All Forum Posts by: Paul G.

You can't just "combine" your properties.  The mortgage was taken out in either your name or your business partner.  The only way to combine them (so they count for both of your) would be to refinance them in both of your names, which would be a terrible decision to do (most likely).

Uhm.  Anyone who took statistics would read your comments and would raise a BUNCH of red flags.

If those numbers are true for easy numbers:

For 1000 small to medium sized businesses: 

800 have been hacked

480 of those that have been hacked go bankrupt.

*cough* Correlation does not imply causation. *cough*

What are the percentage of businessed that go bankrupt, regardless of being hacked?  Sure hacking might have had something to do with SOME of those companies going under, but to say that 50% of all companies fail because of hacking sounds a lot like someone is trying to sell a product.

Your numbers imply that 50% of business go bankrupt solely because of being hacked (and not being able to afford the cleanup after) and no other reason.  

There are waaaaay to many reasons for a small to medium sized business to go under: their business model was flawed, they mismanaged money, they didn't know how to run a business, couldn't get a loan, or they just plain aren't good at their job to name a few.

As far as the original topic, I think there is no way for that.  So much of your information is online now, I'm not sure it would really matter.  All through a public forum, I can find out who owns what property, what they paid for it, who owns the note, what liens they have against them, and what their current address is.   With enough digging, I can probably find a phone number as well.  You're talking about putting protection on public files at the government level (since all of those documents are readily available on government recorder websites).  

I don't think I understand.  You have 3 and your "business partner" has 9.  Combining your business has nothing to do with it.  You will still have 3 in your name and your partner will have 9...

You can have up to 10 in your own name.  As long as your business partner isn't on the mortgage, then they don't count..

What am I missing?

This question gets asked about once a week.  There are a few people who believe in LLCs but I think the vast majority of people tend to think that an Umbrella policy is better.

Umbrella policy covers more, is usually cheaper, and avoids a lien on your property or the chance of you losing your property if someone sues you (unless they're suing for millions). It also covers your legal fees and representation, which an LLC doesn't. The downside is most of the time umbrella lawyers settle, which can really make you angry if someone comes after you and you know you will win.

Umbrella policies cover more than your rentals as well btw.  It covers all personal stuff, auto, libel, slander.  Just about everything that could happen personally or professionally.

Everything depends on your market. Most of those rule of thumbs I can't get in my market. Since I started investing, I've never seen a property that would meet the 2% rule in my market. Not that it won't happen, I just haven't seen it. My first condo I purchased at about 1.2%. My second one is right at about 1%.

I have a quick calculation (on my excel spreadsheet) where I can plug information in and get PASS/FAIL. If it passes, it still doesn't mean it's a good deal, just that it has the potential to be a decent deal. (PASS/FAIL criteria is set for: Cash Flow > 150, CoC > 7.5%, DSCR > 1.3, and RGM less than 10). (silly blog, I'm not trying to add html code, I'm trying to use less than symbol... Ugh)

Because I'm in the condo space, most areas are typically similar (Taxes, Insurance, etc), so I basically can just type in HOA, Sale Price (That I would offer), and rent and it spits out everything else for me either through calculations or hard coded values. Since I like condos, I also pay pretty close attention to the HOA and reserves / past expenses and increases. I want to make sure that the HOA is attentive problems and have a plan for the future, so as not to get hit with a 10K assessment down the road.

In Arizona, I typically look for 8%+ CoC, and $175+ per door. I don't own any MFR, only condos, but if I were looking at a 4-plex, I would want to see at least $600 in cashflow a month. Again, it entirely depends though on the deal and the location. With those numbers, I would still technically think it's a bad deal if I don't see much appreciation potential in the area. I tend to focus on a mix of CoC and appreciation potential when I analyze deals. Others on this site only look at CoC and ignore appreciation, treating it as icing on the cake down the road.

I don't know of a single lender that would lend to me with a credit score of 0. Or under 500 for that matter. I mean, maybe a private lender, but you're looking at 15-20% interest. No thanks. Establish credit immediately and either don't use the card, or use it frugally. The whole point of your credit score is to show how financially responsible you are (and to keep information in unsecured locations so people can hack the system and get all of your information... Apparently). Establishing and building credit can only help you (if done properly) when looking to get into REI.

As far as Dave Ramsey being a moron.  I believe the quote was taken out of context.  If you plan on getting any mortgage at all on a property, you better have a decent credit score.  Buying in cash is a luxury most people can't do (and it doesn't make sense to do in a lot of situations).  Not knowing the full quote and context of Dave Ramsey, I won't comment any further on it beyond the fact that he has a track record of wealth (but that doesn't always mean he is smart).  Take everyone's story with a grain of salt and question everyone, regardless of how "smart or wealthy" they seem.  You'll find that quite a few of the people that are wealthy or successful (including some on this site) are either wealthy from another means, started out with a huge fund to begin, or got lucky.  I'm not saying that Dave falls into this category, but I would question any piece of advice you get, regardless of source.  Heck, I stumbled into my first deal and got pretty lucky.  I won't deny it.  

