I have a duplex in Ohio where the tenants pay $1500/mo; I pay mortgage & utilities, about $800/mo. So, cashflow is about $700/mo.
HOWEVER, there are always issues. Tenants are always a few weeks late paying. There are frequent pest issues & repairs that come up. The current urgent issue is the porch columns need to be adjusted - about $2k. The roof can last another year or so but then will cost about $20k to replace. And the exterior could use a paint job & window replacements.
I bought the property 18 mo's ago for $90k. The loan balance is $60k. It's currently valued at about $95-$100k.
Should I sell the property & 1031 into another "nicer" multi-unit in a better neighborhood that will certainly cost more & likely not cashflow as well? Or should I just hold & continue making major repairs/dealing with headache tenants?
I'm not sure if you're local to Ohio, but I used to have a portfolio of SFRs and one duplex in Ohio. My experiences were similar to yours....couldn't deal with it anymore, even though I was using a PM. I used the recent run up in prices during the pandemic to sell everything. I only invest locally now. For a second I was worried that you were the one who purchased my duplex, but the timeline isn't quite right.
Good morning everyone,
I invested in a syndication deal back in late 2021 through Simple Passive Cashflow and Truepoint Capital, with Lane Kawaoka and Kyle Jones respectively as GP's. The deal has produced 1 single distribution in that time and now they have both stopped updating the LP's on the deal and have not had an updates this year. They have now stopped responding and corresponding to emails and the only phone numbers they provide go to a medical facility in Florida and a full VM box that never gets responded to.
Am I just f'd out of my money here with no recourse or do I have any leg to stand on to try and sue them for poor due diligence and not fulfilling the promises made? I've received 2 K1's so if this is fraud then i'd imagine they've committed a federal offence by issuing false documents to the federal authorities. Yes, I am getting desperate but I'm throwing myself to this crowd to see if any one else has gone through something similar or can give me some advice or even to laugh at me and say what an idiot I was, which I know already so save yourself the time!
Regards
Giles Dalrymple
Sorry to hear about this!
I initially learned a lot about syndications through Lane's website, so I credit him for opening my eyes to a different type of investment. But as someone who works in finance (specifically private credit), I quickly learned about how things are structured in a syndication deal as well as the risks involved. I also quickly realized that the deals Lane was involved in were not a good fit for me.
One of the most important criteria when selecting a sponsor is to ask how many real estate down cycles has the syndicator been involved in? This question eliminates probably 99% of deals I look at. I don't fault Lane for becoming a syndicator...in fact I admire him for taking the initiative and "going for gold" so to speak. If in ten years he had developed a successful track record with multiple deal exits, I would consider investing with him. But I would never invest with a sponsor who I feel I have surpassed in knowledge.
OK. So let me understand this:
1. You take $10k out of a LOC and invest it and get 19% interest ($300/mo for 4 years). Not sure where you are getting 19% interest. 10% interest is $253/mo which I would think be more in line. I will use that number as a reference:
2. Your LOC at 4% over 10 year am. period is $101/mo payment.
3. You pay $2,000 a month back + payment so in your case $2300
4. So after 5 months you:
a. taken a LOC of $10k but repaid it with $8k of cash and $2k of the invested money.
SO AT THAT STAGE:
You are $8,000 out of pocket - Correct?
You are getting lets say the $253/month for 36 months though....
Welp - thats only $8,855 which gets you an $855 return over the 3 years.
If you put $8,000 in a T-bill at 4% during that time you would have $8,960...
What am I missing? Getting P&I payments (and paying ordinary income on it), will NEVER yield a better return than interest only.
Sidenote: I am a note investor and play in this space as my full time job, so I am not some crackhead.
Thank you Chris for taking the time to elaborate on your observations. I think your thought process makes a lot of sense, especially when it comes to how much more you could yield with interest only vs short-term P&I payments. If I may, I'd like to build a bit more on @Clint Vanderlinden's point on layering
Using the same assumptions:
- $10k LOC at 10% over 4 years (~$253 / month)
- $2k / month contribution
Scenario 1: Only one short-term investment
You break this down very well, and I'll only add that we are using 4 years and not 3 years. It would take $10k / ($2k + $253) = 4.44 months to pay off the LOC. If we wanted to round up to 5 months you would really need $10k - $253*5 = $8,735 out of pocket.
If we stopped right there and decided to cash out until maturity we'd be looking at 43 additional payments of $253 / month since we already used 5. That would mean a return of $253*43 - $8735 = $2144, which translates to a yield of 12.49% over that period (plugged those numbers into 10bii) or a CoC of $2,144 / $253*43 = 20% +/- a few basis points to account for cost of capital.
