All Forum Posts by: Alan Grobmeier

@Mary Jay, you 'can' have negative cash flow.  As long as you can afford it with your 'day job' and have SOME type of plan (like paying it off, selling, refi for cash flow).  

A lot of it depends on when you bought.  If you bought at the peak, say 10+ years ago, and were able to hang on, you might be half way to paid for.

I think to buy into TODAYS market with negative cash flow is a form of financial suicide.  You better have a GREAT plan.  ;-)

@Jordan Petty, you are asking for monster trouble unless you have tons of cash laying around.  In that case you will just have less cash laying around.  ;-)

Values, almost everywhere, have eclipsed all-time highs.  But rents are not increasing at the same rate.  Even worse, affordability in many places is trending towards all-time lows.

If you absolutely have to invest, put tons down or buy all cash.  And know you will probably own it a long time.  ;-)

I KNOW I probably hit the ‘eject button’ early on these places.  I owned a property in Bakersfield, CA just prior to the last downturn.  Money was flowing from LA, buying up everything as real estate was a ‘no brainer’.  

I listed my property at $369k, mainly due to fact that the property was unaffordable to the ‘rank & file’, which made around $20 an hour.

I had originally purchased the house in 1992.  I moved to LA and rented the property behind me, at a $100 a month loss on cash flow.  In 2004 I sold, 1031 exchanged into a better neighborhood.  My thoughts were that prices would stabilize.  But they were, in fact, set for ‘moon launch’.  In less than 2 years I was realizing a $100k+ profit from the purchase and had a lot of equity.

It took me 6 months and a $40k reduction in price to sell. The year was 2006, almost 2 years prior to the beginning of the Great Recession.  Bakersfield was a laggard in price increase, but a leader in price decreases.  I’d be willing to bet there is already a canary in the coal mine.

Anyway, my point is that I would rather sell/miss on the way up than panic on the way down.

Bulls make money, bears make money, pigs get slaughtered.

@Mary Jay, you may want to reconsider Detroit over Iraq.  At least State Farm will insure the Detroit property.  ;-)

@Mary Jay, I have been considering the following scenario/example:

Buy $300k house with 20% down ($60k).

Prior to 1st payment, make a $140,000 principal only payment.  $200k total.

Rent property for $1500  (net zero cash flow).

High interest rates are your FRIEND now, instead of your enemy.  A 6.0% interest rate, under this scenario, the property is paid OFF in 87 months.  Just over 7 years.

But you BETTER like it (the house).  You are going to have it a LONG time.  ;-)

Obviously you probably need partners for this type of deal (to repeat) AND they would need to have a long term vision.

When your 'normal' strategy doesn't work, change the strategy.  ;-)

@John Maddox, I have looked at MF a LOT. The CAP rates are getting stupid low because it seems ALL the money is chasing MF.

That's before you get into the fact that MF, IMHO, is work/a job in comparison to my business model.

All in ALL, I am seriously looking at NOTES.  I don't want to work that hard, want to minimize risk.  I want my money to work harder than me.  LOL. 

@Mary Jay, no, I have not personally invested in these areas.  However, I have ‘run numbers’ on a number of these properties for sale by various companies.  If you are paying $50k for a place, and rents are $800 a month, you have a problem, not a cash cow.  It’s worse than owning a condo (high hoa fee + vacancy = BAD Year).  Most are over 30 years old.  Do you really think the flipper is going to fix everything that needs to be fixed?

A prime example is Clayton Morris & Morris Invest.  Supposedly high returns, but no one seems to get them.

The reason is that many midwestern states have high property taxes relative to the property price. Illinois, Ohio lead the ‘charge’, besides Texas, but Texas is a completely different game.

I don’t need to touch the stove if I know it’s hot.  ;-)

@Mary Jay, middle of nowhere will destroy you.  Older place = lots of capex, difficult to rent, small/bad rental pool, possibly high taxes, expensive pm.  Look at Cleveland.  ;-)  everything I just described.

@Eric Adobo, not on the verge of BK.  

But I am on the verge of Retirement 3.0.  It took me 2 tries to get it 'right'.  ;-)

@Joshua Wright, We've sold my 'mistakes' while I was learning what I wanted.  And the properties which are left are doing very well.

I feel that IF I was to buy another property that is my business model, that I would overpay from a price point of view.  In addition, I would have to come up with way more money down to make it cash flow in a similar manner as my portfolio properties.  

AND I know I better like it, I'm probably going to have it a long time.  Especially if their is a recession looming.