All Forum Posts by: Nikhil Agarwal

Theoretically, I try to base my decisions on IRR maximization. This is a very challenging thing to do because it requires projecting what you would do with the cash if you were to sell + projecting the value of a property 10 years down the road (both very difficult things to do).

In the current market, I tend to assume that appreciation is going to be flat for ~4-5 years. I could be wrong, but that's the assumption I use to make my decisions.

As far as cash on hand, I typically assume I can make a 5% return for no risk / no effort (savings account) and around 12% for moderate risk, lots of effort (basically finding another property to buy that pencils at 15% irr).

Now that we've got those two difficult assumptions out of the way, the question becomes, how do you calculate IRR?

It's simple, make two columns in a spreadsheet.

The first column will be each year. (so 2023, 2024, 2025 and so on for 10 years). The second column will be the amount of cash flow in that year. Cash Flow would include selling or buying any property in any given year, cash flow from holding the property etc. The very last year, you have to sell everything (for the purposes of this calculation).

FYI: It's totally expected that some years will be a negative number. For example, the year that you buy a property, you are putting a big down payment etc. so that will be a negative number.

Finally, just use the IRR function on your second column and it will spit out a number. This is the number that I optimize to.

Obviously, very high level description here, but this is what investors do and I'd argue all of us should be doing as well (as long as we don't have any daily life cash flow problems).

Congrats on surpassing your retirement goals! Given we are on the BP forum, I assume you have some interest in investing in real estate. 

I would recommend speaking to your financial advisor / tax advisor about self-directed IRAs. I don't have any personal experience with this, but I understand that you can buy investment real estate with your funds. You just have to be careful not to use it for personal use. In addition, you may need to manage it a bit differently than the average investment property. If you already use professional property management companies, should be a non-issue.

You both are spot on. I got a second quote and it’s 14k - 20k (over the phone). He is coming out to the property to confirm what exactly it would be. The second contractor also said it would have been closer to half of that if I was in a different location. He needs to charge me more because he will need to get 2-3 police details and the permitting process takes longer. Also, the city requires a certain base that is slightly more expensive but not by much sounds like.

Apparently, my city (Boston) is extremely painful to deal with. That likely also explains the crazy quote from the first contractor.

I bank with Cambridge Trust. They allow me to have multiple bank accounts across multiple businesses (for example, I have one business with 4 accounts, one business with 2 accounts, one business with one account, and all of these bank accounts are in the same online banking login). It's the most seamless system. All the internal transfers are instant which is great.

I set this up when I moved away from Bank of America. That was an awful experience. 

If you are interested in multiple bank accounts for a single business, you could try baselane. It's really built for landlords but it will help you with the multiple accounts situation you are trying to solve.

I utilized software for a very long time. I finally bit the bullet and currently pay ~$2k for my tax filing and have never looked back. I don't know if you are there yet, but here's why it's worth it to me.

Primarily I pay the premium to be able to discuss different tax strategies with my CPA. Simple things like Is a cost seg study (is it worth it or not)?; Could I do this or that etc. and how does that impact my taxes? Or not being surprised at the EOY (on one occasion I was hit with a 20k tax bill at EOY instead of a small refund that I typically get due to a bonus that was not withheld properly).  

I certainly save more by paying an accountant and having them actively engaged in discussion with me than the savings from using a software.

This is a math problem and you can def. get a clear answer. Just need a few numbers, specifically:

1. Interest rate you are being quoted on the HELOC and on the COR?

2. Current loan balance?

3. How much do you want to increase your loan balance / how much cash out do you want?

With this information, you can calculate the effective rate, monthly payments etc. for both and decide which is a better option for you.

I recommend applying for the 0% intro APR credit cards. There is a little hack you can do right now to make a few bucks. Here's the steps.

Apply for the 0% intro APR credit card from say Bank of America or Amex. These typically have 15 - 18 months of 0% interest. Spend up to the credit limit on these cards (say $30k for this example). Only pay the minimum required each month during the intro period. After the intro period, pay off the card in full.

Now, during these 15-18 months, the cash you would have ordinarily used instead of racking up the credit card debt can be put in a high yield savings account, treasury bills, CD etc. to earn you around 5%. This means 5% * 18 months * 30k = $2,250 goes into your pocket in this example. 

It's important to note that your credit score is going to take a hit because your utilization is going to go way up. So if you are applying for a mortgage or something else, make sure to pay off these cards at least 1 month before the lender pulls your credit (which often happens as soon as you apply). When your utilization rate goes down, your credit score will pop back up. 

I'm not an expert on credit scores etc. so take everything above with a grain of salt and do your own research. I like using the credit score simulator tool on the credit karma website to understand what will happen to my credit if I do X or Y. You could give that a try.

I work with a CPA (tax filing, tax strategy discussions) and a book keeper (keeps all the books straight, receipts etc.). 

I don't have a financial advisor and generally don't believe that they can outperform a diversified portfolio especially once accounting for their fees. Plenty of robo-advisors have also been built by various startups. I signed up for 10 of them (no kidding, I was doing some market research for a product I was building). Every single one of them simply put my money in a few index funds.

I think a financial advisor can help when you need an accountability partner and/or to help you think through your income/expenses to ensure you are saving enough each month. But as far as managing your investment portfolio, I don't think they can help beyond putting your money across a few index funds which you can do by yourself.

Candidly, if someone could confidently out perform the market, they can make a lot more money doing that than being someone else's financial advisor.

Hi everyone, 

I currently have a side lawn and back yard. I want to convert the side lawn into a driveway and add 6 parking spots in the back yard. In total, it looks like I need around 1700 square feet of what's currently a lawn to be converted into an asphalt driveway. 

I'm currently being quoted approx. $100 per square feet by a contractor. I mistakenly budgeted around $15 per square foot based on online articles when I purchased the property. Certainly a lesson learned in getting quotes from contractors rather than relying on websites. I'm about to scrap this project but I wanted to get thoughts here before I do. Am I nuts for thinking it would be closer to $15 per sq ft?

When I spoke with the contractor, he mentioned that the increased cost is because this would be a new driveway where I currently have a lawn and it's not an existing driveway that is being re-surfaced. Specifically, excavation and 4 layers of rocks would need to be added to prepare the land and that is driving the cost to a bit more than $100 per sq ft.

I've invested in MA and I'm realizing that I might have been incredibly lucky. I've got 10 loans from 2 local credit unions. All the loans are made to my LLC (they don't appear on my personal credit report) and the rates were amazing. I checked for a quote today (June 1) and got 6.25% with a 1% origination fee. Of course, these lenders in MA don't lend on properties in Michigan.

On the flip side, I'm trying to buy properties in Michigan now and any lender I ask in Michigan is only doing conventional loans. The best option I have is a 7.5% interest rate after a 2% origination fee. Do portfolio loans for investment properties not exist in Michigan? I'm trying to understand why I'm not able to find an attractive option or have I just been getting lucky in MA.

Appreciate everyone's help!

Incase it matters, I have a 6 figure w2 income, not much debt other than a car loan and mortgages on investment properties, 760+ credit score. These properties often have a 1.6 DSCR ratio. Generally speaking, should be able to qualify for the best rates on most mortgages out there.