By using this system we got about a 2%-3% improvement from the original 10%. What happens if we decide to reinvest?
Scenario 2: Two short-term investments:
Let's start another short-term investment with the same terms, except this time we get $2k + $253 + $253 = $2,506 / month to go to town. That means we can pay off the LOC in $10k / $2506 = 4 months. Out-of-pocket is $10k - 4*$506 = $7,976.
If we stop here and collect to maturity we have 43 - 4 = 39 payments left on the 1st investment and 48 - 4 = 44 payments left on this new investment. That translates to a return of $253*(39 + 44) - ($8,735 + $7,976) = $4,288. On JUST the 2nd investment, 10bii computes a 19% yield when N=44, PV=7976, and PMT=253. Overall CoC would be 4288 / ($8,735 + $7,976) = 26% +/- a few basis points account for cost of capital.
By adding just one more investment we see a 6% increase in total CoC with only a 4 month additional lead time to full collection (negligible impact from time-value of money) and a ~6.5% increase in yield for the subsequent investment.
Final Thoughts
Following the math suggests that doing more short-term investments makes the performance metrics exponentially better over time, and on their own their own they are still akin to modest although not Earth shattering returns.
I add these details from the context of being a Tardus client for the past year. I welcome and encourage anyone on the forum to chime in if I may have misrepresented anything, but this has been my mental model after spending countless hours running through different scenarios.
Im assuming youre asking about the line of credit? If so thatd be entirely product dependent. Dont have to use a heloc per se. That just happens to be a convenient example.
Hi Jay, I personally use my Bank on Yourself-type policy as a LOC since it offers a much lower interest rate than HELOCs (mine is currently 5%) and it cannot fluctuate as quickly as a HELOC. Typically these policies are also capped at a max interest rate around 8%. I love this policy so much as a part of my overall financial portfolio that I became a Bank on Yourself professional. I'd be happy to discuss whether or not this would be right for you if you're interested in a lower-interest option vs. a HELOC.
LoL, talk about spamming the wrong person.
@Dean Valadez
Hi Dean. What I am referring to is the evaluation of ROI of improvements/upgrades/rehabs. This is only one of many strategies, but it is the one that I adhere to most. It helps take the emotions out of the investment. Simultaneously, although I underwrite for long-term and that is the fall back, I generally do not have plans to keep long-term because I'm trying to grow differently than you are.
Here are a few real examples and I will try to explain the logic. I purchased a SFH for about $300K. I put $30K down payment. I have to pay PMI. It is used as my primary. It was a HUD home, that was boarded up, stripped, and there was a large hole in the wall where burglars had cut open to ransack it. I'm married with 3 little kids at the time, 5, 4, and 2. We got one toilet to work and we slept on the dining floor. We put everything away when we wake up contractors can work on the place. Got complete HVAC system (used) from habitat from humanity store for $40. Welded the pipes and recharged the Freon ($300). Got a few toilets from same place for $35. Hired out repiping and tile the kitchen/dining room, while we slept in the garage. Bought a heat gun from Harbor freight ($10) and wife spent evenings removing multiple layers of stick-on linoleum while I use a hammer to break up a brick wall to make space for a new patio. I watch a few YouTube vids on flooring, rented sanders from Home Depot, sanded and sealed the original hardwood floors for the entire house in 3 days. Lied to the wife about visitors and got her to spend a weekend removing all the kitchen cabinets, sanded and resealed all of them (probably my best trick since we married). Put new hardware. Remodel bathroom, Yada yada yada. We lived in it almost 2 years while working on it. Hired help when needed. Total capital costs was approximately $40k. Moved out and got another major fixer for $600K, by refinancing for the new down payment. Rented that one out a bit then sold for $600k, 1031 to an 8 unit building that cost $700k. Did some upgrades and improvements to the 8 unit, including new roof and paint. Total cost was about $40K, but I was cash flowing ($40k/y) those 2 years and 1 day I held it (net $40k). Sold it $900k and 1031 to 14 units and vacant lots for about $1.9M, cash flow 30k/y. That's all because the $40K improvements raised value from $300k to $600k for the SFH and the $40k improvements on the 8 unit took it from $700k to $900k. Btw, I sold the SFH to friend, so it was a discount from about $675k real value.
