All Forum Posts by: Arlen Chou

@Joe Kim there are 2 other pieces of information that are fairly relevant to this discussion about financing of cars;

1. How many miles are you planning on putting on this mini van per year?  
2. Does your REI business throw off enough cash flow that it will be paying for it?

If the mileage will be low AND your business can pay for it, I would seriously suggest looking at leasing.  Remember, money that you use to BUY this depreciating asset is AFTER tax money.  If you can put the vehicle under your company name, the lease will be treated as an expense on your taxes instead of as a depreciating asset.  I am not a tax professional, so please speak to one about this strategy in more detail.  

@Bob E. that sounds like a great set up!  I like the seller financing part!  Its great to hear all of the different flavors of investing here on BP.

@Zach Wawrzyniak, interesting dilemma to say the least.  It does not seem to make sense to sell it back to her at the end of the process.  Why not just keep it and let her live there and pay you rent instead of paying the bank?

Anyway, more to your point, do you have any equity in your condos that you could refinance out?  It sounds like your mother has some crazy high interest rate on her mortgage.  It would help to know in this discussion what that rate is... It sounds like your mother is not having a problem paying the loan and the interest down, so I assume she is working.  If that is the case, I would look into pulling money out of your condos and paying off the debt on the house.  I would have my name added to the title on the house prior to doing this so you don't have any control issue.  You could then have your mother pay you rent against your new "personal loan" to her.  I think that this would save you some money in transitional costs of buying and selling the house between the two of you.  

I don't know if you could do a cash out refi after some seasoning on the house, and I don't know if her credit would come into play or if they would just look at you.  My guess is that they would look at the two of you, so a refi might be really hard.  I suppose at a later date, you could take her name off title and just leave yourself as the owner.

This process would take some time and effort, but I think you could pull this off.

This is just my opinion and not professional advice.  I DO NOT KNOW what effect this would have on your credit or tax situation, so please consult some  professionals regarding these matters.  

Good luck to you and your mom.

-Arlen

@Dan Tsunekawa the idea of investing out of state is attractive.  However, if you have not done so yet, I encourage you to take a look at how property taxes will effect you in the two different states.  If you plan a buy and hold strategy, prop 13 is a great friend...

@Diane G., @Chris Mason and @Jeff Wallenius are right. Don't burn one of your "golden geese" for a C class property out of state.  If you want to go to a C class, there are plenty in the Bay Area that you could get into with your budget.  But keep in mind that C class is a very different animal then your current properties.  When you buy an investment property you not only buy the address, but you also buy the potential tenant base and the headaches associated...

@Bob E. I thought I would take a minute and highlight what I perceive as the benefits of an appreciation loaded strategy. Firstly, I believe that many people get caught up in the face value of the "appreciation vs cash flow" debate.  In my opinion it is wrong to think of this as a black and white issue.  A good investor should be looking for BOTH appreciation AND cash flow.  In the coastal markets the equation is a high barrier to entry, POTENTIAL high appreciation and low cash flow (which gets better over time).  In the flyover areas the barrier to entry is low, the potential for a appreciation is low and cash flow is RELATIVELY high. Any investor not getting both, appreciation and cash flow, is doing something seriously wrong...

The difference to me is the amount of headaches and the infrastructure needed to support the different types of markets. In a high cash flow strategy, a large number of units must be owned.  By definition that means a high number of deals must be made with associated buying/selling/renovations costs.  Also the logistical costs go up exponentially: more toilets, more appliances, more roofs, more yards to maintain, etc.  I do acknowledge that labor rates in the flyover areas are substantially lower, but base material costs are really not that different.  

Additionally, at some point with the compounding model of adding low cost units, an investor stops being and investor and goes back to becoming a worker bee: a team must be created and actively managed, analysis on dozens if not hundreds of units must be done on an ongoing basis, additional deals must be found and closed, etc.

I prefer the appreciation model because there are substantially fewer moving parts in the investment machine.  Properties that I have purchased 3 years ago are worth nearly double the purchase price and average rents are over double what they were at the time of purchase.  I have pulled my initial cash back out and bought more units in the Bay Area that also have positive cash flow.  As time moves forward, I HOPE (I think it is a good bet) appreciation will continue to rise on all of my properties and I will enjoy positive cash flow from my re-positioned units.  I hope that clarifies why the appreciation loaded strategy might be of interest to some people.  

@Tim McGarvey its not hard finding good contractors.  It is the criteria we use to define "good contractors" that is what creates the perception that it is hard to find them...  There is nothing different to contractors than any other business model:

"good, reliable and cost effective" = quality, time, price.

As the saying goes, "you can pick 2, but you will never get all 3".  

1. There are great contractor who put out a quality product and are on time, but you will pay for it.  
2. If you pay bottom dollar pricing, you MIGHT get a good product, but the contractor will use you as "fill work". 
3. The worst case scenario is if you find a guy who is always on time, charges you a ton but makes a poor product.

Time is specific, but of course quality and good price is subjective.  So the above rule really needs to be applied to each persons own standards.  As an example a quality cabinet install as well as reasonable cost to me might be very different to somebody else.  Just my 2 cents on the topic, I hope it helps.

Take it easy,

Arlen

@Max Smith I have 8 units in Mountain View and have gone down several roads.  What is the configuration of your units?  Depending on the location and type of units, I might be able to give you insight on a very cost effective solution that I use.

-Arlen

@Anthony Navarro the decision to stay local vs a few hours or even a different state is a debate that ignites fairly often.  I suggest to new investors, that at the beginning of your investment carrier, to look at what best fits their particular skill sets/strengths instead of hunting for the best "on paper" deal.  

Trying to find a 1% rule deal in the Bay Area, when you have limited financial resources or experience will be an exercise in frustration.  They do exist, but to capture those deals a player has to be in a very strong financial position.  In the BA, these deals normally start off as less than 1% deals, but a plan would have to be created, prior to purchase, to drive it to above 1%.  This plan usually revolves some type of re-positioning of units to a higher rent level.  

Your goal of "financial freedom" is great but it is vague.  You need to put a time line on that goal and target a dollar number that defines that goal.  Without a timeline and a dollar number it is very difficult for anybody to put forth a meaningful suggestion to a strategy.  However, I would like to highlight that you have an advantage that many people do not; you are already a PM/resident manager in the Bay Area, so you should be learning very quickly how to deal with incoming/existing/outgoing tenants.  You also have the opportunity to build up a vendor list/cost list for the local area.  I believe that it would be a waste of this advantage for you to look hours away from your location and potentially hire somebody else to do work that you do for a living.  You could try and self manage a remote property yourself, but you probably already can guess how difficult and time consuming that could be...

House hacking is a great way to start. I personally started with a single townhouse and got housemates. But my goal was measured in decades not years or months so my strategy was built on BRRR, way before that was a "thing".

Good luck to you!

-Arlen

@Judy A. I would suggest doing a few things in parallel.  If you have not yet, get your personal finances in the best shape possible. Maybe you have already done this, but when you start to look for money you will need to put everything out there for the world to see.   I personally think doing direct mail before having money lined up would be a mistake.

Also get out to the various meetups in your area.  Sorry I don't know of any in your area, but @Johnson H. has a big one in Milpitas every month.

Learn everything you can about your target geography.  I personally only invest locally because I want to be able to see the changes in the neighborhoods.

Good luck and let us know what path you decide on!

-Arlen