All Forum Posts by: Will Costello

Quote from @Marc Winter:

Why bother--just say NO!

Las Vegas is on the verge of a market over-supply of housing, and that will produce a large price drop.  That's in better areas--not the pit-of-hell area you are describing.

I wouldn't ever invest in a high crime area UNLESS you raze the property and hold the land long-term, hoping for a turnaround.  

I'd keep looking. Next!

Why bother? Just say no!!!



Why bother? Just say no!!!



  

 I believe the market is at about 6 weeks of inventory, which is pretty low. Not a glut of homes for sale. Rental market is even more tight. 

Quote from @Zen Lenon:

Quote from @Will Costello:

I have a rental home with approx. $87k remaining on the mortgage (6% rate, 20yr, currently at month 57 of 240). I will be receiving approx. $91,500 tax free; more than enough to pay off the mortgage immediately.

I want some advice/thoughts around the options:

KEEP INVESTING MONEY - Assuming a 6.6% return on investment over the next 5 years, invested in Total Stock Market Index, this value would be worth an additional $38,915 in growth or original capital ($91,000) and $18,000 from cashflow. This is assuming I continue to invest the $300 per month cash flow from this rental. TOTAL = $56,915 Additional dollars.

PAY OFF RENTAL + INVEST CASH FLOW - By paying off the mortgage, I will increase the cash flow to approximately $1000 per month. Assuming the remaining amount of cash I have from windfall ($4,500) plus the monthly cash flow ($1,000) in the same investments over 5 years; I have Gained a total of $60,000 from my renters, and $12,610 in growth in the same stock. Net $72,610 just from rental income and growth. This does not include the $23,480 in interest savings as well by not paying bank. Total = $96,090

Is the math as simple as looking at the two numbers($56,915 and $96,090) and seeing which is higher? Would I need to subtract the interest savings from the second number cause it isn't an actual gain? So $72,610?

This is all considering no vacancy or capital expenses....but I just want to leave those out for this exercise. We also don't need to think about tax implications at least for the next 5 years. Just trust me on this one. 

Thanks ahead for helping me think through this one.

Hi there @Will Costello, Pleasure to meet you on BP. 

Let's dig into some numbers to give you a clearer picture. I think this is how I understand your situation to be...

• Cash Flow Analysis: 
• Option 1: 
• Total cash flow from stock growth: $38,915
• Option 2: 
• Total cash flow from rental income and stock growth: $72,610
• Return on Investment (ROI): 
• Option 1: Initial investment: $100,000 Gain: $56,915 ROI: ($56,915 / $100,000) x 100% = 56.9%
• Option 2: Initial investment: $100,000 Gain: $72,610 ROI: ($72,610 / $100,000) x 100% = 72.6%
• Break-Even Point: 
• I don't have the numbers for growth rate, rental income growth rates, I do know your cash investment per month so I'll reverse engineer and pretend you get $300 cash flow per month instead :) oh and I don't have the timeframe so I'll just use your 5 year timeline, I'll also use the 22.7% growth rate in Las Vegas Rental market :) You can always plug in your actual growth based on your datapoints. 

Option 1: Keep Investing Money Assuming an initial investment of $10,000 and a monthly cash flow of $300, after 5 years with a 6.6% annual growth rate, the total money from Option 1 would be approximately $16,605.

Option 2: Pay Off Rental + Invest Cash Flow With an increased monthly cash flow of $1,000 and assuming a steady annual rental income growth rate of 22.7%, after 5 years, the total money from Option 2 would be approximately $18,899.

Therefore, based on these calculations, Option 2 would catch up to Option 1 by the end of the 5th year.

• Okay I am not a financial advisor/lender but that was a fun exercise. Please don't take my word for it and consult with a CPA/a financial expert :) Thanks for sharing. Always consider your risk tolerance- everyone is different-, your long-term goals, and the impact of those costs we intentionally removed and risks as well.
• So if I had to make this decision today, I would focus on option 2. Choose the strategy and find ways to iterate and make it even better. Good luck and again nice to meet you!

Thank you @Zen Lenon for helping with the math. The actual property is located in Edmond, OK, but doesn’t matter too much in the long scheme. 
I think our ideal situation is one that is allows us to make sure we aren’t in a negative place with a long term vacancy. In this case having no mortgage also takes that pressure away. And the math makes sense too! 

Great to meet you and thanks for the help. Hopefully this post will help others in the future too.

Quote from @Kevin Sobilo:

@Will Costello, why not use the money to acquire additional rental units using more loans!

This will get you more cashflow! Plus MORE market appreciation because you will own more real estate.

Also, you haven't considered the tax advantages of owning real estate such as depreciation. How much money you make is IRRELEVANT, its about how much money you KEEP after the tax man cometh! lol

Hi Kevin
Thanks for your input. However, as I mentioned, we don’t need to get into why tax implications. It’s a complicated conversation about Solo401k ownership and such. 

let’s just say my portfolio is robust enough in terms of number of doors. 

in that situation do you have a reply to the scenario I listed and the two options I am considering? 

