All Forum Posts by: Joe Villeneuve

@Chris Core - you will not find cash flow in Huntsville right now unless you want a C/D neighborhood property (not all of those work right now either) or you want to put over 30% percent down on a purchase to "force" cash flow.  Or you want to spent the time, effort, and money to try and self-source an off market deal here.  

As @Joe Villeneuve recommended, would look elsewhere at this time.  

I have found that I too am also in a place in 3-7 years where I would meet the @Joe Villeneuve criteria to sell. It took me a while but I do finally understand why that makes sense. But I have questions I'm hoping you'll entertain.

I have a group of properties that I've held for five years and my low interest rate is resetting this month and I'm planning to do a cash out refi prior to a sale for a couple of reasons:

1) Its easier to get a deal under contract if you don't have to make it contingent on a sale or if you don't want to risk paying capital gains on the sale if you can't find something suitable to buy. In this case I've found a 20 unit to buy and I wont be able to do the deal if I try to sell first.

2) I want to invest in a new company with different ownership with part of the money from the refi/sale property and if I sell straight out I can't do that without paying capital gains. So I am planning to take out as much as I can with a refi and then I'll sell in 9-12 months when the new property is stable to get out the remaining equity.  The plan is to trade my appreciated, nicely renovated one bedroom properties up to newer (still value add) two bedrooms in a better neighborhood with higher rent potential (in the original company)

3) Because we renovate well, the appreciated, renovated properties that I have to sell are going to have lower maintenance costs than anything that I can buy so a split refi/sale with two purchases buys me time to stabilize in renovated in chunks.

Do you think this is a reasonable thing to do in this case or do you think this is a bad idea (and why)? Also, where do you find these 20% DP loans? I always ask and sometimes the banks say yes but usually the small banks that will lend to us want to do 25% down with 20 year amortization. I've looked into the Freddie/Fannie multi-fam financing but with a 20 unit deal I'm just on the boder of qualifying on loan size and cash reserves.

Right now I've held my longest tenure properties for 8 years and I'd like to sell but I really would like to first have something else to buy plus I still have two years with more favorable interest rates than I can get right now. Do you recommend selling and just risking the capital gain tax if I can't find something good to buy?

Joe, Is it possible to share your spreadsheet??

Like I said on a post before. On occasion with refinances I have had properties appraise for way more than I could’ve sold them for on the open market. . So in a case like that, I feel that I did better on the refinance. Of course I have had properties that I was trying to refinance before that appraised for considerably lower than I was hoping for so on those I did not refinance them. 

I for one have had less than stellar results trying to force a property to sell for cash on the open market at top dollar. Maybe I just didn’t time it right like a PRO such as yourself has done. :-)

 Yes, if you have continued cash flow, you can't lose, sure. The baked in assumption to "continued cash flow" is that you stay profitable. Are you saying it is impossible that next year a property that profits today won't profit?

i.e. buy house for $400k, leverage 300k, dp 100k, cash flow is however many hundreds of dollars per mo after mortgage pmt. It is not impossible to go negative cash flow (between rents going down and vacancy going up) and for your house value to go down. 

@Joe Villeneuve to boil down your commentary, it sounds like the bulk of what you are saying is "the more leverage the better". Obviously this is nearly always true with an appreciating asset/appreciating rents (depending on the cap rate, interest rate, and time horizon, which @Scott Trench was alluding to). 

As someone who owns quite a bit of real estate and uses leverage, I don't disagree that leverage is good. But to be clear, Leverage does not ALWAYS win (like 2008 Detroit max leverage, you probably lose out). "Leverage always wins" or whatever your claim is, is simply not true. "Leverage always wins" under your most likely forecasted scenario - sure that might be true, but that's a big caveat. 

So yes, of course max leverage is great when rents go up. But if you hold max leverage for 40 years, I wouldn't be shocked if at some point you go broke. Therefore holding less than max leverage isn't unreasonable. Black swan events can happen.