All Forum Posts by: Mike Nuss

@Kris Langford and @Steve Moody, to me this has to be answered and thought of with a philosophical approach. I think along the lines of.....What does a $400 a month rent increase do in a 4 cap environment versus an 8cap environment? Now, after seeing the financial difference , ponder the environment that exists in those two varying asset levels. What will it take to bump rent $400 in each environment? Compare a hypothetical 4plex in Portland, OR to a hypothetical 4plex in Indianapolis (or any other cash flow market). 

Thinking beyond just the acquisition and into the actual ownership and management of the asset, over a long period of time (don't just look at one year of projected cash flow), in my opinion, is a better way to discuss this topic than simply looking at how much an asset costs. There are far more variables than just price, rent and NOI when it comes to owning real estate over a long period of time.

Those are wise and humble comments @Amanda Coleman. Give yourself more credit. You didn't get lucky, you made one smart decision with forethought. Now you get to magnify that decision by making another good decision. Investing where you are comfortable is a solid way to insure the second decision is on par with your first. 

Jay is absolutely right that selling and taking tax free gains is a great spring board. The problem is, most people without a lot of time to hunt for real estate, will lose their advantage when it comes time to buy another asset. It sounds a little backwards to the retail world (which probably means it's good advice), but looking for your next purchase, before you sell your existing asset, is a good way to compensate for that higher potential opportunity cost. You can rent your existing home for 3 years before you sell it and still avoid cap gains. 

Seems you have multiple incremental steps that can all be relatively easy and get you closer to your goals. 1) build an adu, 2) fill the adu, 3) buy a new owner occ, 4) rent out the existing, 5) look for another investment purchase (I suggest a great off market deal) 6) get it in escrow subject to selling existing investment property 7) sell existing 8) Use gains from selling #1 to buy #3 (which should be bigger and have more cash flow). Looks like you have some work to do :)

As for converting garages to ADU's. The existing structure itself matters. Typically though, you'll probably find tearing down and building new is a better use of land. The higher the land value, the more sense it makes to build new.

@Account Closed I highly recommend listening to the local Portland input. Managing an ADU and a SFR in Portland is vastly different than an out of state multi family with class "c" tenants.

BP is famous for people saying "sell, take the money and throw it into a cash flowing asset". However, is an extra 4% gain per year, on 150K (6K per year) really worth the loss of control? Perspective matters so it's wise to keep that in mind when getting online advice.  

Cara (and Stephanie and Amanda for that matter),  I can think of 20 people right now that would love to be in your shoes, which speaks volumes to the asset(s) you have. I feel I should point out though, and please don't take this the wrong way, but you're not an investor yet. You purchased a home, in a great area, in what could possibly be the best buying season that area has ever seen. You're 10K into a house purchase that has resulted in ~$150K of equity. 

That's awesome and speaks volume about the beauty of leveraging real estate. Assessing all of your resources, especially experience and time, is crucial to making the best decision for you. You have some great tools and pieces right now and those tools can be leveraged to help grow your portfolio. Taking incremental steps, with expandability and upside (which is exactly what you're looking at doing) is a great way to build a portfolio. Lumping down free cash (appreciation), on a "cash flowing asset", for an extra 6-10K per year of taxable income, doesn't make much sense to me.  Especially when 1-2% in appreciation gains will beat that extra cashflow, without the income tax. 

@David Wiggers here you go

http://www.oregondfcs.org/debt_mgmt.html

@Tony H Truong besides considering what @Jessica S. stated (whether your strategy is morally a good one), you should know that Oregon has a debt management license. I believe a lot of what you stated above would be breaking those laws. Tread carefully when working in the pre foreclosure world. You would be amazed at how often "guru courses" can get you in trouble. 

Hi @Account Closed forgive me if I'm off base here, but I would be much more concerned about inheriting a tenant with no written agreement. Raising rent and all that is fine and dandy, but having no written agreement at closing is a bigger issue. The plan is to sign an agreement day 1, but who can  guarantee he will sign a new agreement? I personally would not be closing until something is signed by the tenant. The tenant may be honoring a verbal agreement with the seller, but who's to say he won't try and take advantage of you after you own the property. At the very least I would want an estoppel letter stating some frames and terms around his current verbal agreement. That way you have some sort of documentation to take to court if necessary. CYA mode with tenants you don't know is imperative. 

As per raising the rent. I would also walk cautiously here. Not having to deal with courts, has very real intangible value. Treat his current verbal agreement, as a month to month agreement and then offer them cash for keys if you want them gone sooner. Better to cross your "T's" and dot your "i's" than to get a thousand dollars ahead in a short window of time. 

@Tim Richardson the term you should be using when talking with conv lenders is "seasoning". How much seasoning is required to base LTV off of appraised value rather than purchase price? 6 months seasoning is common. Some places will want 12 mos seasoning.

Hi Everyone!

I just spoke with Russ at the Green Dragon. They're going to reserve a section for us on the patio. This will be better than the hot, round dome looking thing. See you all there. 

@Steve B. I pretty much agree with you here.“The best return is tied to the nature of the property not the loan, the loans can be adjusted by interest rate conditions, the property less so.” But I don’t agree with you here. “The only market inefficiency which you seem to be focusing exclusively is transnational and cost of money issues”.

That's not my mindset at all. Rarely is one loan = to another loan. The world of real estate finance is very vast. Looking at interest rate as the only loan variable limits one's understanding of financing, possibly to the point that it can be crippling. The most basic variables are; LTV, interest rate, amortization, debt coverage ratios, 1-4 residential or commercial residential. That's just the tip of the ice-burg, but these other variables are very relevant to the analysis of the OP decision. So yes, “cost of money issues are mostly fungible across same type RE investments”, but looking strictly at the cost is very narrow sighted to the OP. Other factors such as the ability to find an alternative investment, desire to own that alternative investment, state of the market, landlording experience, goals for growth, etc, change that analysis in many ways.

Steve, the main reason I even chimed in on this thread is for the two points below. “we both have a house we have moved from and are looking for the best return on our equity in our old property.” This is simply wrong. The OP is considering purchasing another home and is currently living in their first home purchase. Also, “in my experience homes bought for residential use and enjoyment don't offer the best return for a landlord as an investment”. Yet you decided to keep your personal Laurelhurst home as an investment and move into another home.

I’m not “confused with the term accidental landlord”, I simply understand the potential benefits that turning a personal residence into a rental property can provide. I also think it's silly to call others names, when historically, you did the exact same thing you're calling them out for.