I have a rental home with approx. $87k remaining on the mortgage (6% rate, 20yr, currently at month 57 of 240). I will be receiving approx. $91,500 tax free; more than enough to pay off the mortgage immediately.

I want some advice/thoughts around the options:

KEEP INVESTING MONEY - Assuming a 6.6% return on investment over the next 5 years, invested in Total Stock Market Index, this value would be worth an additional $38,915 in growth or original capital ($91,000) and $18,000 from cashflow. This is assuming I continue to invest the $300 per month cash flow from this rental. TOTAL = $56,915 Additional dollars.

PAY OFF RENTAL + INVEST CASH FLOW - By paying off the mortgage, I will increase the cash flow to approximately $1000 per month. Assuming the remaining amount of cash I have from windfall ($4,500) plus the monthly cash flow ($1,000) in the same investments over 5 years; I have Gained a total of $60,000 from my renters, and $12,610 in growth in the same stock. Net $72,610 just from rental income and growth. This does not include the $23,480 in interest savings as well by not paying bank. Total = $96,090

Is the math as simple as looking at the two numbers($56,915 and $96,090) and seeing which is higher? Would I need to subtract the interest savings from the second number cause it isn't an actual gain? So $72,610?

This is all considering no vacancy or capital expenses....but I just want to leave those out for this exercise. We also don't need to think about tax implications at least for the next 5 years. Just trust me on this one. 

Thanks ahead for helping me think through this one.

Hello Everyone. A friend of mine was lucky enough to purchase a house next to a paper street which was never built. He was able to petition for ownership of the street as it was adjacent to his property, and now he has space to add to his property and increase the value. 

Is there a way to find locations in my city (or any city) where I might be able to keep and eye on homes with these nearby paper streets and potentially purchase and add to the property values? 

Thanks ahead of time. 

-Will

@Dmitriy Fomichenko Thanks for putting it in plain English! I think others will benefit from the insight. 

@Dmitriy Fomichenko, on Sense Financial Knowledge Base, there is no specific info about the timing of the loans. But above you say, 
"I know some people are using their 401k loans to fund their own deals (remember there is a limit how often you can borrow from your 401k)

What is the limit on how often you can take a loan from your Solo 401k

Hey All,

I have a home owned in a Solo401k (setup through Sense Financial), that I may plan to do an "In-Plan Roth Conversion" in the coming years. With this is mind, I want to make sure I understand the total wealth building strategy of this one time play. I am currently 37, with the expectation that I will convert this property in 2-3 years, pay taxes on it now, and will not access the capital until 67-70 years old (roughly 27-30 Years).

1) I understand that converting Real Property is totally acceptable, and I does not apply only to liquid/cash assets. I recognize that a third party appraisal will need to happen for the current value. True??

2) Once it is tax paid, all equity growth on the property, as well as dividends (rent) will also be tax free. True??

3) Any subsequent real asset purchases (home #2, home #3, Home #4) all come with the benefit of being purchased with those tax free dollars (from sale or dividends [rents]). And, each subsequent dividend (rent) all are viewed as tax free. True??

So, with 30 years approx to grow, I have the potential to do a one time taxable event, which may cost me up to $45k now. But, in the end, when each of these properties is debt free and cash flowing, none of the rents will be taxable. And if desired, the sale of all of the homes will also be tax free as well. True??

I want to make sure I understand the power of a single taxable event, which can likely cash flow a conservative $6,000 monthly in the end. Seems like an easy decision to make now to pay the $45k, in order to make $72k annually tax free in 30 years.

Thanks for any insight.
-Will

@Brian Sparr Great explanation. Thank you. I live in Vegas, which was once a very strong rental market. Now, while strong for rents, outpriced on purchases.

As I expected, it might be better to just use cash flow from other rentals until I have the down payment, as I don't generally want to seat BRRRR until I have more time and access to capital.

I am not a novice by any means. I have a traditional rental, with a 15 Year mortgage, not cash flowing very much, but the equity is strong. and a buy and hold for retirement cashflow.  I also have a SOlo401k Investment property as well, which is cash flowing back to my Solo401k Account. Plus a personal home with strong Home Equity. 

The question I have here is the HELOC strategy. I have around 130k in equity on the Traditional Rental Property. If I was conservative, I would get a HELOC at 90% of $115k @ 5.75%

How is it, that I can buy another property? Would I want to buy outright ($115k cash offer on a property)? This would put me out of the market where I prefer to buy (And im not interested in long distance rentals).

Would I buy something with a very small mortgage (Buy a $145k property) with a small traditional mortgage (30k)?

Or is there something I am missing. 

I don't see the rents in my market, fulfilling the payments on the HELOC and the Traditional, in order to give me enough cashflow to be positive, let alone make the payments. YEs, I realize I am getting equity every day from the renter, and paying both the HELOC and the mortgage. But, I just don't see how these numbers pencil out.

If the HELOC is for direct cash buy outright, it makes sense in my head...but I just don't get how I would use a HELOC to buy another property which is not equal in value to the HELOC.

I did watch this video, and it seemed like I would be financing the property mostly through traditional products.  They also recommend owner financing. https://www.youtube.com/watch?v=lq5ag71CbJM

Thanks for any explanation.