All Forum Posts by: Bill Goodland

I am by no means an expert on this, but are these "losses" on the properties taken against you personally or a legal entity that you own?

I would say that is the closest thing to a war zone that you're going to get in Suffolk outside of Brentwood. I am somewhat familiar with the area and after spending a day at the high school for an event I wouldn't recommend touching it. In my opinion if you want lower cost of entry, go out of state, and if you want to invest locally, look in better school districts. It may not look as favorable from a rent to value ratio perspective, but I would expect significantly less repairs and cap ex with higher cost rentals as long as they cash flow.

As a newbie waiting to finish with school before jumping into their first deal, I would say that my biggest fear is buying at the top of the market, and/or missing significant opportunity elsewhere. I understand that a black swan event can occur and hurt me on my first deal, which is why I'm not going to jump into something incredibly risky; however the fear is still there. As part of the education process, I've read and listened to so much that I am worried that I may lose focus with the "shiny object syndrome" in focusing on too many things at once just because it sounded cool on a podcast. Ultimately I want to get into larger multi-family buy and hold, but between wholesaling, flipping, vacation rentals, other business ventures to accelerate that growth I fear wasting my time, effort and money in certain areas.

Looks like an awesome deal man congrats! Curious if there's any rehab that needs to be done on any of the units or if you took on any other add value components?

In my opinion, if you are worried about limiting your financial risk with leverage I think you really need to analyze what your return on current equity is in each property. If you are worried about potentially not having enough to cover a mortgage payment in the future for whatever reason, I think you need to rethink whether or not each property is a good investment in the first place(i.e. does reserves account for all expenses such as vacancy, repairs, Capex, PM etc.). It is not uncommon for a property leveraged at 70-80% LTV to provide 15-20% return on your equity in the property just as a free and clear property on the surface may provide "great cash flow" however your return on equity could easily be in the single digits. I'm not saying you should leverage up the wazoo, but your inclination that you should be paying off properties early for whatever reason leads me to believe that you're not 100% comfortable with the leverage you've taken on. If you have the extra cash, and you are willing to manage more(if not look turn key, syndication, notes etc.) I would argue that the extra cash would better be allocated towards additional properly leveraged investments.

I suggest you listen to Ken McElroys BP guest podcast episode and maybe pick up ABCs of Real Estate investing by him. He's a very experienced apartment investor you could learn a lot from on evaluating the property

Originally posted by @Andrew Johnson:

@Bill Goodland Assets, liabilities, net worth have nothing to do with "strong" vs. "weak" cash-flowing properties.  It's more of a static measurement rather than looking at month-by-month income.  I'm also not sure why you said you "control" the properties.  Are you the lead in a syndication or are they your properties?  Also, net worth can also be driven significantly by leverage.  If I have $100K down on a $500K property and the property value rises 10% then my net worth is increased by $50K.  Using leverage I could use $500K to have that $50K increase 5 times or buy one property all-cash and have it happen once.  

Regardless, if my home is fair-market valued at $1MM and I have a $600K mortgage then my net worth (from that property) is $400K.  The tricky part is that a lot of people inflate their net worth by having a slightly unreasonable expectation of what "fair market" value is for their house or other real estate assets.  

 Thank you Andrew, this was just a hypothetical situation I was trying to understand. By control, I meant own or have mortgages, not syndication(although I can dream of one day). I understand the power of leverage and just mentioned strong cash flowing because I know some people will say who cares about net worth if it doesn't cash flow. My point was that I expect to grow my net worth with cash flowing assets.

Oh okay, that makes a lot more sense. I was thinking how could the 1 million be considered an asset considering you don't own all of it technically, only 40% of it, but subtracting the mortgage/liability obviously makes that more clear. Thank you!

So as I am gaining personal finance and real estate knowledge I have certainly developed a strong appreciation for tracking your net worth and cash flow and the importance of both. I know a lot of peoples goals are to strictly increase their net worth or cash flow, with greater cash flow usually coming from leverage.

My question is how net worth is calculated. All other assets and account balance aside, lets say I control 1 million dollars worth of strong cash flowing properties with 40% equity across my portfolio, or 400k. Since net worth is essentially Assets-Liabilities, and a mortgage is a liability; does that mean that in this hypothetical situation, having 400k in assets(equity in property) - 600k liability(mortgages), that my net worth would actually be negative?

I agree with pretty much everyone else that posted. Consider all the factors such as whether or not delayed financing would be a possibility and align with your goals, or if traditional financing would maximize your COC returns(once again if that aligns with your goals).

If you think you can get a considerable amount discount cash then go for it, but if the seller really doesn't care about waiting for financing then you might as well in my opinion. Laying out multiple options to the seller, even if all of them are heavily in your favor is a good negotiation tactic because although they may be somewhat low ball, when the seller gets to choose, he or she felt like they won the transaction.