All Forum Posts by: Michael X.

This thread = a thousand points of light all coming together!

Welcome Aaron,
I'd like to know how the properties in New Albany look. I'm not far from you! Make sure you check out REO's and find a realtor that has some experience. It's difficult to find good deals that are non REO as a first time investor.

Michael

Dan,
I’ll elaborate a bit more on those two points.

Point #3
These are observations from my dealings with small local banks.

Banks will want to see lots of cash flow and they like to see assets. Owning properties that are paid off will show that you are fiscally responsible. You have to remember that the majority of small businesses don't survive. You need to show that you have staying power and understand the business. This makes them feel better about offering credit lines and making future loans. They will be eager to help you out once they see a record of success. They are not into gambling. Normally banks like to see that your business has been in operation for at least one year. Two years is even better. Therefore, if you really want to get into real estate then you will want to start your LLC as soon as possible. That starts the clock.

Point #4
Let's say you have 10 properties paid off. If you are buying REO houses and doing well with your purchases you will be picking them up under 100k and renting them high. The issue is that all of your cash flow will have little shielding from taxes. Sure your cash flow is only taxed at 15% capital gains but you can do better. At 10 houses I would expand out and purchase a BIG property that would give you plenty of tax benefits. This shields all of your income from the 10 paid off properties and gives you additional cash flow. You would milk this property for the cash flow and never pay it off. You will just end up refinancing when the balloon comes due in 5 or 10 years. This "resets" your tax shield. Like any property the first 10 years are the most beneficial when it comes to tax benefits. This is because you are paying the majority of interest during that time period. Also, that's why you will see a lot of investors swapping properties at about 10 years.

Hope this helps,
Michael

I would like to make a huge point that many of the posters here don't take into account. It's the ability to actually GET a loan. I’ll be the first to admit that it is fun to talk about theory of multiple loans at a low interest rate over 30 years but this is much more difficult to obtain then it seems.

On average the banks will loan on about four mortgages with a good debt to income ratio. Of these you will need about 30% down. The price of the properties will dictate how many properties you will be able to obtain. Therefore, if you want a really expensive property it may hold you back from fully utilizing the other three loans. Now there are many people out there that are able to get “deals” from other investors or people wanting out of their properties but for a new investor this is not the case. As you grow building equity, cash flow and credit these types of deals will become available. I know many people would disagree with me but this is how I would start out.

1) Buy one property now and don't pay that down. This is what you will use you build credit worthiness. EVERYONE pays for a good credit score. That’s why you pay interest. Since this is your first property don't go too crazy with price. Maybe under 100k to get your feet wet.

2) Pick 1-3 local banks and sit down with the branch manager and discuss your business plan and how you can work together. I would request a credit card with as high of a limit as possible in our LLC's name.

3) Buy houses with cash AND credit. A cash purchase gives you assets/equity and good cash flow. Banks like to see multiple “successes”.

4) Obviously you need a good team (contractors, managers etc), an LLC or multiple LLCs and exercise patience.

I like the idea of having 10 properties paid off a really good relationship with local banks and cash in the bank. Then you go after a bigger property that acts solely as cash flow and a tax shelter. Say maybe a 1-5 million dollar property which you never pay off.

The goal is to live well. Take time to build a solid base and the rewards will be there later in life.

Hope this helps.

Does anyone here have an apt complex that is solely setup for tenants with disabilities?

I'm wondering what the feasibility of having a multi-unit that caters to this type of tenants. I assume that the payments would be Sec 8 like where the Gov. pays you directly. This seems like this would be a good model for long term relatively headache free tenants. I'm looking at converting a 9-10 unit complex but I'm not sure what the desire for this type of housing would be or if the conversion costs would be worth it. Thoughts?

How does one download from that site? It seems that I have to download a program or sign up to download your file. Is there a server to just to get your file without anything extra?

Maybe upload it here on Bigger Pockets?

I had never thought about developing an equation that would simplify this decision. Excellent and thought provoking post Bryan.

Now that was an excellent post Nathan. I would like to see more posts like this on the Bigger Pockets forums.