All Forum Posts by: Alan Grobmeier

Not really a math thing.  I look at cashflow.  If properties appreciate in value, you have to look at the equity vs the cashflow.  For example:  a 'dog' appreciates by $80k.  It cashflows $250 a month.  Do you keep it or not?

The 'better' question is to ask:  Would I pay $80k for $250 a month 'forever'?  If the answer is no, then the house is a 'sell'.

A 'good' property appreciates by $100k, cashflow goes from $100 a month to $400 a month.  Sell or not?  A much more dicey question.  

There are a zillion other things to consider as well:  30 yr mortgage, 15 yr mortgage, how far into the mortgage you are, do you like the house, is this a 'leader' or 'laggard' area, etc.  In some cases you MAY pay $80k for $250 a month because you know the place is growing like crazy.  ALL of these become variables/considerations.

Hope this helps.

Alan

@Ryan McKean, I am at the end of my career.  I've already 'retired' twice.  LOL.  Third time will be the charm.

What I try to do is come in with enough down that it will ALWAYS cashflow positive. Most of my places now have LTV of 40-50%, but it wasn't always that way. I had properties that were 100% free and clear (inherited), while other properties were 'negative cash flowing' despite 20%+ down. :-(

I made a decision which properties in my portfolio were 'forever' properties (20 year horizon) or if I would sell if the numbers were right.  I then took on the painstaking task of refinancing 7 properties (about 3 years ago) and attached mortgages to ALL properties based on forever/sell.  The 'sell' properties had higher mortgages on them by about 25k (all properties are worth about the same).

Well, here we are 3 years later and I just sold one of my 'dogs' for a 100k gain.  The property was STILL positive cash flowing by about $400 a month, but I decided to take the 100k off the table.  My view is that prices are higher than they should be and I want some ca$h to weather the next storm (and hopefully come out on top).

If this is one of your first properties, I can almost assure you that it won't be a 'forever' property.  I made a LOT of mistakes at the beginning while creating a vision/system of what I wanted/needed.  Fortunately my mistakes never did cost me 'too much' (relative term compared to how bad it could have been).  

As far as rents, you 'ballpark' where you think you will be.  THEN you figure 'worst case scenario'.  If you can live with worst case, it's a go.  ;-)  Time will take care of you over the long run.  :-)

@Ryan McKean, here is what I do:  Go for as much as I can with craigslist ads.  If you get no bites, your price is too high.  Plain and simple.  Aggressively drop price weekly until you get bites.  After all, a month of vacancy is NOT worth an extra $100 a month income.  My rentals are in Chandler & Gilbert.  Charge extra if you allow pets.  Charge an extra non-refundable deposit for pets.  There are ALL kinds of things that you can do to increase revenue stream.

Hold open houses.  I usually do every Saturday from noon-3pm until it's rented.  That way you dont have to open up the house for 'looky-loo's' 

I looked at a lot of turnkey ‘models’.  I have also listened to a lot of podcasts, MI and others.  The properties are generally in bad school districts.  That doesn’t bode well to get and keep long term tenants.

It’s a problem of greed on the part of the investor.  1-2% monthly income from afar (and by yourself) is almost impossible.  It’s like buying gold at $500 an ounce in today’s market.   Not going to happen.

And I think ‘baby boomers’ are the worst culprit here.  Many might have a 401k of 100k-500k.  They know that  won’t work for retirement.  They need an investment that throws off cash flow.  Clayton Morris and MI have ‘solved’ their problems.  Buy 10 houses at 50k each and you will have all the income you will ever need.  Not quite, but good try.

Real estate is location, location, location.  Buy houses/locations that will be first to rise in value and last to fall.  Get places w good school districts.  Most of my places are in good school districts.  My avg stay is 4 years, one tenant has been w me 9 years.

I am the PM for all my properties, despite a full-time job.  I have home warranties to fix any/all problems.  My tenants call the home warranty company first.

Final advice:  go for ‘singles’.  

I’m in.  

6% cap, on multi-family, is an invitation for disaster.  :-(

Sell, take the money off the table.  You can buy a good quality property in Phoenix for 250k.  If you use your Denver profits as down, you can get positive cash flow of $700-800 a month.  $0 cash flow w $180k equity is a loser.  The next crunch can wipeout your equity.  Cash flow is king!

@Dmitriy Fomichenko, according to THIS article, it is perfectly 'ok' to partner with your IRA. I think part of the problem is conflicting experts' opinion. I realize I am not 'out there', but I have never heard of anyone being 'giged' for a prohibited transaction. If so, almost every politician would probably be 'nailed' for this one. ;-)

Alan 

http://www.midatlanticira.com/how-to-partner-with-...

@Dmitriy Fomichenko, wow.  I read your post, but that is not what I thought was allowed.  I thought as long as entities had proportionate skin in the game, it was ok.

My SDira presently owns 100% of a property that I purchased a number of years ago.  The ira now has some money, but not enough to buy another house outright.  I have looked at non-recourse loans about a year ago, but I found loan terms unfavorable and didn’t want the added expense and hassle of filing Ubit.  A couple of the loans I found were 30 year amortization with 10 year payoffs.  

So, I have a SDIra w Roth funds, a SDIra w 401k funds, and my wife has a SDIra w 401k funds. Could those 3 entities form a LLC and buy a property without it being a prohibited transaction?

Thx,

Alan

@Sheng Wong: Usually they will 'discount' the income per month. For example: If you have $1000 in rent received, they will give you 'credit' for $800 a month. If your mortgage note is $500 a month, you now have a DTI (debt to income ratio) of 62.5% on this one property. Ouch!

After a couple of those, you become personally unable to buy more properties as your DTI is 'too high', unless you make a $hitload of money OR some of the properties are paid off.

Hope that helps.

Alan