All Forum Posts by: Carlos Simmons

This was exactly the kind of response I was hoping for.  Thanks for sharing.   

So, let's say you turn your money over 2x per year and average 15% per flip.  That's 30% annualized.  And you pay regular income tax on that.  

With a note, you're saying your averaging a 40% annualized return? Is that before or after tax? If before, notes seem to be the clear winner on ROI alone. When you factor in paying long-term capital gains vs paying higher short-term gains on flips, the differential only widens.

These numbers in line for others?  

Mike, it is my understanding that as long as I am not in the business of buying/selling notes (merely an investor) that a note held over a year would be taxed as a long-term capital gain.  I have a full-time job and don't live off my investments in any way (currently).  

Given that most flips don't take a year to complete and many notes can take up to a year to remedy and sell that there might be a tax difference. So, let's say that you're turning your money over twice a year flipping and paying ordinary income tax on the proceeds vs buying a NPN and it takes 366 days between purchase and sale. I'm curious in regards to how this actually plays out for most investors in terms of after-tax ROI.

That was one of the reasons for asking this question to people who have done it.  On paper you can make any scenario look good.  You can probably make it look like you can turn your money over flipping 4 - 6 times per year but that seems entirely unrealistic in practice.  

I know it's difficult to estimate in a spreadsheet due to so many variables but for people have flipped houses AND who invest in 1st position NPN, which results in the best overall after-tax ROI?

I know the first response is, "Well, there are so many note exit strategies that it depends" but I'm looking more for the average. If you flip or have flipped houses you have an average ROI you've received over a large sample size. Same with notes. Some will reperform. Some fill foreclose. But, on average, what are you seeing as your annualized returns on each?  

The reason I'm asking is that I've done some flips and I've JV'd on some NPNs and I'm trying to figure out which strategy is going to provide the best ROI. Obviously, I would do my own NPNs rather than JV'ing in the future but I know that my sample size on flips and notes is far too small to draw any hard conclusions.

Personally, I like flips because you turn the money over so quickly. I like notes because they just fit my personality more (i.e. I'm not a construction guy. Day job involves a lot of sitting in the office and pushing papers). Hoping to get a real world ROI data point to help push me in one direction or the other.

I was over in the Kona area looking at RE twice in the last 12 months. It's an interesting market. We were not looking at condos but the SFR market looks pretty tough. One realtor we talked to said that most new listings are way overpriced and the sellers finally come back down to reality after a few weeks. We saw that quite often ourselves where a home would list for something like $475,000 and first price drop would be $25K then another $10K a few weeks later (and then even more price decreases depending on how far out of whack things are).

We also drove a lot of the neighborhoods in the Kona area and my first impression was that everything seemed to be divided into newer developments (0 - 20 years old) that were priced pretty tightly and older neighborhoods which were very hit and miss and valuations were all over the place.  One property would be a beautiful 30 year old home and next to it would be a disaster and the prices would be within 10% of each other.  Sometimes the disaster would be selling for more than the renovated house because you could see a small sliver of the ocean if you stood on the balcony and craned your neck in the right direction.  

If you're looking to rent to locals, you might want to venture out from the Kona area a bit. Waikoloa Village, Waimea, etc.  That said, the entire Kona side of the island just seems overly oriented towards vacation homes, retirees, etc.  

Also, be cautious with any deal that sounds too good (especially any MFR and especially large SFRs that have been converted into MFR). I noted several MFR properties that seemed to be on the market for a long time (6+ months). Spoke with a realtor about one of them and it wasn't zoned correctly which means you could run into problems.

The Hilo side of the island seemed like it would have more opportunities.  A lot more variance in pricing and neighborhoods.  Prices are also considerably less than the Kona side.  

Let's say I have $50K in my self directed 401K and $50 in cash to invest.  What would be the best way of:

a)  Purchasing a property for $100K

b)  Purchasing a note for $100K

c)  Buying a property to flip for $75K and put $25K into repairs

Can I use personal and 401K funds in the same investment as long as there is a clear distinction between the two?  For instance, if option A, all rental income, expenses, and profit are evenly split 50/50 based on original contribution amount.  

Would I use a simple JV sort of agreement between the 401K and myself to establish the roles and the split of proceeds?

In actuality, I have about $85K in my SD401K which in my area seems to be just shy of the deals I'm seeing. I end up doing them with my non-retirement money but I would love to be able to get that money working for me in RE without needing to go after assets that exactly match what I have in my SD401K.  

Well, there’s certainly a lot to consider here.

I guess I’m a newbie to RE investing but it’s something I’ve thought about quite a bit and have read some of the BP books. I’ve just never taken it to the application stage and gone after it.

Of all of the great ideas people have mentioned, here’s the ones I tend to like most:

Buying an apartment building - I was thinking multiple SFRs would give me better diversification but I think some good arguments were made for consolidating costs and liabilities.

Self Storage - To be honest, I don’t know a whole lot about this niche but I’ve heard that people have made some decent returns here. Something I’ll have to dig a little deeper into.

HML - I guess I would have to investigate the laws for Nevada on that and get a license. The only thing that makes me hesitant is that I would still need to seek deal flow. I wouldn't necessarily want to have to keep turning the money over again and again, reviewing deals, etc.

When I decide to give up my day job, there's a good chance I won't stay in Nevada and just as good a chance I may not even stay in the US. HML might be too much like running a business which would restrict me geographically.

I guess I'll have to talk with a few folks and see what real returns are possible. I also recognize that being in a role like a HML might also create new opportunities seeing deals few others are privy to leading to more potential so I'll have to give this one a bit more thought.

Performing Notes - Another area where I’ve had an interest. Just much more difficult to find good quality information and deals.  

Will be cashing out soon from a company buyout.  I will end up with about $400K cash after taxes.  

My first impulse is to purchase 4 $200k homes with $100k down on each and rent them out.  

The thinking behind that is I'll avoid being too leveraged but I can still enjoy a bit of leveraged upside if the properties appreciate in value.  

I guess my question is, assuming I can find properties that will produce decent cash flow, would I be better of with fewer properties that I own 50% or 100% or should buy more properties and take on more mortgage debt?  

I don't have an immediate need for the income at the moment but might in 2 - 4 years should I decide to retire early.