Back to the $600K home I moved into from the $300k home. Slept on the garage floor while we made 1 bathroom and bedroom usable (5 weeks of contractors and demolition, $40K) redid the floors a year later was another $5k. Refinanced and pulled $120K to buy a $420k duplex, cash flowing $800/m at COE. Then refied again as interest rates dropped, pulled out $150K to buy two tri-plexes, each cash flow about $800/m, but needed lots of work, which I did. Spent about $30K on those 2 triplexes (which basically nulled the cash flow) and sold it 1.5 yrs later to 1031 into a 19 unit building for $2M, that cash flows $60k/y. Recently pulled HELOC on that primary and used $230K to help buy a 6 Plex and a 9 Plex and invest in a start-up, because the roughly $50k improvements had an ROI on my $600k to appraise well over $1M.
I can keep on going, but you get the pic. When commiting capital improvements/upgrades, consider what it's worth. What will it return and what will those returns be used for? How much cash flow in the mean time? Are you working to fun/hold the deal or is the asset working for you and paying you with cash flow? Are you over improving? Are certain upgrades necessary? Did you underwrite the old/worn appliances and structure during your inspection? Did you have enough reserves, build from the gross rental income?
Some believe in cash flow later down the road by buying class A/B in high appreciation areas. I believe in cash flow at COE now to sustain the rental business, but build/grow wealth through it's equity, realized, NOT HIDDEN in the asset. Im just a small time guy, but I wanted to make REI a sustainable business, not an investment that constantly draws outside income. Once stabilized, I then concentrated on the operation and created my own management and maintenance team to free up my time. They get free housing and a salary. They bill me for additional hours when they make repairs.
Also, for context, the above all happened in just a few years span, not decades. But it takes intentional investing. Therefore, create a goal, work backwards to a realistic strategy in the timeline you want, and do it. It may not seem easy to some, but it is more than doable by all. You just need to have realistic expectations of yourself.
Only you know what you can tolerate. But that's an illustration for what I mean by capital improvements expected to return 3-5X. Don't redo the kitchen, maybe some paint and new hardware will suffice. What will be your actual return on investment... Ask that over and over again.
God bless you Sam, this is such an amazing post. These are the kinds of posts that make this place so helpful. It probably would have taken me at least an hour to put my thoughts together and type up something like this. Thanks for posting!
Yeah but seller can put 0.5 percent buyer agent in private remark
They've never not been able to do that.
The problem is that if you advertise anywhere that you are only paying a buyer agent .5 percent, no buyers agent will show the house. This is another reason why sellers should NOT be the ones setting the buyer’s agent commission. The buyer agent’s commissions should be negotiated between the buyer and the buyer agent and buyer’s agent needs to prove their value to their client to negotiate the highest amount. This system we have now is stupid.
correct, and since everything is negotiable now, the game would even changing from buyer agent selection. Some broker may be ok to accept less buying commision but decline.
I typically negotiate my buyer commision too but to be extremely honest, only "Asian-born" is typically acceptng less buying agent negotiation, so if they're getting 2.5% and I would get 0.5%, but I mentioned to them I don't ask them to drive me around, I only want disclosure report and I would visit property myself.
The problem with very high hefty buyer agent while buyer agent almost do nothing is very real issue in bay area at least, most buyer agent is just trying to force buyer to submit their bid (and their life) with zero contingency and submit 100k above listing LOL LOL
this regulation would change these mentality for sure, the seller could be more greedy by now lol.
Now because buyer agent and buyer is determined upfront and then seller would have their own metric, these thing would be interesting. I can't wait to see ReMAX only accepting 2.5% minimum and EXP can afford to live 1.5% ; some brokerage would face foreclosure in long term for sure LOL
Now wait til one team EXPI is offering give me $10K flat fee or ala carte service, woooshhh, all commision rate is going to the bottom LOL
Buyers agent commissions have always been negotiable. Despite that, seller's agents were successfully sued for sharing commissions with buyers agents. Now, the only protection seller's agents will have from liability is to not give any commission to buyer's agents.
Well, the protection from liability will now be the fact that the buyer's agent commission can no longer be listed on the MLS. There will no longer be an official buyers agent portion of the commission. But that doesn't mean selling agents will not give any commission to the buying agent. Instead, it will have to be negotiated outside the MLS between listing agent and buying agent.
So the result of a $418M judgement is that just not listing a buyer's agent commission on an MLS is going to protect from future liability? That doesn't sound realistic to me.
Well you're missing the main driver of the lawsuit, which was inflated commissions. Let's say they eliminate the commission sharing, but inflate the commision to 8%. But hey, we've incorporated the only protection against liability right? Wrong.
Without getting too off track, I just disagree that "the only protection seller's agents will have from liability is to not give any commission to buyer's agents." That's totally wrong. It's expected that seller's agents will negotiate what part of their commission will go to buyer's agents. But it will be done outside of the MLS. That has nothing to do with any perceived protection from liability. That's all...
