All Forum Posts by: Sean Tracey

@Brandon Battle from what I've read, that move could trigger the due on sale clause and the bank can demand immediate full repayment of the loan. 

Thanks for sharing this info @Joey Palmer. It's great to see people get creative with their financing options. 

Hi @Mark Silberman. It looks like you've found an incredible market to be invested in. A couple of reasons as to why your strategy may work for you while differing from popular advice on this forum:

1. I'm assuming you have a lot of capital. Correct me if I'm wrong, but it makes sense given the description of your strategy. Having a lot of capital might mean you're more mentally/psychologically prepared to wait for a decent return. Nothing wrong with that since investing is about mental fortitude as much as anything else. That just means you have a better chance of not making poor decisions if your properties don't produce profit in the short term. 
2. Most others don't have as much capital, and can't afford to allocate such high percentages of their portfolio towards high priced, potentially fast appreciating properties. A few years of poor returns might force them to cash out and take a hit before there's a chance to see future appreciation. 
3. Risk is another reason. For most investors on this site, if they tried to do what you did, they'd tie up most of their capital in a limited number of assets. While things worked out for you, all investing carries risk and it often doesn't go so well for others. If someone only has a few assets starting out and takes a hit, there's a higher chance they can't recover. 

For me personally, income needs and timeline dictate my investment strategy. I will have more than enough money to semi-retire on in less than 10 years if I keep my portfolio diversified between stock index funds, and 10-15 cash flowing SFH (although my REI strategy may take on another form by that time). With a 10% CoC return (not including rent + appreciation increases that keep up with inflation), I'll be set. I don't have to wait and hope for future market conditions to allow for appreciation.

Wow, interesting stuff @Amy Martin. This should certainly be quite the learning experience. I don't know how I would handle this, so I don't have any advice to offer. You do seem to be handling it in a constructive manner by reaching out to others on this forum about your situation, though. I'm wondering what others will suggest doing in response to this latest development. Good luck, and just keep in mind that these things end up making you a better landlord. 

@Wes Brand it seems like you have all your bases covered. Investing is something different for everyone, so my previous statements aren't criticisms of your investment (I don't know enough about it to criticize it). I am just stating my philosophy and can respect yours. Personally, while I consider research an integral factor in managing risk, I can't properly assess risk without also viewing a deal in the context of my total portfolio. For me, that's important and is one factor among many that I use to judge how risky or conservative an investment is. I fully agree with your other points, and think we even come close to seeing eye to eye on this based on your statement of "What can happen?". While you're rightfully concerned with what could happen within a given deal, I'm also concerned about what could happen to my overall net worth and ROI across my entire portfolio.

@Wes Brand Risk is indeed king, even more so than cash flow. If a person is taking on too much risk relative to their tolerance levels, then they are making a risky decision even if it's something as simple as investing in a CD. The reason being people tend to not make good decisions when under stress due to financial risk. I'm not at the stage where I could tolerate the risk associated with an appreciation play. I plan on researching in that direction, and I don't intend to pursue lower end rentals for the potentially high CoC returns. I'm going to try and settle on a happy medium, but as of now my appreciation predictions are at inflation. I might experiment by forcing appreciation through improvements to a property, though.

As for whether or not your deal is speculative, I guess for me it would depend on how much of your total portfolio this deal constituted. I see it as speculation if it's very high return (you mention potential 100% CoC) and it would cause you to lose a significant portion of your total net worth if your market predictions weren't correct. This is even if you have the alternate source of income to bail you out.

I think every extra percentage point of return an investor gets over time is probably going to have to be fought for in the form of risk and hard earned knowledge. I think it's very rare that a person can consistently generate extremely high returns, but I do acknowledge there are certainly those that do. I also know that plenty fail, even though they tried as hard as anyone else. It comes down to how much money do you want/need? For my goals I need 10-12% real returns over time. I don't need high appreciation to achieve that. If my needs or opinions change, and it has room in my portfolio, then I will pursue it. 

I think "conservative" would be a more apt description of many people looking for cash flow. I haven't seen any good reason to look into high priced, fast appreciating properties that don't provide any sort of current ROI. I'm all about creating long term wealth, and if I can do that by getting 10-20% CoC returns, while the appreciation and rent increases keep up with inflation, then I'm all good. I'd be willing to bet that the streets are littered with people that got swept up in the hype about some fast appreciating market, broke even or went negative with cash flow and then lost big. I'm an investor, not a speculator.

 Is it my inexperience talking here when I don't see how this could benefit a long term business strategy? You're making a killing in this deal, as is your investor, but I can't imagine you'd make a good name for yourself profiting this much in one transaction. This is coming from someone that doesn't really allow personal emotion to cloud his investment decisions. I can't imagine any other reasons someone would sell that low unless they are clueless, desperate or felt like giving up all worldly possessions and moving into the woods. Sucks to be him/her I guess? 

I'm surprised to see all the maintenance issues landlords will pass on to their tenants. As someone who's a tenant, I would laugh at any landlord that tried to have me clean his gutters. Aren't there liability issues when you have your tenant getting up on a ladder to perform tasks like this? Also, I'd rather make sure it's done right to protect my asset (if I had one) rather than trust a tenant to do it. 

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