All Forum Posts by: Paul Shannon

Before COVID-19, bond yields were pretty poultry, forcing income investors (retirees and those with lower appetites for risk, or getting closer to retirement) to take on more risk than in the past.  The standard advice given over decades past has been a 60/40 stock/bond portfolio should last you 30 years in retirement @ at 4% withdrawal rate, as noted in the "Trinity Study".  

I was questioning the 60/40 model prior to COVID due to low rates, but with the FED dropping rates to ZERO and talk of potentially having to go to negative rates in the future, does this strategy still hold water?  

For those income investors who haven't got into real estate in the past, I could see many coming into the space.  First position debt in a syndication on the passive/conservative side, down the line to owning single family homes as an active investor may pick up in popularity to make up for the short-coming of bonds moving forward.  Many may not want to take that route, but what choice do they have to balance stock market volatility in their portfolios?

Curious what others think on this?  

I see this as an opportunity to raise more private money and a bullish outlook on multi-family and single-family homes. 

Agree with @Jeff Copeland.  Term will usually be amortized between 20-30 years with a balloon payment due on year 5,7, or 10.  However, the flexility allows you to negotiate anything.  Expect a higher interest rate and potentially a higher purchase price than if you were using a traditional lender or paying cash. 

One watch-out is the balloon payment.  Make sure you will be able to refinance into a more traditional loan if you don't intend to have cash to pay-off the remaining loan balance.  Investment properties under $45,000 are financeable, but there are less lenders willing to play in that space.  

Although you aren't getting the match on your 403B, your contributions are still tax deductible.  Consider what your marginal tax rate is.  If you are in the 15% tax bracket, for example, you are getting a 15% return immediately by socking that money away.....hard to beat.   The downside, as you are aware, is that you can't access that money right away for real estate investment. 

I actually started out in investing by getting my RE License.  I never intended to represent buyers or sellers, but thought it would be a benefit to me personally and maybe I would save on commissions if I sold any properties down the line.  After a year, I put my license in referral status as it wasn't worth the time and cost to keep it active.  It did have some benefits though:

*Pros - Access to MLS and ability to run accurate comps, seeing deals before others had access, building learning curve and confidence, understand real estate transactions and contracts

*Cons - Cost (RE License fees, broker fees), held to a higher standard and have to disclose you are a realtor to buyers/sellers, not many deals that are investment worthy are listed on MLS

I think if you are flipping, it could make sense if you are going to sell 5+ properties a year.  There is a benefit to getting your learning curve up, but ultimately I would skip it otherwise.  I'm more a buy/hold investor.  Flip or buy/hold, you're going to find more deals that pencil out for an investment off-market.  I'd focus your time on networking with wholesalers, realtors, other investors rather than getting your license yourself.  

I manage my own rentals in Indy, but have heard good things about:

- Robert Denmin - RPM West 

- Barratt Asset Management 

-Aaron Real - Athena Management 

Carmel is an A Class area, so make sure if you contact any of these guys they are familiar with your target market/property class.  

For ARV, I'd get to know your market and what comps are going for. Look at what finishes are being used in properties that are selling on the high-end, versus what's being used in rentals. If you have access to the MLS ie RE license, its very helpful but not necessary. If you can find a realtor to set you up with auto email notifications and run comps, that can do the trick. Zillow can be helpful too, but I wouldn't rely too heavily on their data, as its not always 100% correct.

For rehabs, @J Scott wrote "The Book on Estimating Rehab Costs", which is helpful.  Prices vary by markets, so talking to contractors in your market can be helpful.  I found a person doing flips and asked them if I could walk through their properties when I was starting out.  Asked a lot of questions and it helped me build out my knowledge on estimating costs.  Walking through Lowe's or Home Depot and pricing out supplies can be helpful as well.  Good luck. 

I'd recommend putting your money in an index fund to beat the returns of a turnkey property....it'll save you the headaches too. 

In real estate, I'd recommend the BRRRR method starting out. Primary reason is it teaches you a lot about different lessons and aspects of real estate in one deal:

1.  How to find value-add deals off market and learn your target market (how to buy right)

2.  How to budget for and execute a rehab

3.  How to work with contracts, contractors, and insurance

4.  How to handle setbacks

5. How to work with banks and understanding terms

6. Property management.  Until you grow past a few properties it helps to know what kind of maintenance issues you can run into, so you then know how to manage your property manager.  

It's tough to see how things get back to our old "normal" without a vaccine, or at least a viable treatment.   People will generally be very cautious for quite some time, likely pushing guidelines of social distancing, mask wearing, etc until/if the virus pushes back.  If we have a second wave, people will tighten-up more and the economic ramifications will be hard to imagine.

BRRRR is an awesome strategy and how I got started. Really nail down your rehab budget and ARV and you'll be in good shape. Trouble right now may be finding a lender to do a cash-out-refiance during Covid-19. Underwriting has been unpredictable over the last 60 days and banks are tightening up, as specially if you don't already have a relationship.

I wouldn't be buying calls right now.  I just bought a put though so maybe I'm not the one to ask.  Anticipate a slump in stocks retesting and potentially breaking through lows.  Then I'd buy calls from Blackstone :)