All Forum Posts by: Alan Grobmeier

@Philip Hy Although the mortgage is being paid down, it takes a very long time to change the LTV significantly. The 1st few years are mostly interest. Depending on the interest rate, principal does not surpass interest until year 15.

Here are hypothetical numbers, yours will be different

1). Purchase price.  200k

2). 100k down, 100k @ 4.5%, 30 yr.   536 a month

3). Taxes & insurance.  200 a month

4). 1300 a month rent

5). 160k of depreciation expense equals approx 6k a year, 500 a month

Basically "net zero" from a tax viewpoint.

Just adjust your numbers for your market conditions and costs.

I rebalanced my loans last year so they would all be 40-50% LTV. In one instance I took out a loan to avoid California state income tax. I used the proceeds to buy another property, pay down a loan and a down payment on my residence.

@Michael Hacker  ONE other item you need to think about with EVAPS is the high WATER bills.  Especially if you are paying them.  LOL.  EVAPS are also not very efficient when temps go over 105, regardless of humidity.  

@Philip Hy  It does work.  And it works REALLY well if you get to the point where you have firm grasp on depreciation and math.

Although 'free and clear' is good, I like to see my properties with around a 40-50% LTV. I get good cashflow 'per door' and I am not overly 'bothered' by capex. At this LTV (in my area), I can deduct the mortgage, expense and depreciation and end up around breakeven to slightly minus (on paper). In the meantime, I can bank all cashflow 'taxfree'. If you 'rinse and repeat' enough times, you can replace your JOB.

I have looked at other markets other than my own and found, via math, it would appear that LTV's need to be somewhere around 30-70%. That would allow me the cashflow I want while not having to pay fed or state taxes.

Although TX does not have state taxes, the property taxes are punitive.  If I was to invest in Texas, I would want to be more careful than usual.  Same thing in California, but for a different reason.  Although property taxes are not as punitive as TX, state income tax is among the MOST punishing.  So, making a paper profit in CA property is a 'no no'.  ;-)

This is why OOS is such a danger for OOS investors and especially newbees.  They don't understand local RE laws, have to rely on a property manager, etc.  My piece of advice, if you do not feel comfortable managing a property yourself, perhaps you should not buy it?  

@Brian Christensen  

One of the things you failed to mention is how the present renters are going to buy the property.  Are you going to owner carry, are they going to get a loan from a bank, etc?

If they are going to get a loan from a bank, the bank is NOT going to let them overpay for the property.  Appraisers, on the other hand, are not going to steer too far away from asking price.  For example, even if you saw a $240k property offered for $150k (and you offered $150k), the appraisal would be $150k, not $240.

What I would do is say that according to my numbers the property is worth $240k.  I will give you a 3 percent discount on it, which brings us to $234k.  Have your tenants write up an offer and open escrow at your local title company.

After that the buyer/bank pays for the actual appraisal.

A 'second' option is to get the property under contract for $240k and then promise them a 'rebate' of $6000 cash at the end of closing.  ;-)  That MIGHT go easier as the appraisal would still come in on 'time' and the buyers would get cash at closing. 

@Kathy Patterson There is a pretty good RE 'game' if you want to play it with your IRA.

Buy, for example, a $100,000 property.  Spruce it up.  Sell it for $120,000 with owner financing at 8% interest (or whatever your market will bear) with a 3-8 yr balloon.  This will afford you the monthly income without the depreciation aspect of the property, so you won't have to feel you are 'missing' something.  In addition, no 3am calls over toilets.  ;-)

0% if VA and you are going to live in it. No PMI either.

@David Dachtera I think you missed my point.  I think you could tell ppl EVERYTHING you do and the receipient would either:

1)  Not believe you

2)  Shoot holes in your model

3)  Be unable to duplicate it

Since I am a long term buy & hold guy, there are probably 250,000 houses in my area that fit my model.  I don't have to have all of them.  ;-) 

I can see, however, in the 'fix & flip' or wholesale realm where things would be different.  

@David Zheng  Most of them said I'd never make any money w that model.  Most were ppl that owned trailers w many tales of woe.  

One guy, during a break, came up to me and told me I was probably the smartest person in the room as my plan is extremely specific.  And, so far, I have not gotten into shiny object syndrome.  Lol

I don't have many tales of woe, so maybe I just need a different group.   Lol

@David Zheng I buy 3/2 SFR homes, single story only, square footage is 1100-1600 square feet. ALL my 'later properties' are in good school districts (8-10). My 'older' ones were 6-8, when I didn't have a complete gameplan. When the carpet wears out I renovate the floor and put in 100% floor tile. At that point I can take any pet someone has with minimal risk. I also put shutters in all my windows vs mini blinds and ceiling fans in all rooms. After all, I am in AZ.

Since my properties are in good school districts my avg stay is 3-5+ years.  One has been with me 9 years now.  After all, the ONLY reason they leave me is to either buy a house on their own OR move out of state.  I can't fault them for that.

I treat my renters like an extended family.  The only thing that will really piss me off is paying late.  And I have had only 1 late pay and 1 'negotiated' late pay since I've been doing RE.  In return I send them gift cards at Xmas/holiday time.  

It's not a 'sexy' model, but I developed it when working full time as an engineer.  I had home warranties on all my places so I was never the first call for maintenance.  

It worked (and works) for me.   

@James Jacobs

If there is an underlying loan, you will WANT a Real Estate attorney.  Mainly bc 'due on sale' clause and 'what ifs'.  

This is also dependent on how you are taking the seller financed deal.  If you get the deed (such as a warranty deed), probably not as much risk on your part.  But if you are doing a contract for deed, you definitely want an attorney.

And of course, a lot depends on your state laws.

But $250 consulting fee with an attorney beats thousands later.  ;-)