All Forum Posts by: Tom McMahon

So I am an economics teacher but the true intricacies of real estate are relatively new to me. I have a friend who has been borrowing money, investing in real estate multi families and apartments etc, and seemingly making a killing. I repeatedly see people who are using similar tactics, including thousands on this site specifically, but I have a problem. I am a cynic. I am in the process of taking out a HELOC against my primary residence. I own a (valued at) $550,000 house. It has appreciated $100,000 in the past 5 years in Massachusetts. I owe $199,750 on my mortgage. I am looking to take out the max amount against my house or about $280,000 as a HELOC at around 4.5%. This will give me the liquidity to hopefully find a property, run the numbers, and make a profit after all of my expenses. It took my 14 days to learn and understand this entire process after lurking on these forums and reading a few books. So then I would rehab the property, gain some equity, and then refinance the property taking out the entire amount owed, pay off my HELOC, pay off my nice small 30 year fixed mortgage, take out another nice slightly larger but still cheap 30 year mortgage, and collect rent from peasants until the day I die. Then I will do the entire thing, all over again, and over again, and over again, offsetting my new debt with my new rental income until I am a millionaire. No offense, but this is not an overly complicated process, although there are certainly difficulties achieving it optimally.

So this all sounds wonderful. But then I realized something. I am a teacher. My salary is $77,000. After taxes, retirement, etc. I bring home $49,400. I am planning on buying a $400,000 home without actually using any of my own money, because obviously I don't have nearly enough money to do any of this. Therefore I am using credit, to purchase an investment. Are we allowed to use credit to invest in the stock market? Of course not, because no one guarantees that the stock market will appreciate. Why are we once again assuming that the real estate market will always appreciate? Is 10 years enough to wipe everyone's memories? I understand here, that leverage comes into play, and how profitable the deal is at the beginning is important, but how profitable do the numbers have to be if say, your property needs a new roof and a tenant loses their job and squats for a year? 

Therefore I am using imagined money, or the perceived value of my home, to purchase a property or properties that have a number of perceived values themselves. Then I realized something terrifying. I don't think we are any better off than we were in 2007. The appreciation in home values we have seen since 2009 is a classic example of a self-full filling prophecy. People assume that housing values should appreciate. Therefore our behaviors collectively lead to their very appreciation. By utilizing mechanisms like HELOC's and refinancing, we justify the appreciation of our houses by having literally artificially created capital available to afford them, which in turn lead to 'demand' which inflates prices.

The reason home valuations became so high during that '08 crisis was because literally anyone could get a mortgage. These NINJA loans were given to anyone, whether or not they could actually afford to buy the home. Can someone explain to me how my situation is any different? I can't afford to buy a $400,000 house. Let alone a number of them. But I have lenders literally falling all over themselves to give me a quarter of a million dollars in credit when I already owe $200,000. You guys have figured out ways to borrow 'other people's money' in order to buy property. Since this has become so common place, and it has become so easy to borrow money, can someone explain to me how the prices of houses are not artificially inflated once again? And if they are, what happens to the small real estate empires so many of you have built when the valuations of your properties plummet and your tenants stop paying your highly leveraged loans?

My contention is that its the same thing. We 'think' that the housing market and valuations are justified because the perception is that people are putting 20% down of their own money and can thus 'afford' the houses they are buying. But if people are using the very methods this website lays out in books, we are not buying houses we can afford, and we are putting the same inflationary pressures on the values of houses. 

Without diverging lets not forget that this low interest rate environment is also why the stock market is so grossly over valued. Investors, with their trillions of dollars in assets, need to find a return somewhere. Bonds and savings are paltry. Watch how grossly P/E values are rising and understand they aren't rising for any logical reason except excessive influx of funds into the market because of a lack of alternatives. In many European countries their efforts at stimulus resulted in negative interest rates. Billions have flowed from European and Japanese markets into US equities, or 'the stock market' thus driving up the prices of stocks even further. With stock market valuations so high investors like us are looking to property as a way to diversify, or even primarily generate returns. Since those interest rates, which are generating massive inflows into the stock market, also carry over to the mortgage industry, the same inflationary pressure is happening in housing. 

So can someone smarter than me, convince me that endlessly borrowing other people's money to buy things you can't actually afford somehow has a happy ending? Or is what we are all actively contributing to and trading 'tips' on going to culminate in a crash that makes 2008 look like a blip on the radar. Oh, and when everyone gets wiped out, don't forget who swoops in and gathers cheap assets at an astonishing rate. Then repeats the whole process. hint* (They are the same ones encouraging, facilitating, and in some cases (negative interest rates) forcing this behavior in the first place.)

Anyways nice to be a member!

Does anyone know of a lender in eastern MA who deals with assets that are in an irrevocable trust?

