All Forum Posts by: David Faulkner

https://www.biggerpockets.com/forums/311/topics/22...

Any questions?

I am a buy & hold investor with several SFR rentals in the AV. Bought in 2009 with ~1.25% monthly rent/price yield. East side, but nicer East side (must be VERY careful picking block to block on the East side of AV). Prices have since doubled (rent yield cut in half), so I concur that now is not the best time for buy & hold ... That has nothing to do with inflation or monthly rents likely to fall, though, just current market valuation. Do NOT only use rent yield to do your analysis, BTW, just used above to illustrate my point.

One exception for me is if I could find a SMOKIN' deal (like 50% off market price) in a good neighborhood, but even if I could find that (I can't. If you can, you're the man) then I'd be more likely to flip it in this hot market as opposed to hold with risk of cooling. In fact, if the market goes up much further, I may be a seller.

Learn how to run the numbers for buy-n-hold and wait until you find something where the numbers make sense (likely after this hot market goes cold) before buying in the AV or anywhere else. Otherwise, learn how to run the numbers for a flip and wait until you find something where those numbers make sense (may be able to find in today's market, but likely makes more sense in a nicer neighborhood), but that is a whole different ball game from buy-n-hold.

I have a similar problem; it is a "high quality" problem to have, but a problem none the less. My solution: wait until I see better opportunities in the market and/or build it up enough to buy a SFR rental in a good hood for cash. In the meantime, an alternate way to backdoor more money into your Roth is to Roth 401k and convert to Roth IRA, or traditional 401k and pay tax to convert to Roth IRA. Only problem is, you will likely need to quit your job before you can roll the funds. Or best yet, if you can claim self employment (easy to show "intent" to make profit to meet IRS requirements), solo Roth 401k. I'm not a lawyer, so keep me honest and double check everything.

If the money is really burning a hole in your pocket and you absolutely must invest now in RE, then look at REITs, private placements (assuming you qualify as an accredited investor), Notes, Hard Money Lending as options ... the 1st 2 will be passive but require high trust in others, the last 2 require some specialized skill and knowledge to pull off successfully. Feel free to reach out if you want to discuss further.

I live in LA (well, OC, down the road, actually) and agree with you Greg. Buying in LA today, renting it with negative cashflow, and hoping that rent and/or price appreciation will bail you out eventually is insanity. That is trying to squeeze a round peg into a square hole ... the OP or anyone else who wants to employ the buy and hold for cash flow strategy should move to a market other than LA that is more suited to that strategy (and there are plenty of them, but not LA today). Noticed I said today and not forever ... I actually pulled this strategy off in LA, but I bought in Palmdale (~1 hr outside of LA city, but in LA county), and I bought in 2009, and I bought trashed foreclosures where there was plenty of value-add opportunity. Different time, different market, different strategy. Today I'm considering getting my license to sell RE while the market is hot, or if I don't I will just get paid to wait until the market comes back down to where buy-n-hold makes sense again. If I were young, single, and w/out kids, I'd probably do a live-in flip, fix up over 2 years, maybe with some roommates, and sell tax free (or rent it out or continue to live there if the market tanks). Different time, different market, different strategy. When (not if) the market tanks again, I will adapt and adjust my strategy again. All the while, I put plenty down and invest with multiple exit strategies to cover my downside and ensure I don't have to give it all back to the bank if the market moves out from under my feet. To me, this is what it means to be a truly professional RE investor, as opposed to a gambler ... not saying that I'm 100% there yet, but this is the end game for me at least. The path taken may vary, but this same principal applies to any geography (LA to Florida, and all points in between) IMHO.

If your sole definition of Real Estate investing is buy-and-hold for cashflow, then yes, you should move out of LA. However, there are thousands of ways to make money in Real Estate and probably even more ways to lose money. The key is to assess the local market, identiy what strategies work in that geography in that part of the market cycle, and either 1)adjust your strategy accordingly or 2)move to another market where your ideal strategy works. I would advise 1 over 2, because assessing and adapting your strategy is a much more robust way to invest. Somebody who can do the first can make money anywhere, anytime, in any market. Somebody who does the second can succeed initially but over time can become a one trick pony ... what do they do when the market changes and their one trick no longer works? One thing is for sure, start hands on in your own backyard, wherever that backyard may be.

In LA in 2015, what seems to be working includes flipping, wholesaling, and RE services (e.g. RE agent, mortgage broker) ... with these strategies, the insane demand and high prices can actually be benificial. Plus, in LA you have a wealth of insanely astute RE investors to network with and mentor you. 

