All Forum Posts by: Will Barnard

Peter, keep in mind that Mike & Jon's posts are assuming you will be entering the full time landlording business. Since you did not state that, we do not really know for sure. Their advice was based on that. Mayber you are looking to buy, you have a reserva account for possible occuring capital expenses, and are looking to cash out in 5 years or so with a nice equity position. That is certainly a viable strategy and thus the 2%, 50% or any other rule is out the window. It all depends on what YOUR goals are.

On the financing note, I disagree with Mike & Jon on the calculations of assuming 100% financing. They state that their is "a cost to your down payment". I would argue that their is no actual cost, but a return on that investment. The return (cash flow) is what makes it worth the investment or not.

For example, you put 20% down (say 20K) on a 100k home. You loan is only on the 80k, not 100k. Lets assume the 2% & 50% rule here and the gross rents are 2,000.
Gross rent = 2,000
OE = 1,000
NOI = 1,000
80% PI @ 7%= 532
-----------------------------
Net Cash Flow = 468

So your cash on cash return (assuming 3k closing costs) is 24.4%
If you factored 100k @ 7% in your calculations based on Jon's advice, your cash flow drops to $335 monthly which equals a cash on cash return of 134%.
If you put more down to "buy your cash flow" (which is actually only changing your COC), say 35k or 35%, then your net cash flow increases to $568 which is a COC return of 17.9%.

So, is the deal better or worse when you change the amount you put down? No, the deal has not changed, only the amount of leverage you choose to utillize and the % of your COC return.

J Scott is correct. Reducing or eliminating contingencies is the key, not just the all cash offer. An offer with financing but no finance contingency is just as good to a bank.

Glad that you find BP to be a valuable resource Earl. Keep in mind that while having others here help answer some of your questions, it is not everything.
You would not base your decision on which stock to buy and when based on others opinions would you?

Just the same, having a resource to turn to to get the answers you need when you need them and to help hold you accountable, is not something you should overlook.

Just food for thought.

That is true Lynn. The new law changes that huge benefit, so as you mentioned, many are trying to sell prior to the new year and the new tax code. I have this posted on my blog here on BP about the new law change for anyone wanting more details on it.

As far as cap gains for stock, the way I understand it, cap gains is cap gains, regardless of stocks or RE.

Dawn,

While you may be correct that you have not run into any problems, I can tell yoiu that there has not been enough or any case law yet to make a final decision as to pursue this format.
That said, I do know that CA will charge you the $800 franchise fee for the sub series LLC you have which holds the CA property. Therefore, you might as well just start an individual LLC for that CA property.
I can not claim to know th erules and laws in each of the rest of the states, but I can tell you that if a state can earn fees, they are certainly not going to pass up the opportunity, particularly in this environment.

My advice to everyone here is to consult an experienced attorney on this subject BEFORE proceeding to make a decision. If you do not have or know one, send me a PM or email and I will get you in touch with mine.

Will B

Mike,
I see no danger in that. In fact, reaching the consensus is a positive outcome.

Speaking on the topic of mentors and coaches on your team, you will commonly get two responses from people. MikeOH will always say it is a waste of money as he just did and discourage anyone from doiin so. He knows many millionaires who have Never paid for coaching or assistance. Congrats to them. I would have to say that they are a small %.

I tend to side with Harrison on his statements, although I will say this:
Many coaches or gurus are a rip off and all they want is to take yoiur $ because they can not make money investing in RE alone. These are the con artists you must watch out for and that is where I DO agree with MIKE.
But not all are crooks and not all claim to be coaches, but can actually help and assist a new or seasoned investor advance to their goals and beyond. I do think it can be a valuable asset to your team.

Brian,

Mike and Jon are correct that the traditional 401k loan or solo 401k loan allows for borrowing provisions, but are limited to $50,000 or 50% of your vested contributions and the loan must be repaid with interest (usually around prime +1 or +2). Of course you are paying your own fund, thereby guaranteeing that the amount borrowed will appreciate by the set interest rate amount. NOt a bad thing, especially in this market and who better to repay your retirement fund loan than yourself!

David Cole is the expert in the "solo 401k" so if you have specific questions on the rules and format of this design, contact him. YOu must have your own small business and it allows you to combine old 401k funds, IRA funds and your spouses old 401k and IRA funds all into the solo 401 k which is a huge advantage. You may also get around many (not all) of the hassels of the disqualified parties and prohibited transactions associated with SDI's.

Thanks for the input Jon.
Anyone else want a crack at this?

Fair enough Mike, but I do not agree 100% there. However, if you read what I said closely, I stated that it should not be the final decision. Of course it can be part of the decision.