All Forum Posts by: Account Closed

125k invested in a partnership to develop townhomes in the Bay Area in 2003 Did diligence on the numbers but not the partners. 5 years later dirt had not moved. And market had crashed. Limited partners sued the general partners. Got a settlement and just getting final payment back this month. Luckily got all the principal back and most of the legal fees. But, opportunity cost of 125k for 10 years is substantial Contrary to some posts., best investment ever was my education. It was more time invested than money since grad school was fully paid for by scholarships and research grants.

I do exactly that. Use all free cash flow to pay off mortgages. I expect all the mortgages to be paid off in under 10 years. This is how money compounds in a rental home. Of course everyone's situation is different. I have plent of income and other assets and the rental homes are just one part of my portfolio. If I did not have a very substantial cash cushion I would accumulate cash first.

Okay, lets take some real case scenarios. Lets say you have 150K to invest today. You have two possible scenarios

1. With $150K I could buy 10 $50K homes that have enough cash flow to pay off the mortgage plus expenses in 10 years. In that scenario I have gained $350K in equity over 10 years assuming zero appreciation.

2. I buy one condo for $500K in the Bay Area. The rent will barely cover the PMI + HOA + maintenance on a 30 year loan. I can assume zero vacancy in the Bay Area due to high demand. In 10 years the principal pay down would be approximately $70K. So the equity value has to go up by another $280K (or over 50%) to match the returns. Can that happen? Well it depends on which time period you look at. I have owned two homes in the Bay Area.

Home 1: Bought in 1998 for $340K. Value in 2004 $800k. Value in 2008/2009 $650K. Now probably back to closer to 800K. This would have been a great investment under any circumstances.

Home 2: Bought in 2007, $620K. Value in 2008/2009 $580K. Value today: $700K.

Both my Bay Area homes are primary residence purchases so I did no calculations prior to buying. And if I move out from my current home I would most likely rent it. But I dont think I would buy my home today for $700K as a rental investment if I didnt already own it.

For that kind of rent I would not buy for under 10% cap rate (assuming 50% expenses). The smallest things can turn your cash flow negative and vacancy costs are always higher than you expect. Since its been vacant for a year, its clear that its not an appreciating property.

This happened to me too. Paid cash for home in Indy. Didn't think to check for flood plain..its INDY! Found out when I tried to refinance that it was. Flood insurance was cheap but went up a lot last year. Its an extra $500 or so per year of expense on that home. I plan to pay it off faster and stop paying the flood insurance once I own it free and clear again. Learned pretty quickly to check that. Also that was the last home I was stupid enough to pay cash! Now I count on the Bank to find out these pesky details I haven't thought of.

Yes, as @George C. says, the headlines are sensational. The lady will get 116K. Whatever the house was worth, its probably more than that though. So in truth she did lose a lot of money. The reality is that life in the US is ver complex from a financial and legal stand point. And there is no room left for common sense. Look at the TSA for example. The govt is a machine that has a life of its own. It is programmed by special interests and off it goes. The lady probably got the notices but didn't notice them or ignored them, whatever. At the very least before a home goes to foreclosure there should be a registered letter signed with proof of receipt. Its not the investors fault though. They go to auctions and buy property without knowing the history or details behind why each home is there.

As others have said, paying cash you get effectively the Cap rate of the property which in this case is 6%. For me, there are easier ways to earn 6% on my money than dealing with HOAs, tenants etc etc. The only reason to do that deal is in a highly appreciating market. For cash flow investing, my personal goal is min 10% cap rate (i.e return on a all cash purpose) but with leverage thats more like 15-20% COC. I am sure you can find similar deal in Houston on SFRs as well.

Where is this property? With 50% expenses its currently a 9.3% CAP which you say you could improve. Not too bad on the face of it. But it depends on where its located.

The most passive and liquid way is a public traded REIT. Also passive but not as liquid are Private placement Hard money lending funds. Third not as passive is individual private lending.

@Jay Hinrichs You obviously have tons of experience in all types of RE so your input is really valuable. You were holding 350 properties so at some point you must have thought it was a good idea because I am sure you did not buy all 350 in one day. So then you lived through the worst financial disaster in recent memory and got burned. But so did every investment in every possible asset class. There was no safe refuge from that storm. So how much of your bad experience with out of state rentals could be attributed to that vs. a fundamental flaw in the business model? As in investor thinking to scale up the number of rentals this year, its really interesting for me to know.