All Forum Posts by: Bill F.

@Brandon Smeltzer The market has driven the number of sales that are not under 'fair condition" down, especially on the MLS. The most likely way to buy a property and pull your money out is to make improvements through the BRRRR Strategy. The key with this is find a property that is for sale for 80% of its ARV less repairs. For instance its ARV is $100k and it needs $15k in repairs (which is more than most owner occupants want and to small for a flipper) If you can get it for $65K [($100K*.8)-$15K]

You need to force you own appreciation to make equity.

Not to say that properties aren't listed for 80% of value, but they are rare and go quick.

@Patrick Philip

What are you goals for that money and your life? Do you want to grow it into $100 Million and create more generational wealth or work at Wal Mart and live off your portfolio income. Most of the answers in this post come with a health does of attribution biases; you're being told what other people would if they had you money. However, their goals, experiences, skills, and requirements aren't the same as yours.  

If you want to build generational wealth look at what others in your position have done, the Koch Brothers come time mind. With $10 million why would you want to buy an asset and have to start a business with systems and process around it? Buy a business from the get go and expand it.

Lastly, if you are inheriting this amount of money what does the person you are getting it from think? They must have some degree of skill, knowledge, and experience to accumulate a net worth exponential higher than the median.

Why not target both investors and owner occupants? Not knowing how long the average list time in your market is but, list it now and state that its occupied until July 1. If an investor buys it great, if an owner occupant buys it, they will get a jump on the closing process. 

@Jason Rostar of course the bank told you it was a good time to get a loan, in their eyes its never a bad time. They need to sell their products.

A rise in the federal funds rate (FFR) ( the rate the gov and banks lend to each other not the consumer) rate correlates to the prevailing mortgage rates, but they are not linked; even though the banks would love it if you thought that every time the FFR went up the mortgage rates went up accordingly. Mortgages rates are based predominantly off of the10 yr treasury yield, which the MARKET sets, not the Federal Reserve. In other words, just because the FFR goes up 25 basis points does not mean mortgage rates do the same in lock step. They may or they may not. At different times in the past 20 years the spread between the FFR and 10yr treasury has been as high as 3.8% or as low as -1.5% and currently it sits at 1.5%; meaning that the 10 Yr yield is 1.5% higher than the Fed Funds rate.

Looking at the performance of the 10Yr over time you see a downward trend of rates since the 1980's, with peaks and valleys like any market will have. This leads me to believe that due to productivity, coordination, technology, and increases in knowledge that the 10 yr yield will continue to stay low. That combined with the mechanics of monetary policy ( one tool of which is the fed funds rate) we wont see large increases (over 2-4%) in mortgage rates in the next five-10 years. Granted rates going from 3% to 6% is a doubling, but it won't be the double digit rates of the 80's

What affect this will have on the market? I think it will slow things down, which isn't a bad thing. Cheap money has acted like a crutch for a lot of people to fund deals that would not or should not happen in more 'normal' recovery times. In the micro it will hurt paying more to borrow, but in the Macro it will work out better for the Real Estate Market by thinning the heard and for our economy as a whole by giving the Fed more tools to enact monetary policy, retirees can get out of equities and into Bonds so they aren't exposed to so much risk... the list goes on.

My two cents at least.

@Seyed Javaheri Cash on Cash works well to present an investments profitability over a specific period of time, usually 12 months. However, if I was investing in a buy and hold investment, the yearly CoC doesn't mean to much to me. I want to see the return over the life of the investment factoring in cash flow, tax advantages, appreciation, and amortization. IRR does that best.

Other than that it's difficult to answer your question without knowing more info on your particular investment strategy and the goals of your investors. Those who invest in suburban commercial office space rehabs have a much different profile than someone interested owning a portion of a 10 property SFR Portfolio.

@John Jacobus gave a great general break down of what your competition (ie other investment options) yield in today's market, which could give you general guidance. 

@Paul Argenbright Commercial RE is valued based on Capitalization Rate. To quote Frank Gallinelli's book What Every real Estate Investor Needs to Know about Cash Flow:

Cap Rate is the rate at which you discount future income to determine its present value.

Cap rate=NOI/ Value

What type of properties are you looking at in jville and what's their cap rate?

@Jeff Ullig  I am not an expert in this realm  but I do know there is a limit on the number of loans you can have. It varies from bank to I believe with four being the lowest I've heard of and 10 being the max per person. In theory, under ideal circumstances, you could get 10 and your spouse could get 10. That situation assumes your front door and back door debt to income ration allows you to get those loans.

I'm out of my depth here, but I read other places that banks will only count a percentage of your performing rental properties toward your income and only after they have seasoned for some period of time, eg. you have a rental that has average NOI of $6,000 a year, the bank will only apply a percentage, say 75%, so $4,500, to your income.

@Account Closed The security deposit is to ensure that you can pay for any damages to the property above normal wear and tear. It has nothing to do with the amount of notice they gave, unless your lease has that specific langue in it. Look at your local laws to see what they require in terms of documentation and definition of wear and tear to see what you can and cannot charge them for. However, Don't promise them any amount of their deposit back until you see the condition of the property!  

@Joseph Rios I would personally pay for the attorney. He will know the answers to a lot of your questions. Don't think of paying $750.00 for a one time service. Think of it as paying $750.00 to shadow someone during the evection process. You  may see how it goes and pick the process up quickly so you could handle the next one yourself. On the other hand you may realize that you can't or don't want to do evictions ever. I'd rather learn that lesson with the safety net of a lawyer around than on my own.

@Jeff Ullig Welcome to BP! You are moving down the right road, that is for sure. Few pieces of advice:

1. Listen to BP Podcast 200. It lays out exactly what you need to accomplish in order to buy your first rental property. then read the BP Ultimate Beginners Guide

2. When you estimate your numbers be conservative with your Income and liberal with your expenses.

3. Expenses:  Mortgage is the last thing you account for. Think about what the cost would be to rent the house as if you bought it outright. Taxes, Insurances, Vacancy allowance, Repair allowance(touching up paint, grass seed...) Capital Expenditure allowance (replacing the roof, water heater...), and Property management. Accounting for expenses up front allows you to compare apples to apples when you look at different properties.

4. Even if you are going to manage it yourself, plan for Prop mgmt. You will either need to reimburse yourself you the time you spend managing the property and/or at some point you can't or won't manage the property yourself and will need to hire a PM. If you don't account for this cost down the line your cash flow could go negative.

6. Mortgage: I like flexibility in my plans so I would go with a 30 year fixed. I can make a 30 yr into a 15 yr with pre payment, but I can't make a 15 yr a 30 yr.

Hope this helps and good luck.