All Forum Posts by: Samuel Chua

In Utah non-recourse only applies to primary residences.  I don't know about other states, but be careful if this is an investment property.  You may not be protected by the non-recourse laws.

both because you don't always get tenant cash each and every month.. you have a turn over and u usually lose a month .. you have a bad tenant does not pay you..  

 OK now I am blushing.. but thank you for the kind words keep in mind there are plenty of other great investors on BP.. and i am far from perfect I have my dud's or misjudge someone  etc.. 

But back to how to pay mortgage down.. I do the same when i get a mortgage I set it up auto pay and usually round up to the next thousand and pay at least 500 a month extra.. this saved my bacon in 2010 after being hammered so badly in the GFC.. I had a lot of equity I could fall back on.. 

Here is my example. I have an 8-plex that I bought in 2017 for $175,000. He was desperate to sell because his Rural Dev. loan had been paid off and his section 8 classification ended, however tenants weren't paying the full rent like they were supposed to. His numbers were horrible because of this, and also because he's an older gentleman and paid for everything to be done there. It had been listed for a while and a couple of sales had fallen through. I offered him his price on a contract for deed, with 5% interest, $800 per month, and $10,000 now, $10,000 in 6 months, and $10,000 in 12 months. I set it for 5 years, but told him I'd pay it off as soon as I could get bank financing. (A little over a year later I was able to get the financing and the appraisal came out at $300,000)
I immediately laid down the law there, started getting the rents up to market, got rid of bad tenants, remodeled 3 of the units, added landscaping, took care of deferred maintenance, etc. If I were to sell it right now for the $300,000 (I currently owe $150,000) I would walk away with $150,000 that I could use on a 1031 as 20% down on a $750,000 building.
I would only be using the money I have already invested, plus equity, and my NOI on the larger building would be much greater. This is why I will sell. However, I'm waiting until next summer because I'm moving and want to invest there :)

You have to sell when it works for you. The whole goal is to improve your standard of living and cash flow.

@Samuel Chua I’d reinvest that extra payment towards either future property improvements/expenditures/operations or towards your next investment.

I get the faster pay down but why. I’m assuming you have good terms on your debt, long-term? I’d save your capital.

Personally, what I use is the potential return in selling vs continuing to rent.  I'm not sure I have a HARD set # I look at, but I do this.  If I can sell the property and turn that gain into higher cash flow I would do it.  Also, I look at how long it would take to make the same money by renting.  One of my examples is I was able to sell a property and make $25k in profit after taxes.  I was making $150/month cash flow.  So the question was sell now and make $25k or wait ~14 years (assuming no major expenses which is almost certain over that amount of time, but the increase in rent may even that out and keep it at the same timeframe).  I took the $25k and rolled it into another property that gave me $300/month cash flow.  for me, that's a no brainer.  But again, your goals determine whether that's a valid strategy or not.  There are other ways to increase cash flow however (ex: refinance and reduce the mortgage), but again, the above is kind of what I use at a high level.

@Samuel Chua

Home Value: $200,000 

Cash out of 70% of home value (new loan)

$200,000x70% = $140,000

You owe $100,000 on hard money

New loan of $140,000 pays off $100,000 hard money which leaves you with $40,000 cash in your pocket to use.

"what contributes to ROI dropping in 7-10 years?"

Increased dead equity through principal pay down and/or appreciation.

Equity kills your returns meaning you must pull it out, assuming you can still generate positive cash flow on the property, or if not you must sell.

When ROI drops below what can be earned in a basic income fund (10%) it is no longer a worth while investment. This type of individual that ignores or sit on dead equity is no longer a investor, they are cash hoarders. Their money is no longer working efficiently for them and they are simply ignoring their investments, preparing to sell to retire or waiting to die.