All Forum Posts by: Bob Daniels

The difference being that when you sell the house, you simply walk away when it's done and never look back.  With renting you will continue to deal with these people on a daily basis until they decide to move out.  If your tenant feels like you are slimy from the get go, then any other action that you do will also be perceived as slimy.  Additionally with renting, you charged them a fee to run their credit and background check which makes it seem like a bait and switch when you hook them in with a good price, and then later completely change the price on them after they have committed themselves to this property.  With selling a house the buyer isn't required to pony up any money until AFTER the deal has been made.

Having 3-4 qualified candidates isn't a bad thing, if you had 10-20 highly qualified candidates then I would say you had a pricing problem.

You either believe a 401k is a good idea, or you don't; but you seem to be mixing the two.

If you think that pulling the money out and paying the penalties is beneficial then so be it.  But in that case why are you worried about attempting to replace that money back into your 401k within a few years?  If you take a penalty and then replace the money quickly, all you really did was take a penalty because you were impatient.  If you are that dead set on buying real estate you should first stop your 401k contributions unless you get a match.  Only then should you even think about taking a withdrawal and paying the penalties.

Either withdraw the money for a downpayment, or leave it alone.  Don't pay penalties and withdraw it just so that you can replace it later.

Lawyer up.  A judge will not look favorably on an agent who sells a property to their son at a reduced price just so that they don't have to pay the investors that helped fund the deal.

Those contracts are owned by the Association of Realtors and are copyrighted forms, notice the Copyright IAR 2016 at the bottom of each page.  You would need to be licensed with that organization in order to legally use their forms.  There should be plenty of free contracts that are plenty good enough floating around, and if not you can always pay an attorney to give you one that will work.

NOT A CPA

Pretty sure Capital losses are capped at 3k per year.  So ditching a 35k loss will take a dozen years.

Pay the PMI. You can often eliminate the PMI once you achieve 20% equity, either through paying down the debt or having the property appreciate in value. Usually this means you don't have to pay PMI for very long.

Days on market is a zero sum game.  Either properties sell quick which is good for the seller, or properties sell slow which is good for the buyer.  You simply cant have it both ways at the same time.  If it is a good time to buy, then buy.  If it is a good time to sell, then sell.  It sounds like you live in a buyers market, so start throwing out some lowball offers until something sticks.

As far as scaling is concerned, if you BRRRR properly you should get your money back out when you refinance. If you had all of your money back, plus a cash flowing product, why would you be in such a rush to sell? You don't always need to continually keep trading in your smaller properties to buy bigger ones. A 16 unit building will likely have less expenses associated with it than 4 separate quads would, but the difference in expenses isn't likely to be all that significant. However, paying 6% commissions on each of those 4 quads do amount to a ton of money if you are wanting to sell those units so that you can afford to buy that 16 plex.

Cost prices don't dramatically change in my opinion on a per unit basis for MF properties until you can acquire a property large enough to have it's own on site property management.

Make sure your rent amount is accurate.  $875/month for a 200k home seems pretty low.  If your rent amount is off, then it will mess up all of your other calculations.  

You are buying a home for 199, putting in 5k worth of repairs, how is the ARV still only 199? That doesn't make sense, what is the purpose of doing these repairs? Can the home be rented without doing these repairs?

Is it normal in your area for the tenant to pay for items such as water/garbage?  That is $70/month that in many geographic locations is the responsibility of the tenant to pay for, and not the landlord.  

Are property taxes really $295/month?  At that rate property taxes eat up a whopping 33% of your total income.  This seems very out of line.  Either your rent amount should be much higher, or taxes should be lower.  Either that or your geographic area is simply taxed WAY too much and is not investor friendly.

Is insurance really 160/month?  That seems excessively high to me.  Typically rental insurance is cheaper than owner occupied insurance since you don't need to worry about paying insurance on the personal belongings.  I tend to go with the cheaper insurance providers with a higher deductible since insurance is a scam anyway and they will attempt to weasel out of paying for anything.  So you end up paying for deductibles year after year and get nothing, or very little in return.  Have you ever once used your car insurance policy to pay for an accident?  -probably not, which is the same concept.

Double check all of your numbers, because at 295 taxes, 160 insurance and 70 utilities, you would never cashflow even if you didn't have a mortgage if the rent is only 875.

I would say that in order for new tools to be useful, they need to be useable at the local level.  Maybe add additional forms such as a standard purchase agreement, wholesale agreements, sub2 or owner financing etc.  

Additionally I know that many Agents/Brokers allow access to their MLS account for a small fee. If Pro membership also came with local MLS access I'm sure that many more people would jump at the opportunity since it would allow them to pull their own comps and also easily scout for potential hidden gems to purchase.

I don't think you are fully calculating expenses into your hypothetical 'worst case' scenario. I'm not familiar with the LV market, but a quick zillow search of homes worth 350k puts the average rental value at roughly 2k/month. Since your seller financed PITI is 2k/month, this means you are only cashflow neutral before expenses, and significantly in the red after you account for capex, vacancy, and repairs. Even if you self manage this property you will still be in the red a whole lot more than a measly 300/month.

Also you mention kids, and a second one on the way.  Kids are freaking expensive, especially once you start hitting the daycare ages.  Being cashflow neutral now may not be a huge deal now, but if your expenses go up then that can be a recipe for disaster.

Also you talk about tax advantages and the deduction only allowing up to 750k.  This is largely irrelevant since you specified that you only wanted to live in it for a year and then rent it out.  Once you rent it out any primary residence rules go out the window and the interest becomes fully deductible.  

Finally you mentioned that taking deductions has limited your ability to refinance or purchase new properties.  Any competent lender should be able to distinguish phantom losses due to accelerated depreciation etc, from actual losses.  It's not the fact that you are taking many deductions that is hurting your ability to refinance, instead it is likely because you simply aren't cashflowing which is jacking up your debt to income ratio.  

Purchasing cashflow neutral homes quickly jacks up your DTI ratio, lets say you earn 6k/month from your job and your expenses are 2k leaving you with 4k to invest. You are doing pretty decent in life and your DTI is 33%. However if you tack on an extra 2k rental income and a 2k expense (in your mythical world where nothing breaks and tenants never vacate), this changes your DTI to 8k income and 4k expenses or a DTI of 50% which makes you ineligible for many loan products.

In an absolute best case scenario you own the house for the full term and save 6k in interest as opposed to a 4% loan at 17yrs.  (if such a loan product even exists).  Is saving 6k over a 17 year timespan worth the enormous risk you face should things not work out as planned and you need to sell for whatever reason???  If you had to quickly sell, with closing costs you would instantly be in the hole by over 100k.  Why risk 100k to chase after 6k???  Why are you so opposed to simply waiting the 6 months to purchase a property?  Why not simply wait and find a property that is actually below market value so that instead of paying an extra 6k, you end up saving 30k etc because you bought at the right price, all while also eliminating all of the unnecessary risk.  I think you have your heart set on this property because you want to feel like a mover and a shaker and do a seller financed deal.  Finding literally any other home in Las Vegas and buying it for 6k under market value would accomplish the same thing without the added risk.  This is simply a whole lot of risk all in an effort to buy a property 6 months faster.

I have bought 0% interest deals for more than it was worth, but it was only 10% over retail price and a 30yr loan.  In that case it was a no brainer because I was cash flowing multiple hundreds of dollars per month from day 1 and my equity quickly caught up to the retail price.

On second thought buy the house.  In a worst case scenario I'll give you a standing offer of 280k cash for when things go wrong.  After all, I've been wanting to find a way to make all my vegas trips into a business expense.