As for moving, that can also work. I'd move somewhere you would want to live if RE were not a factor ... if you'd want to live there then so would other RE buyers and renters. I'd try to get a well rounded market that has positive rental cash flow as well as potential appreciation rather than a pure cashflow play (like Columbus) or a pure appreciation play (like LA). I would choose a 2nd or 3rd tier city or suburb just outside a 1st tier city (but not the boonies), which has some of the same desirable features as a 1st tier city but isn't yet teaming with investors. Somewhere where you have some social infrastructure (friends/family) is a plus too ... go on an exploratory roadtrip to visit them and assess these markets 1st hand (once you figure out how to analyze a market and strategies) rather than asking BP to name a good market, which inevitably will already be stacked full of investors to compete with. 

Actually doesn't matter so much where you start, so long as you do start and pursue a strategy that makes sense in that market. Best use of this forum is to try to figure out HOW experienced investors think, rather than WHAT they think ... then you can apply a similar thought process to figure out for yourself the answer that makes sense for you. Feel free to reach out direct if you'd like to discuss further.

I'm Down. HB is best for me but I'm flexible. Anytime Friday or Saturday is my pref for time.

Is it in a decent neighborhood? Would you let your grandma live in the house alone and sleep well at night (that's my litmus test)? I don't know your neck of the woods, but if the house is worth only ~$40,000 and only rents for ~$500, then I'd bet not. If not, and this is your first deal, then I'd be questioning if I'd want to buy it in the first place before worrying about seller financing.

Sometimes houses are cheap for a reason, and those reasons can't be fixed. Just because the price is low, and the numbers look good on paper does NOT mean it is a good deal ... look at the quality of the tenants you'd be getting, and how difficult it would be to keep them in the house and consistently paying rent. I've made this mistake myself, so trust me on this one, start out in a nice neighborhood, even if you have to pay more and the numbers don't look quite as good on paper, because those numbers are achievable and the others may not be. Not the answer you were looking for, and not even the question you asked, but something to consider. 

Thanks Bill & Jay! That is exactly the type of defects I'll be looking for to obtain discounts on notes ... of course, everybody else will probably be looking for the same exact thing, so we'll see how it goes. I have indeed been reading all I can on this forum and elsewhere, have learned a ton, and will continue to do so. Unfortunately, you can't learn everything you need by reading, and I think I'm to the point where I know enough to start to get hands on, but not yet ready to invest my own money ... it is that awkward "no man's land" that I'll have to work through to reach the other side. I have no problem bringing the sweat and materials to build the bridge to get to the other side, and appreciate everyone's feedback on the design of said bridge to make sure it is structurally sound ... Thanks!

Thanks Dion! To clarify, I meant 12-14% effective yield (not sure if that is an actual term) after applying the discount received to the original note rate (which would likely be <12%). Not sure the HML would best suit my background or personality. On the RE side, I'm long-term buy-n-hold, not short term flipper ... my understanding is that HML tend to be more oriented towards short term flipper type borrowers.

Good explanation or "perfectly good" ... it seems similar to the RE side in that there are a variety of ways to obtain a discount on a house. It could be a house in the ghetto with a cracked foundation and leaky roof, and you'll get a big discount but not a good deal. On the other hand, it could be a new house in a primo neighborhood with a seller that keeps the house like pigs, with a turd in the toilet when you view it ... you can get a discount and it is more likely to be a good deal because the defects from "perfectly good" are easy to remedy (a little bleach, paint, elbow grease and a dumpster). The note equivalent of these type of investments would likely be what I'd gravitate towards, I just don't know enough yet to know the difference between a cracked foundation (hard/impossible fix) and a "turd in the toilet" (easy fix) in the note world, though I have my suspicions ...

As to what I'm more curious about, I tend to like working out "in the field" with people more than locking myself in my office and crunching numbers or sorting through paperwork (though I can do both). I still really like bricks & mortar, but am curious to understand the ins, outs, and intricacies of all the process and paperwork behind it. I like creative problem solving on problems that are solvable, and getting the experience to recognize those that can't. I think and hope that the two would compliment each other: Notes will help make me a better RE investor and RE will help make me a better Notes investor.

Thanks all for your posts ... I appreciate and learn from your experience. However, most seem to be advising on what types of notes I should invest in and how to buy them. Once I learn how to cook, I'm sure I can figure out a recipe for my own secret sauce :) Therefore, my question is more how I can get hands on experience BEFORE I buy any notes, not what kind of notes I should start off buying. Maybe this is not possible, and that's what posters are trying to tell me, not sure, but want to try to make the distinction. Thanks all!