Having no credit CARDS (which is what he is probably referring to), and paying in cash makes it harder to get into financial trouble.  If you don't have the cash now... You can't buy it.  Basically, he is just trying to teach financial responsibility.  If you are able to understand cashflow and personal finances, having credit CARDS are no more risky than paying in cash.

A lot of people would say leverage is your friend.  What @Thomas S. said is absolutely correct  Let someone pay off your mortgage for you and try to keep as much CASH as possible.  The more cash you have, the quicker you can leverage youself out to your next purchase, increasing your cash flow again.

I will add a caveat to this.  I tend to think a blend of leveraged out and paid off is the way to go.  That's a personal risk tolerance choice that I've decided to make.  I won't get the best return on my money, but I'll feel safer.  But every one of my properties will start with a 30 year mortgage.  And then from there I can accelerate cash flow if I want.  This gives me the option to pay off much quicker if I want. (effectively turning it into a 10 year mortgage).  But I don't have to.  Therefore, if it's vacant for a couple months, I'm not hosed on the mortgage.  $390 a month for 3-4 months is a lot easier to stomach than $650 for 3-4 months.

TL:DR Always stick to 30 year mortgages (if you can) as they offer you the flexibility to pay it over 30 years or quicker if you so desire.  In this business Cash (flow) is king!

I believe this is a great thread for @Account Closed to comment on.  He's a huge Subject-To person!

@Tom R. Yikes, so that's a pretty terrible company match.  Better than nothing, but not great.  

The whole tax thing is NOT bs.  But that depends on what kind of earner you are right now.  If the person contributing is in a 15% tax bracket, then yes, I agree.  401K isn't very beneficial from a tax standpoint because one of the main advantages of a 401K is to shelter money when you're in a higher tax bracket and receive it when you're in a lower one.  If the contributor is in the 15% bracket, they probably will be in the same or higher at retirement, where you lose that advantage.  The author is in a 28%+ tax bracket, where it absolutely does make a difference.

My plan is to be able to withdraw from my 401K in retirement (and before with rule 72(t) without penalty), and only show a taxable income of under 75K, which would put me into the 15% tax bracket.  While actually bringing in 2-3X more than that.  At which point, I would see a tax savings of between 13% and 28% from my 401K based on current tax rates and whether I can show those to be capital gains (at which point I will be taxed at 0%).

No one here is saying REI is a bad investment. We're on a REI blog. What we're saying is diversifying with a 401K is a good thing to do. Especially if you've been through a downturn cycle. I personally haven't, but I know if it does happen again, I can handle long vacancies and a drop of 30% in price. Heck, I can even use my 401K to buy more property if I want because I can take a loan of up to 50K on it, being my own bank.

I'm not sure what you're saying about your 401K.  Just because you can't pull out the cash immediately, doesn't mean it isn't there.  If you contributed 33K (30 of yours and 3 of your company)to a 401K (this would obviously have to be over 2 years as max contributions per year are around 18K) and didn't touch it for 30 years, with 8% average market return which is historically accurate, you would have 332K.  

The downside to that is you wouldn't be able to leverage that money out and purchase more properties, that is true (though most plans will let you take a 401K loan for anything you want...).  That is a definite negative to 401K.  Now, say you add an extra 5K a year throughout the 30 year period. At the end of 30 years, you'd have 898K.  Again, not as great as you could possibly get with real estate, but that's a pretty decent safety net for only putting in 5K a year.  That would leave you with about 20-25K + Real Estate Investment income a year to buy more property if that is what you choose to do.  So, why wouldn't you do both? 

Is 5K a year or $192 a paycheck (bi-weekly) a lot to ask for as a safety net?  According to your numbers, it won't cut in too much to your savings habit...  Only you can answer that question though.  Some people that is a LOT of money.  Some people, it's peanuts. 

It's of use to note that the 5K income deduction would only affect your paycheck by about 3.5-4K a year due to tax savings. So really, it would be 3-4K less per year in take home pay that you wou;dn't be able to invest in real estate.

@Tom R. I don't think you did your math right.  If your contributing 10% and your company is contributing a matching 10%, you have immediately made 100% return...  Not to mention your taxable income is decreased, so add another 20-30% savings there on the income you contributed.

I definitely agree though that the Investment firm in charge of your 401K can make or break it.  I think I paid like 0.01% in fees, but I'm with a BIG firm (Fidelity).  Year to date, I've paid $13 in fees and I've had a 14.9% return.  My wife on the other hand has a small provider with few options, and has trailed the S&P500 in return and has paid more fees, even though my account has about 10X her value.

As for the state tax thing, that is pretty shady. Once you're done working for the company that you have your 401K through, I would roll it over to an IRA before you start taking distributions. That way you won't have to pay Florida Tax. You shouldn't be seeing that tax now though since you aren't taking distributions...