All Forum Posts by: David Faulkner

Solo 401k has been mentioned, and that is a good option if you have or could create some self employment earned income in order to qualify. I would also add that even if this is not the case today, investing in a 401k might still be a great idea ... in addition to the benefits already mentioned, if/when you do part ways with your current employer, then at that point the 401k could be rolled either into a solo 401k or if you don't qualify for that then into a IRA LLC with checkbook control, and then invested in REI, notes, etc. This is exactly what I did ... in fact it was a Roth IRA LLC, so tax free rental income and capital gains ... worked out great for me. So, the idea would be to build it up while you are employed with them, then later when you are not roll it into self directed and invest it in RE or whatever else you like in a tax advantaged manner. RE notes are a great option for those IMO ... even though I bought rental property, and it turned out great, if I had to do over again i'd likely lean towards notes with self directed retirement funds. Also, some employers offer self directed options where you can choose individual stocks .... maybe not with a TSP, but if you have this option then research dividend growth investing (DGI) ... similar to rental properties you can live off the stock dividends, never have to sell, and be less reliant on what happens to stock prices. Also like rental properties you can choose stocks with higher immediate dividend yield but slower growth, or lower immediate yield and higher growth in earnings, which in turn leads to higher capital gains and dividend growth ... you can also buy REITs in these plans.

Now subtract another ~10% in transaction costs to sell your CA properties ... then jack the risk way up for investing in a market that is unfamiliar and far away from you ... then jack the operational costs way up for the same reason ... jack up your property taxes from giving up your CA prop 13 benefits ... do you know for a fact that the specific property(ies) you would buy in Memphis would move up or down less, even if that is what happened in the past? How do the supply and demand fundamentals look in the specific neighborhood you would be buying in? That gets back to knowing the market you are investing in. Then if you 1031, that means you will be leveraging up more than you are now and will be in a weaker equity position ... so jack that risk up a bit further still ... take all of that, then what are you left with? Way more risk, marginal to negative net gain, a far weaker equity position, likely in a lower quality asset(s), in a market where you have less knowledge, fewer contacts, and less control, all while in your proposed scenario the market is crashing (which is the proposed reason for doing these transactions) ... if you ask me, not a very compelling risk to reward proposition IMO. Please understand, I am not saying there is anything inherently wrong with the Memphis market, only with investing in markets where you have limited knowledge, physical access, and therefore control over your investments.

IMO, you need to be underwriting to IRR, not CoCR ... your market does not appear to even keep up with inflation, so great looking CoCR is not likely to look so great in 10+ years. Also, IRR factors in mortgage paydown and appreciation (both forced and market, and after inflation your market appreciation may very well be negative). Also, you should look for opportunities to buy below market and force some appreciation, so that you are not 100% dependent on cash flow to make all your returns, you will be insulated to some degree from short term market fluctuations, you create multiple profitable exit strategies for yourself, and your cash flow numbers should also improve to boot. Finally, asking what other returns folks invest for is also pointless IMO ... I am not you and you are not me, we live and invest in different markets, we have different goals, we have different skills, and are in different financial positions ... our return expectations therefore are and should be different.

Jay can get you reliable 7-10% return on B class turnkey property, and you don't even need to own it, deal with tenants, repairs, or property managers ... instead, you go in as the lender ... just sayin', this is an alternate route you may want to consider ...

LOL ... by that definition, this market has been "soooo out of whack" for the last 5 decades in a row... Now hear me out ... ALL my tenants think they are smart by renting my properties for less than what they could buy a similar turnkey place for at retail price ... only I don't buy them turnkey and I don't pay retail and they all cash flow day 1 + forced appreciation equity day 1 and each and every year I raise their rents while my 30 year fixed mortgage payment stays the same and my property tax increase is capped by prop 13, and each and every year I get a bit wealthier and my tenants get a bit poorer. I can promise the OP that buying an OOS turnkey for 250k that is really worth no more than 200k if you weren't seen as a sucker from CA, in a market that doesn't keep up with inflation, is NOT the path to financial freedom any more than it has worked for any of my tenants for the last 15 years I've invested in SoCal.

Depends ... In the quality B class neighborhoods I was invested in during the last downturn, rents stayed the same in 2009, but went up all other times, and I missed exactly zero rent payments; in the C-class properties, rents didn't go down, they stopped ... I was eventually able to get them started cash flowing again after replacing the tenants, but it took a lot of time, effort, and cash reserves to do that. 

Quality of cash flow is every bit as important (I'd argue even more important) to consider than quantity of cash flow. Quality of cash flow becomes most apparent in a down turn. Quality cash flow comes from quality properties in quality neighborhoods, which in turn attract quality tenants. Tenants that are one flat tire away from missing rent will not result in quality cash flow, and yet ironically these type of tenants are the kind that tend to rent in the type of neighborhoods that show the highest pro forma cash flow projections on paper ... too bad those cash flows aren't what you will actually get during a downturn, and you spend much of your time chasing down rent as opposed to growing your portfolio ... too bad that the increases in rents and prices will not tend to keep up with inflation in many of these neighborhoods too ...

 Big difference between can't afford to and choose not to ... can't afford to = shouldn't be living there.

If where you live is not conducive to your financial situation, then you should NOT be living there. That goes beyond REI, it is personal finance 101.

Big old turd floating in the toilet ... I'm no expert in that field, but it looked and smelled like it may have been there awhile too ...

Another fun one was a fridge full of rotten food that had been in 100 deg. plus heat for a LONG time due to there being no power after they didn't pay their electric bill, and subsequently stopped paying rent as well and finally left in the middle of the night, but not without leaving us that very special present. The maggots sure seemed to like it.

Almost no amount of security deposit IMO can compensate you for dealing with this type of sh!t, but hey, it is just part of the business sometimes. A landlord's life gets much better after they stop being so cheap and realize the benefits of stepping up in the quality of rental units, screening process, and thus tenants. 

With regard to this ... most DGI'ers prefer stocks of established companies with a long track record (spanning multiple business cycles) of not only maintaining, but also raising their dividend each and every year. In fact, many invest in a group of stocks tracked and known as the "Dividend Aristocrats", which are companies that have raised their dividend every single year for at least 25 years straight ... on top of that they track the "payout ratio" which computes the percentage of earnings that are paid out as dividends, to ensure that is stable, has some margin, and the company for example is not having to take on extra debt just to cover its dividend to investors. And finally, there is diversification of the stock portfolio so that all the dividend income is not concentrated on one (or just a few) companies or industries. So, all of this to say that though nothing in life or investments are guaranteed, there are some companies out there with stellar track records and means by which these things can be analyzed to make for a fairly safe bet, at least in so much as a sustainable dividend payout goes. This discussion is off the topic of REI, but DGI is pretty cool, actually, and I find it makes a good bit of sense to landlords since the dividends are akin to rental cash flow, and there are several other parallels as well ... my heart is still with my local rentals, but it is a decent place to diversify IMO and park extra money assuming you are ok with potentially parking it longer term in case a bear market hits. To learn more, I would refer readers to the website "seeking alpha", and specifically the "dividend" section ... REITs are often covered there too, so you can get some REI eposure that way as well ...