Ahh yes, I actually went to the specific sub forum to ask the questions. Should I ask here too?

 Its not good. I was sitting 100 yards from my house the other day behind a school bus as it was offloading kids. I watched a drug deal take place right next to my car. Right by Queen Annes. I have 3 real good buddies on the department as well and the stories I hear weekly are just awful. 3 people died last Sunday alone. Not to mention Weymouth goes through Superintendents roughly every three years the past 15. Amazing.

Duxbury is nice. I teach at Silver Lake so I drive through it every day. If possible though I would likely want to stay a little further north so be closer to the city and where we 'used to' live. Just figure that will make the transition for my parents better. They've both only lived in Weymouth their entire lives. But unfortunately, a drug dealer actually lives in the house two doors down from them. Haha, I feel like an old crazy person complaining about the youth of today. I'm not though, here is the story:

http://www.patriotledger.com/article/20131203/NEWS...

I guess my question is yes, can I sell their old house, (which I know I can) and then use the liquid funds in their IRRTR to purchase multifamilies? How much income do you need to show to buy a MF? If I am putting 25% down, say $100,000 on a $400,000 house, does it matter that I only make $60k a year and have an existing mortgage if the property will be producing income and paying for itself?

Thanks for the quick response. We are from Weymouth and quite frankly, the school system has just gone down hill. My daughter is 17 months old so we do have some time. My mother, not so much so that is kind of the impetus for the move. My home will be 2 years old in April so I have to wait until at least then to sell it tax free. We built it in April of '14.  Also I plan on purchasing the Multi Families down the road likely in a Weymouth type place. I figure my parents home has to stay in the trust, so we would need to sell it and keep the funds there anyways. Might as well use my profits from my home to use as the DP on the new home.

Once I sell my home though we are looking to move to Hingham, Norwell, Hanover, Duxbury, Marshfield, or Kingston. Probably in that order. I work in Kingston, my wife in Hingham, and my parents are from Weymouth.  Hingham is more expensive for properties but the property taxes are only about $12/1000 compared to the others at around $16-$17. When looking at 800, 900, or 1,000,000 homes this makes a huge difference in your monthly payment!

I would most likely be looking to get into a turnkey ready to go place but if I needed to spend ~$30k updating a basement or something that would certainly be doable. 

Hi guys, first post here. Site has been great so far. Here is my situation:

In September of 2014 my parents made me the beneficiary and Trustee of an Irrevocable Trust. We put their house, which would sell for roughly $300,000 in Massachusetts, and their savings account, of around $115,000 in the IR. In the terms of the trust it says that I, the Trustee, have basically power to do whatever I want. I can invest or sell real estate, or make other investment decisions as long as it is within my fiduciary responsibilities.

The reason we did this is because my mother has fairly late stage Parkinsons and is going to require care. If we put her in a nursing home, which is an absolute last resort, we have not yet passed the 5 year look back period and their assets will be subject to Medicaid seizure when her bills start to accumulate. (Around $11k per month here in MA.)

In order to avoid this calamity, I have been thinking about purchasing a larger house with an in law, and moving me, my wife, and child in with them. 

I owe $200,000 on my home. It will sell for at least $500,000. They owe $0 on their home that is in the trust. It will sell for $300,000. We have the $115,000 sitting there. There income is gross ~$127,000 per year. Mine is ~$60,000. 

Is what I want to do possible?......

I would like to sell my house and take the $300,000 and use it as a down payment on a new, large home with an inlaw. I would like to have my father co-sign the mortgage with me, combining our incomes to ~$180,000. I can't really tell how much this will allow me to get a mortgage from a bank for. All of the calculators I use are wildly different, and have absurd changes in home buying allowances if I change my monthly debt the slightest. My and my fathers only true 'debt' is a $342 car loan that I have. We owe no other money except what we spend on regular bills. (cable/gas/elec etc.) Using that $342 puts us somewhere around the $900,000-$1.1m mark. As soon as I factor in regular living expenses of like $2,000 a month as debt it puts us around the $445,000 mark, even with $300,000 down. I just don't know about the algorithms they use.

On top of this...

I would like to sell their house. Now there will be $415,000 in the trust.  I would like to, if possible, over time buy up to 4 multi families with this money. I figure if I put $100,000 down on a $400,000 three family that is generating $~3650 per month, my mortgage and taxes and expenses will be somewhere in the neighborhood of $2,000, netting me ~$1,650 from each property I can purchase. I know I will have to stagger these investments for loan purposes I would assume. 

I guess my question is, does this make sense? Can I purchase these homes and keep them in the Irrevocable Trust as investments? Is what I am talking about crazy? 

Hi everyone, just had some technical questions I was looking for answers to with regards to irrevocable trusts and what you would recommend I do with some assets in there. Thanks!