All Forum Posts by: Ali Boone

You said it yourself already... "Most rental property formulas do not work here in li because the high cost of living. If you follow most of them no one would have a house here." You're right, the formulas don't work there because of the cost of living, but that doesn't mean they aren't still accurate. Because the formulas show such bad/negative returns, that's why most big investors don't invest there. I live in LA. Same thing- the formulas give horrible returns so I don't invest here, I invest out of state.

Just because people have houses there doesn't mean they were smart buys!

Sounds like a bad deal. Unknown extent of maintenance and the price to rent ratio isn't good, i.e. spending too much to not get enough back in rents.

Are these rentals in or around Atlanta? I'm from Atlanta, have properties there, work with numerous sellers there, and can give you all sorts of low down about buying there if you want. I've had good experiences, bad ones, etc.

As far as weird to buy rentals before your own house? No way! It's the best thing you can do. People will argue it, but buying a house for yourself is a liability, not an investment (unless you are a flipper and get a killer deal and do all the work yourself). I only buy rentals, I won't buy myself a house. I did buy one in the past, long before I was in real estate, but looking back I know now it was the dumbest thing possible. Luckily I've turned that one into a rental though.

Single family or townhomes don't matter, but areas and neighborhoods do. I'd say stay in the higher end of purchase prices as long as you can help it if you are still showing good returns on those. The cheaper the property, the more risk (exponentially more risk).

Your plan sounds good, but watch out for the cheap properties. Some people love them, but they are nothing but headaches for me. I can elaborate about Atlanta if you want to contact me later.

You're going down a good road! You'll have a blast with it!

Rich Dad, Poor Dad, yes. Always use other people's money when you can help it. Your cash-on-cash returns are higher, you can buy more properties with the same amount of money, and worst case scenario (unlikely scenario, or should be unlikely) the house goes completely bunk, you only lose your credit score, not a huge lump of cash. The place you got the money from loses the money. So while most think its riskier to be in debt, I disagree. My credit score is the only thing I could lose.

(all that said, I'd never plan to let things go that sour or have someone who lent me money lose it all, but just saying that to make my point).

Calculate the difference on the returns for your money with an all-cash buy versus leveraging. You'll see.

Rentals rock!!

I have my RE license. I only got it so I could legally accept referral fees from licensed brokerages. It's a gray area in the laws, but there are a lot of brokerages who won't pay out referral fees if you aren't licensed. So just from that aspect, I highly recommend getting licensed so legality is never in question if you accept a payment like that.

Otherwise, there are other benefits to getting it. Studying for the test will teach you a lot of good information you may not otherwise learn, and you can also end up getting MLS access and other agent perks if you need them down the road.

Hey Mehran Kamari! I'm actually in Atlanta right now until the weekend so I totally missed the rain. Which, as odd as it sounds, I'm totally bummed about! Since I moved to LA, I have realized how much I really enjoy rain occasionally since it never rains there. Even last night in Atlanta there was a huge storm blowing through and I parked myself on a friend's porch just to watch and enjoy the storm, and then it blew right past us and never hit. I whined that, yet again, I missed the rain and my friend said, "It's always sunny in Ali-world!". Ha.

Sorry for the rain rant. If you like Cleveland, definitely keep looking into it and don't let me deter you. It may be a great market, who knows. Plus, lower returns don't always mean a lower return. If that makes any sense. I'm learning quickly that the lower cap rate houses often tend to produce better returns in the long-run because they often have better tenants and quality, so less vacancy and repairs expenses which make a drastic difference. As in, kill a deal.

Good luck!

Chris Carson Thanks for the information about Cleveland, I'll keep it in my thoughts as a potential market now (and not as a Detroit). And actually it's the opposite- Cleveland is far from where the masses are fearing to tread. Investors are flocking to Cleveland. I'm also far from opposed to investing in any market just because I'm a west coaster. I'm from the east coast for one, but I don't only focus on sexy markets. I focus on the markets where the numbers and the opportunity makes sense.

Happy Palm Springs-ing it! No shortage of sunshine out there and since it's been 70-80 degrees where I am in Venice, it must be nice and toasty out there!

I don't know much about investment clubs like this, but you ask why you shouldn't keep investing there, but just above that you say that if the company goes bankrupt you lose everything. Just going to go out on a limb here and say... maybe that's why you should consider other options? If I were investing in unsecured things, I'd want a lot higher return than 11%! Sounds risky. But again, I know nothing about it.

Rental properties can easily get you 11%+. Plus then you get the tax benefits on top of it. And security. And potential equity. Sounds safer.

Hi Mehran, good analysis.

I wouldn't focus on the 2% rule either because those are extremely hard to find, therefore focusing only on those would hinder how many you can buy. I do feel confident about the 1% rule and this property hits it. I don't use the 50% rule myself so can't comment there. I've usually fairly against % rules. Even the 1% rule, I use that as basis for thought but never a definer.

This property is cash flowing, but only $200/month. I know of plenty more properties that cash flow for substantially higher than that even after debt service. $200/month would be something I'd consider for a really strong higher price-to-rent ratio market, but not for Cleveland. If I was investing there I better be getting a lot more than that. Parts of Cleveland are good, others not. I'm not an expert out there, but that's what I hear. I keep hearing Cleveland in my head as being the next Detroit, at which point I wouldn't invest personally. But I could be wrong on that one.

$200/month isn't enough for me unless it's a better market, personally.

Hey Cole, I'm a huge fan of the turnkey properties where all the rehabs are done, tenants and property managers in place, so you literally have to do zero work on the property and it is cash-flowing very well. Turnkeys are available in all the good investor-advantaged markets, so to speak, and every property I have bought for myself has been a turnkey. For the financing, it'd be great to be able to buy 2 properties which would be very doable with $80k. If you qualify for a mortgage, you could even get up to about 4 properties with $80k! Private financing would get you in without a mortgage too. Either way, leveraging is definitely the way to go!