All Forum Posts by: Raj Gandhi

I would.  All my rentals are 3BR or 4BR.  None of them have good credit.  Anyone with good credit looking for a 3 or 4 BR would be buying.  I've had two tenants with prior evictions.  They had reasonable stories so I took a chance (gave them a 2nd chance?).  Any way you cut it, it is a gamble.

$50 gift card to local grocery store.  It isn't exciting but pretty sure some of my tenants need it.

This isn't what you're going to want to hear... can you think of a different plan?

First, a 4BR/2BA is a nice place to live but not so great with rental cash flow. (In my area a 4BR 2BA would sell for $300k and rent for $2k/mo.) Second, location is really important for appreciation (everything in real estate).  Without being local, you're taking a real risk. 

Four years is medium-term but still too short to build significant equity in a 4BR/2BA home.  On the back end you'll lose 7% to sales commissions plus you're paying insurance and taxes.  Over the course of four years, you'll end up spending about 25% of your income per year on housing but only build a few percent equity.

If your goal is to have a nice place to live then discount the cons I've listed (and try searching craigslist).  However, if your goal is to gain wealth, I think you should try something different.  Could you find a local partner / property manager and buy a 4-plex?  You live in one unit, property manager in another (paying rent) and rent two more?  The main benefit here would be to decrease your cost of living and build something that will have much more reasonable cash flow in four years.  (In a less nice area but safe, 4-plex (all 3BR 1BA) selling for $300k would gross rent $4k/mo.)  

The benefit of having a local property manager / partner is to have someone local with skin in the game, not just looking for a one-shot commission.  Find a junior guy/gal looking for discount rent.  Can you use your military connections to spread the word you're looking?  

Btw, thanks for your service!

@Jon Holdman thanks.  That's fair enough.

Yes, I posted the question to gain feedback but Jon, your reply comes off arrogant.  You're saying that the standard way to get investors is to offer 10% and ask face to face and "...be grateful".  Fine, but this is the Creative Financing forum.

The two loans I've had from family were at 3%.  They were being kind and I was appreciative.  Their capital would have been in a checking account or CD earning no more than 1%.  (They can't get more than that from a bank.)  Are these special cases?  Sure.  I wasn't looking for a "sucker" or taking advantage of anyone.  In fact, they approached me about the loan, not the other way around.

My pool of friends and family probably consists of a spectrum of investors with different tolerances for rate, capital, term.  I don't know if it is worth approaching any of them.  The point of the survey is to collect the data and narrow the field to people interested in have a conversation.

(Yes, I'll talk to a lawyer... not a solicitation... unaccredited... blah blah blah.)

@Elizabeth Colegrove thanks for the comment.  For purposes of the survey, I agree it would make sense to have selections: 3-8% or wider.

Cashflow is conservatively estimated at $15k/yr.  If the 2nd were $100k, that's more than 6 years to pay off.  It isn't a terrible idea.

I used to say "Don't do business with friends."  Then it became "Don't do business with friends... you want to keep!"  Since starting in real estate, I've had three loans or gifts from family.  They turned out fine as far as I'm concerned.

Interesting question.  Let's (over) simplify your situation, calling it $500k to invest, for 10 years.  Scenario 1 is 10% and Scenario 2 is 20% (I think your original numbers are too optimistic).  After 10 years,

Scenario 1 = $1.3M

Scenario 2 = $3.1M

The difference is $1.8M or $492 per day spread over 10 years.  Would knowing you're better off by $492 per day help you sleep at night?  Personal preference.

A real issue missing from your analysis is inflation.  If inflation increases then fixed debts decrease in ~value.  I personally believe that we're at historic lows for inflation rate.  Therefore, I'm accumulating (historically) low interest fixed debt with long (30y) terms.  If inflation stays the same then fine.  If inflation increases then my rents increase but my debt service does not.  Ultimately, I like using real asset debt as an inflation hedge.

I'm trying to find a way to purchase a couple of 4-plexes.  A down payment would be in the neighborhood of $150k.  Estimated Cash on Cash return would be 10%.  That's worthy of serious consideration partly because rents will increase in the near future.

I could ask the seller to take a 2nd mortgage for $100k but the cash flow would be too small with 10% at 10 years.  

The issue is coming up with the down payment.  I could muster $50k but it would be "nice" to find a friendly interest rate from family and friends.  I'd love to have a rate in the range of 3-5%.  My wife says we can't ask her family for loans.  I've hinted to my family in the past and they're generally too conservative to consider such a thing.  Asking for loans (even for an investment opportunity!) isn't particularly comfortable for me (is it to anyone?).  I don't relish the though of being turned-down 98% of the time.

So, my idea is to use a quick survey (surveymonkey.com) to a big list (300?) of family, friends, acquaintances.  I'd need to explain the investment.  Ask if they need a equity stake or unsecured loan.  Ask what interest rate would be adequate.  Ask loan amount they could tolerate.  Ask loan term.  Ask for contact info to follow-up later.

(I'm not trying to do anything illegal.  My understanding is that I can market to unaccredited friends and family.)

What do you think? Will it be effective or a waste of time? Damage relationships?

By containers, you mean 40' (or 20') long shipping containers, correct?  I was trying to improve usefulness of an acreage/farmhouse by adding storage for myself with a shipping container.  The lot is within city limits and I spoke with my local code enforcement folks.  They would have none of it!  The container idea was a complete non-starter for residential zoning. 

Your idea of calling your local building department is probably the best.  There might be variability from jurisdiction to jurisdiction so maybe make a few calls.

Creativity is awesome so good luck with your project... unless you're my neighbor.  In that case, keep your rusty, trashy shipping containers away!   ;)

I would certainly offer if you can make money.

In my area, non-climate controlled self-storage is around $1/sq ft per month.

Another way to calculate how much to charge would be based on rate of return.  If renovating the storage area with paint, flooring, good doors and locks cost $1000 then it would be okay to charge $100/year (10%).  Even better would be 20%.  If you can't get at least 5% then it probably isn't worth the effort.