All Forum Posts by: Tom C.

Seth - To be honest, I would also tend to go with longer loan lives as well. I just acknowledge that there is some solid benefits on shorter loans, although the principle payments are prohibative to a lot of people.

A lot of people refer to inflation as a rational for getting a longer-tenor note. Assuming your financing decision isn't driving your intentions for how long you actually own the propery, it seems to be a little silly to me to consider inflation in this case. After all, the propery is impacted by inflation... not the debt.

BA & MA in Accounting. 2 years of missionary service. CPA & licensed real estate salesperson. ~7 years professional experience, currently as a mid-level manager in a publicly traded oil company. Like the rest on BP, I aspire to take over the world one propery at a time. :-)

Interest rate "futures" slope upward. That means the cost (rate) to borrow on a 30 year loan is higher than the cost on a 15 year loan. The 30 year loan "feels" cheaper since you pay less principal (you have a lot longer to repay the loan). I could see rational reasons for doing it either way depending on the nature of the investments and personal liquidity situation.

For example, if you were pulling a good wage and had savings you could make up for hiccups/shorfalls, so you may want the lower rate even with the bigger payment (your return would be greater). Conversely, if you didn't have much flexibility outside the single investment, you may want to lock the debt up longer and improve your cashflow profile.

I would (my style) leverage the asset. I am assuming it isn't in a retirement account, as it wasn't quite clear to me. If you have a $500K asset free and clear spinning off cash flow of $50K ($40k of which is taxable), you might leverage it to bring taxable income closer to break-even. You can just hang on to the cash (I would keep some on hand), but I would consider putting it into another project too. This all largely depends on your appetite for leverage.

Jon, you should stay young forever... That's what I plan to do!

I'll sell you my house. :-)

Thanks everyone. This was very helpful.

Drafted an offer on a REO apartment complex in Texas (Houston Area). Only problem is the bank has only owned the property for about 2 months and has a PM running it. Currently it has 3 vacancies, with one lease signed but not yet started (last month it had only 1 vacancy) and all units charge ~ 450/unit. The apartment was built in the 50s and likely needs some work, but I am looking to buy and hold but how do I know if the price is "right." I think it is, but I have first deal jitters. It needs almost zero capital improvements to continue to operate at this level. I will have a good deal on the sidelines just in case. It seems to have a high turnover in the first 2 months being "managed," but that might actually make some sense under the circumstances.

I have put the numbers to paper and worry that I am adding layer after layer of conservatism and may be "thinking my way out of a good deal."

The complex is approximately 7,000 rentable square feet and I can grab it for $21/sqft or just under $15K/unit. Again, this is in rentable condition at the rates above as I have walked through all the vacancies... they will rent at the current $450/unit. What I don't know is how transient the lower end of the market is and where my estimates fall... There is no track record. I fear I am overly conservative... or maybe not?

So I thought I would throw my assumptions out there. I think I may be overloading this with fear... My assumptions are monthly and I have normalized them by unit.

Price: $15K/u
Rent:.................$450 - (Market above $500, though)
Vacancy Cost:.....($90) - This assumes 2 months vacant on average.
Repairs.............. ($30) - Estimate
Property Tax:......($60) - (assessed at 2x sale price, I plan to challenge) *
Insurance:..........($36) - No data
Utilities:.............($63) - Water / Garbage have no data on this...
Misc:.................($11) - Admin
Fixed PM:...........($60) - Quoted, known
Variable PM:.......($30) - First month's rent, assumed amount
Asset Op:............70

Other - All cash deal, but I plan to refinance the property to pull out 75% appraised value. (Don’t know what this would appraise or whether they can appraise on pro forma estimates) If financed, the PMT would be $69/unit.

Upside 1: - I should be able to challenge the assessed value adding 20-30/mo to operating income. (Currently assessed at $30k/unit)

Upside 2: - My property manager said I should be able to qualify these units for section 8 and that would lower vacancies and increase the rates to $550/u, minimum BUT more likely $600/u. That is a lot of upside in the deal.

Am I grossly overpaying, or just adding layers of uncertainty on a good deal, with solid upside.

Steven, you missed the boat. I guess we are all guilty of missing the point when we only do a cursory reading. I never suggested an llc per property approach. I did suggest having the management company "outside the series" to deter litigation. Most lawyers have suggested the same. Don't forget the Origen of the series... It was created to hold assets.... Not businesses. That's why when the hedge/mutual fund industry lobbied Delaware to create the seeks and simplify their world... To hold assets managed by their management company.

Give my post a solid review and you will see my point.