All Forum Posts by: Travis Moe

Hi, BP-

I need some more advice. BP recently helped me check my understanding of my return on equity (ROE). It's not great. Maybe as high as 3.3%, but probably closer to 2.5%. I need to deploy that equity and get it working harder for me.

How best to do that? Skip to the bolded part below if you don't want to be bored to death by my rambling....

I own 4 units across 3 properties. Total equity is $650-$750K depending on whose valuation one uses. I followed BP's advice on creating different scenarios for accessing the equity to see which is preferable. I'd like BP to check my math again and help me ensure I'm not progressing with faulty logic.

I ran two scenarios. One in which I sell everything, factor in selling costs/taxes and see what I'm left with, and another in which I do cash-out refis on each property. I got pretty nerdy with the spreadsheet... but I'll spare you all and not post it.

In the Sale scenario, I end up with approx $447K left to deploy, but I lose the roughly $500/m cash flow and other benefits. I am subtracting capital gains taxes in the math because the properties are in SoCal and in FL - so I'm thinking trying to sell them all and 1031 them all at the same time would be very difficult. However - one property is my primary residence since 2008 (and we're ready to move) - so I can avoid cap gains since proceeds would be under $500K. If I add the cap gains on my primary back into my math, then my total Sale scenario war chest would be about $550K.

In the C/O Refi scenario, I'm using a 70% LTV ratio against the value of the properties, then subtracting the liens and the borrowing costs to get an estimate of what I could extract. In that case, I could access about $350K and my new cash flow would be negative $638/m without considering the cash flow from any new investment.

Then I run an analysis of what those funds could be used for depending on LTV ratios on purchases, from 60% to 90% (not really factoring in transaction costs) just to get an idea.

Sale Scenario: $549K at 60%-90% which equals between $1.3MM to $5.4MM in potential real estate controlled

C/O Refi Scenario: $349K at 60%-90% which equals between $874K to $3.4MM in potential real estate controlled (while retaining the $1.25MM already controlled).

So... two questions:

1). Without knowing the assumptions I used in my spreadsheet - does my general math seem right? Or did I miss something?

2). What should I do? My eventual goal is to own enough real estate to produce $6K/m in cash flow. I feel like I should do the C/O refi scenario and purchase multi-family prop(s) to add to the portfolio. 

Thank you, BP! I really look forward to what folks have to say.

Hi, BP -

I did my best to research all the many, many posts on foreclosures, probates, and tax lien type strategies. I think I understand what I need to do, but I really would like it if BP could hold my hand here and make sure my analysis is correct.

A friend of mine passed during COVID about 2 years ago. She had no will. She had no spouse (divorced) and no children. Next of kin would be 1 older sibling and 1 elderly father. The father, in his 80's, lives across the country. He came out to pack up sentimental items, and since then he's announced he's washing his hands of the entire affair. He simply lacks the energy to engage. He's allowed the house to just sit vacant. As far as I know, he's opened no estate and has filed no affidavits. The father has the death certificate.

The house is in the Joshua Tree, CA area. The ARV on the house is probably $430K - $450K. The mortgage was 150K - VA loan. Nothing down. She died within a year of buying it so there was virtually zero paydown. It probably needs $75K - $85K in rehab. I've checked the county recorder's office. I can see that the CA tax board has placed state income tax liens on the house, and I can see a few utility company liens recorded. But I do not see any notice of defaults.

I know the father would be willing to sell the property to me for cheap if I pay off all the liens. So... we come to the question: What is the next step? Based on what I've been reading on BP, I need to talk to a probate attorney. A probate attorney can run a title search and handle reaching out to any interested parties and setting it up so that the father can "sell" me the property.

Does this seem right? I ask because probate attorneys in my area aren't cheap.

Thanks, BP!

@James Hamling

I never understand these policies when I see them. It’s basic Econ 101: price caps create shortages. Rent control is a price cap. Ergo, rent control = shortage of the very kind of housing they purport to preserve.

These laws basically ensure that people of low to moderate means will be even more challenged by housing costs than they are now.

Name a metro where rent control has succeeded in keeping housing either affordable or plentiful.

@Joe Villeneuve

Ah!

Got it

@Joe Villeneuve

That doesn’t seem quite right.

I’m not looking to figure out the recovery period of my initial cash investment. I’m looking at whether that equity is best left where it’s at or redeployed into other areas.

It’s basically a look at the opportunity cost of the position of that equity.

At 3.3% it’s not even keeping pace with inflation. I think I need to utilize it some other way.

Thank you for the response!

@Andrew Crinnion

Great!

Thanks!

So I would just build out scenarios for deploying that equity. I.e take taxes and closing costs out of equity for a sale scenario. Or I would take out the closing costs and the change in cash flow on a borrowing scenario.

Then I’d just compare those numbers to the investment I’d use that equity to acquire.

Um… right?

BP-

Can somebody help me understand what's happening in FL with insurance on rentals? I have a detached duplex in JAX and I can't get a reasonable quote. My existing insurer pulled coverage and exited the FL market entirely. I'm finding many other companies doing the same - like FL is toxic or something. 

My lender ended up purchasing a policy for me but the rates and terms are terrible. Trouble is, I'm laboring to get anything to replace it. The property is in good condition. Fully rented and stabilized. New major systems and roof. Not in a flood zone. 

I can insure my SoCal properties in 30 seconds online without a hiccup and they literally sit on the San Andreas Fault. Yet I cannot get anybody to touch the JAX property and I'm feeling flustered. Looking for explanations and, of course, referrals to reputable, capable insurance agents specializing in small rentals. 

Thanks, BP!

BP Community -

Will you all help me double check my math and my assumptions on my current annual ROE? I own 3 properties with the following bar napkin financials:

Current Market Value: $1,215,000

Current Total Loans: $590,000

Current Equity: $625,000

Current Total Annual Cash Flow $20,646 (positive)

I'm taking that cash flow and dividing by my total equity to render a current ROE of roughly 3.3%.

Does this sound even halfway correct to you, BP? Thanks!

I'm trying to refi a SFR in Jax and I'm running into difficulty. I've been using conventional lenders but I'm getting pushback because the amount is under $200K.

I owe about $162K on a property worth maybe as much as $250K. My current payment is 895/m and PITI is 1375.62/m. Current rate is 5.625%. I felt I could definitely beat that and drop my monthly payment by quite a bit, but so far the best I'm getting approved is only a $75/m reduction. That just doesn't feel worth all the fees.

Rates probably aren't going to get any lower any time soon. I'm seeing refi rates as much as 1% lower than my current rate, which I would think would render a lower payment. I must be missing something. 

Any lenders out there able to refi something like this for a more substantial monthly payment reduction?

Spot on.

I just got a quote on a very basic pool install (no spa, no fancy gear, etc) for $62K up from $35K 12 months ago. And this does not include removal of palm trees to accommodate the install.