All Forum Posts by: Stephen Seaberry

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Wanted to correct my earlier post. The 69% IRR I stated isn't the IRR. I went back and revisited what IRR is and my answer is not how you arrive at IRR.

Greg,

I don't see trash and waste removal, snow removal (assuming it snows where you are if this is in PA), and lawn care. And (more of a newbie inquiry) wouldn't your carrying cost until you achieve the expect vacancy rate eat away at the CoC and make it lower?

Absolutely...assuming you can achieve the rent you've presented. When NPV is factored in, it should be more than 30k. But bottom line dollar amount can be misleading. Look instead at the rates of return from the different options. Sure 30k may appear good, but if in that same period you're paying $35k in debt, you're not actually coming out on top. In this instance, assuming the numbers you presented are accurate, it seems like no brainer. Carry the debt, rent the 3rd unit, accererlate your debt pay down with the cash flow.

I'm reading this book What Every Real Estate Investor Needs to Know About Cash Flow by Frank Gallinelli. Its brilliant at changing your perspective from looking at bottom line dollar amounts to looking at the trade offs in terms of rates of return. The author was also recently on the Passive Real State Investing podcast show 049. Good stuff.

Taking a shot in the dark before I read any comments, to see where my own head is at regarding investor psychology.

With the 1 unit already rented, it looks like your coming out of pocket $1,150/month.

Plus $1,400 in SL and Car Note

You have $20k in free cash that's not currently earning anything, but has the potential to earn $1,300/month or $15,600/year.

That would mean your RR on the $20k would be 78% if you do the necessary upgrades to rent the 3rd unit.

The $1,300/month also means you'd be living rent free with a cash flow of $150/month. Free cash of $1,300/month (the $1,150 you are currently paying in mortgage and utilities plus $150 cash) could then be used to pay towards principal on SL and car not, accelerating debt pay down.

78% RR on 20k minus 5% avg SL and Car interest and 4% mortgage interest = IRR of 69%

I think (assuming I'm looking at this the right way), using your 20K in cash soldiers to generate additional income is more advantageous than using it to pay down debt. Grant Cardone would tell you to only carry debt other people can pay for. This seems like a situation where that would apply.

This isn't even accounting for the additional tax benefit you get from "making interest payments" on the mortgage.

@Federico Gutierrez can you email me the T12 income and expense statement for this property? Also, the cap rate for the area this property is in? [email protected]

Thanks and have a great day.

When you say your want to buy another rental, do you mean you intend to upgrade to a MFR? Do you already have the next purchase in mind, do the numbers suggest a better return on investment? I'm sure you've asked yourself all of these questions. Its more for me to get a more complete understanding of how people already making deals work through their investment decisions.

Edit: Just saw that you are looking for MFRs, but can't find any. Why sell if you aren't trading up?

And learn what you're doing first. Gold flees those that invest in ventures they have no skill in.

I'm with @Michael R., borrow against it if you can. I did that with my TSP to clear up debt and I'm glad I did. As long as its free money (less than inflation) to borrow and the return is well over what you're getting in fund, I say why not? But I'm no CPA, so take it with a grain of salt.

My credit and capital were excuses. Nonetheless, set a goal to get to $50k cash reserves and an 800 credit score by Summer 2018. I'm still working towards that by aggressively paying down debt borrowing against my TSP at 1.5% to pay down debt in the teens. I'll have all debt aside from primary mortgage, leased vehicle, and student loans paid off by next summer. That leaves 1 year for some old delinquencies and inquiries to fall off. Should put me where I want to be.

The other obstacle is location. I live in Woodbridge, VA and I'm priced out. I've looked in Baltimore and I want nothing to do with it. Same goes for DC. I was looking in Killeen, TX, but I'm completely blind on that market.

I realized I had to get creative. I overheard my wife and her friend talking about the friend's sister trying to get rid of a paid for SFR. She was going thru a nasty divorce and landlording was taking its toll. I almost closed the deal on a Seller Financed deal, but her brother told her she'd be better off taking the income for herself. Oh well, i was going to be negative cash flowing until I refi'd anyway. But once refi'd it would've been at about 7% CoC. Still trying to make the deal work, I've agreed to managed the property for her at no cost and in return, she agreed to lock in my offer price and hold it up to 2 years assuming I continue to manage it for her.

If market trend stays constant, I should close with 40 to 50k instant equity, plus 2 years of landlording experience already under my belt.

Not ideal (I mean it's no money in my pocket now), but I'm in it for the long game.

Long story short. Once I cancelled my limiting beliefs, my mind automatically started finding solutions. I am taking what I learned from this experience and contacting all absentees with at least 90% equity in their homes and seeing if they will seller finance.