Paying a high commission rate isn't illegal or a basis for a lawsuit.
I agree with you. But not sure how that relates to what we were originally talking about. All good.. I think we can both agree this has created a nonsensical situation.
Yeah but seller can put 0.5 percent buyer agent in private remark
They've never not been able to do that.
The problem is that if you advertise anywhere that you are only paying a buyer agent .5 percent, no buyers agent will show the house. This is another reason why sellers should NOT be the ones setting the buyer’s agent commission. The buyer agent’s commissions should be negotiated between the buyer and the buyer agent and buyer’s agent needs to prove their value to their client to negotiate the highest amount. This system we have now is stupid.
correct, and since everything is negotiable now, the game would even changing from buyer agent selection. Some broker may be ok to accept less buying commision but decline.
I typically negotiate my buyer commision too but to be extremely honest, only "Asian-born" is typically acceptng less buying agent negotiation, so if they're getting 2.5% and I would get 0.5%, but I mentioned to them I don't ask them to drive me around, I only want disclosure report and I would visit property myself.
The problem with very high hefty buyer agent while buyer agent almost do nothing is very real issue in bay area at least, most buyer agent is just trying to force buyer to submit their bid (and their life) with zero contingency and submit 100k above listing LOL LOL
this regulation would change these mentality for sure, the seller could be more greedy by now lol.
Now because buyer agent and buyer is determined upfront and then seller would have their own metric, these thing would be interesting. I can't wait to see ReMAX only accepting 2.5% minimum and EXP can afford to live 1.5% ; some brokerage would face foreclosure in long term for sure LOL
Now wait til one team EXPI is offering give me $10K flat fee or ala carte service, woooshhh, all commision rate is going to the bottom LOL
Buyers agent commissions have always been negotiable. Despite that, seller's agents were successfully sued for sharing commissions with buyers agents. Now, the only protection seller's agents will have from liability is to not give any commission to buyer's agents.
Well, the protection from liability will now be the fact that the buyer's agent commission can no longer be listed on the MLS. There will no longer be an official buyers agent portion of the commission. But that doesn't mean selling agents will not give any commission to the buying agent. Instead, it will have to be negotiated outside the MLS between listing agent and buying agent.
So the result of a $418M judgement is that just not listing a buyer's agent commission on an MLS is going to protect from future liability? That doesn't sound realistic to me.
Well you're missing the main driver of the lawsuit, which was inflated commissions. Let's say they eliminate the commission sharing, but inflate the commision to 8%. But hey, we've incorporated the only protection against liability right? Wrong.
Without getting too off track, I just disagree that "the only protection seller's agents will have from liability is to not give any commission to buyer's agents." That's totally wrong. It's expected that seller's agents will negotiate what part of their commission will go to buyer's agents. But it will be done outside of the MLS. That has nothing to do with any perceived protection from liability. That's all...
Most people don't understand what this agreement actually means.
In almost all transactions, commissions are paid by the seller.
I always considered that the buyer pays both agents in reality. After all the buyer is bringing in the money, giving it to the seller (Escrow) and both agents are paid out of Escrow.
It's true that the seller gets less money when agents are involved, but they're not bringing money to the table, they're just taking less money off the table. Right?
Agree 100%. It's just an illusion that the buyer isn't paying at least one of the agents because the sell price is built in by the market to account for the commission.
To top it all off, it will begin to erode reliance on MLS and can begin to take us back to the old days of real estate, prior to the Internet.
Hi Sam, what makes you feel that way? Why would reliance on MLS erode? I don't think today's ruling does anything to eliminate properties being listed on MLS.
NOTE: if real estate doesn't require special skills, why aren't you a top agent making millions? Why do 87% of all agents quit within two years? Why would anyone ever quit if the profession is so simple and the pay is so high?
For the same reason the attrition rate is high for industries like insurance agents, stock brokers, etc. It's all about sales. Most folks do not have the social skills, fortitude or personal touch to build up a strong network needed to succeed as a RE agent. I don't think it's a simple profession at all. But the difficulty is primarily in generating your book of business. Hey, I'd love to start my own venture capital or private equity firm. I know how it's done, I've worked in the industry for 30 years, I know all the rules and regs needed, but I don't have the network of billionaires needed to start one. I don't have the Koch brothers on speed dial.
You might save some money, but unless you really know what you are doing, I would stick with your CPA. I do my own taxes with TT Premier, but I'm also a seasoned accountant and create my own schedules for depreciation and tax loss carry forwards. TT helps, but I always end up making a lot of adjustments and corrections as TT is far from fool-proof when you have rentals and private placement securities (syndications).