All Forum Posts by: Daniel Klein

@Eric Burch We provide clients LOC's against Certain Trust assets, but typically those assets are in securities, not real estate. What you may want to consider, is selling some assets into a Tax-Deferred Trust (avoid 1031 Pains, continue to defer gains) but since your equity is now US Treasuries for example, you could get a LOC against that. 98% LTV, 2.6% Interest Only. No origination, doesn't end up on credit, etc. There are risks as its a margin loan, so if US Treasuries fall, you will be asked to replenish the account.

Id love to hear from others on a LOC based on equity in a real estate portfolio.

From where Im sitting with the info given, its a $275K investment for $48K gross. Napkin math here, but you should look at 10% vacancy, taxes, maintenance etc. Id give it a true $24-30K True Net Operating Income. 20% down leaves roughly a $1200/month PI payment. So true cash flow is $800-$1,300/month. That's a close to 20% IRR on Cash, that doesn't suck. However, what is the price appreciation like? Client may have issue with property not appreciating further, limiting upside and refinance opportunities in the future.

@Solomon Ganz You are absolutely right. 97% are part timers, because the real estate profession seems glamorous. Sell a million dollar home and make $25k. Awesome. "I can do that." Obviously, it isn't that easy. But more than the 3% will be your competition. If you only had to compete against 5,000 agents, that actually wouldn't be too bad.

What I meant by being a principal, is don't be a real estate broker. Be the investor, or invest with others in deals. There are pros/cons to this of course. My thought process is, time is limited, go where your time is best utilized, and where you can limit your competition. That means eliminating the thought process that "I don't know anything" therefore I should start at the bottom and work my way up. I had to break hundreds of employees mindset, of "Ill sell a condo first, then a house, then maybe a Million dollar house." All 3 take the same amount of time, yet the payoff, and by default the competition is less (because everyone is scrambling around the lower end). Commercial brokers make up roughly 5% of the pool, so 25,000 total. Yet they do 70% of the real estate transactions by dollar amount in California. So less competition, more $$$ per deal. Start thinking in competition/$$$ per transaction, and you should be able to start finding niches. 

That is why the real money in real estate is made by Syndicators, Commercial Brokers, and Real Estate Investors (who don't do fix/flips or wholesaling. These are all time consuming, so the more deals you want to or need to do, the more time it takes, which limits the $$$ your make per work hour.) Then you may as well get a high paying job and sleep will at night.

My partner and I sell investment property in Southern California without using the MLS, strictly to outside investors. We get the listings by repositioning the assets of the client into more lucrative real estate deals we syndicate and manage for our clients. Since we also offer Wealth Management, 1031 Exchange alternatives, and estate planning, our conversations with potential listings is completely different than, "Hey, we'd really like to market your property." The value add is huge, and since we don't need the MLS, clients sell their assets privately, and a lot of people don't value agents who just put property on the MLS and sit back hoping the phone will ring (which is literally the marketing plan of 99% of agents)

leonore

With 7 years to go, only you know how far you are from your Financial independent number. Let's say it's $3 million. Now you have to figure out the return your $700k needs to make to become $3 million in 7 years. In this case, it's 23% a year. Or, you can look at monthly cash flow required. Let's say it's $10k per month. 

Our firm tends to advise clients to get into Residential Care Facilities. The rental returns tend to be 2x "normal" and you are ultimately buying single family homes. Also, there is a 70% chance our clients will become an RCFE client, so they are already setting themselves up for the worst. As an example, a $700k down payment on a 3 property portfolio we are selling, is netting $80k per year cash, plus probably $50k equity growth, and a tax benefit worth 30k per year. That's $160k on 700k. That's above a 20% return, and why these homes are so popular with our clients.

Consider your risks as well on other real estate verticals.

Either start syndicating or develop the 90 units. This is where maximum leverage, equity, and residuals are built in. Buy the land/JV with the land owner. Pay for entitlements then get construction loan to build. When finished, you'll have 30%+ equity immediately and the whole process shouldn't take more than 36 months. 5 years ago we bought land for 500k, spent 4 million to build and exited at 9 Million 2 years later. That was a 70 unit. Cash out of pocket was $500k.

agents don't have a fiduciary standard...our standards are of Agency. Wealth managers like myself have a fiduciary standard. That being said...

It's not illegal, is it right? NO. Non-refundable? Get out fast. 

Just trying to help here... if you don't have the time to find a deal yourself, what makes you think you'll have the time to deal with a contractor and the issues that come up when flipping a home? I would seriously consider the time commitment of flipping before jumping in....

That being said, it's a free market and a deal that a wholesaler will bring you will either make sense/not make sense for you. I have seen wholesalers make $1 million on a fee. Is that fair? Sure, it was a unique property, my client had a deal, and 4x the investment in 18 months. I typically see wholesalers make 5-15k a property. As you know, it takes time and energy to find deals and ultimately put them together

There is no change in cost basis. 2nd an LLC is a pass-through entity, meaning all profits/income pass through to your individual tax return. You can move out without shenanigans, and when you decide to sell (after having the property rented out 2 out of last 5 years) 1031 exchange into another property.

Richard

How did you come up with those 3 locations? Was it based on rental returns, price appreciation, etc? The 5 best markets which have the highest historical 4,10,15,20,25 and 50 year returns are Tampa, Orlando, Dallas/Fort Worth, Vancouver Washington/Portland area. All have rental increase of 5% + per year and 7% price appreciation with little in the way of that changing.

Investing out of state will give you a lot of benefits. Just remember that CAP rates are a little different outside of California. We tend to think everything is cheaper relative to SF, so we can tend to overpay. Don't fall into that trap.

A great property manager is also important.

Samir

You are truly cash flow negative as all properties have maintenance. Maybe not now, but in the future, which means your deferring your maintenance. 

Since we don't know your debt side of the equation, you are allowed to refinance investment properties (cash out) to 75% value. Assuming that gives you 40k then absolutely do that. Don't forget the tax benefit of owning the extra property. ( more depreciation)

Borrowing from your 401k (if it's allowed by your employer) you can borrow up to 50k or 1/2 the value, whichever is less. You will have to pay it back within 5 years, or you will be hit with a 10% penalty. So carefully weigh the benefits of this 3rd property vs your 401k benefits which might include employee match, stock market returns vs your historical real estate return.

Make sure you really know your numbers. That means take into consideration vacancies, maintenance, property taxes etc to make sure your not negatively geared ( losing money each month on a leveraged asset) hoping appreciation will save you down the road