, but any less is a huge loss of what is basically free money. For every $100 you put in, you immediately have $200, then any interest growth is compounding on that full $200 amount, not just your initial $100. However, it's also diversification from my real estate assets, and diversification really is important. It's foolish to lose out any employer match, but for anyone on this board, it's probably similarly foolish to put in any more than that match.

If my employer gave a 50% match (impossible for a number of reasons, but theoretically), I would put in 50%. If they gave 100% match, I'd put in 100% and get a second job to scrape by. As mentioned earlier, you always have the option of pulling out early and taking the 10% penalty if you really need to, which means you still got a base return of 80% plus any growth.