All Forum Posts by: David Ackerman

Hi all,

I own 4 properties all in an LLC. I have a $2,000,000 umbrella property for all these properties. One of the properties I bought for cash. I am trying to do a cash-out refinance for that property. All the mortgage brokers are telling me that the property needs to be back in my name for 1 year before they can do the cash-out refinance.

Obviously, the biggest negative of that is that I would have to go 1 year with the property NOT in the LLC. Do you think I should be OK with the $2,000,000 umbrella or is that not enough coverage in case something happens at the one property that is no longer in the LC?

Thnx,

Dave

Hi all,

I currently own 4 rental properties. The 1st 3 all have mortgages. The fourth I bought about 8 months for cash. Since rates have gotten so low I want to do a cash-out refinance for the fourth. My lending bank is saying that won't allow me to do that because then I will have 5 mortgage properties (they are including my own home as 1 of the mortgaged properties)

Has anyone else heard of this? Does anyone know of a large bank that they think might let me do a cash-out refinance for a fifth mortgaged property?

Thnx,

Dave

Hi Will. Thnx for your reply. Let me throw out some numbers. Tell me what you think:

Purchase Price=$175,000 (best neighborhoods in Raleigh area)

Rent=$1,350

Taxes=$110
Insurance=$60
HOA=$120
Vacancy/Repairs=$150

$910/month X 12 = $11,000 $11,000/$175,000=6.2%

So, on the properties I would pay cash for, my return would be around 6% (not including tax savings).

I would be happy getting a long-term return of 6%. But, my real bet is on Raleigh. I am betting that in 10 years from now the Raleigh area would have appreciated nicely. Nobody has a crystal ball. Nobody can know for sure if Raleigh will appreciate. If I am wrong, and Raleigh either remains stable or loses some value then I will still make some money. Obviously if I make 3%/year over 10 years then I will NOT be happy. But, it would be a better bet then those people that had owned stock in Bear Sterns.

On the other hand, what if Raleigh does appreciate the way I think it will? What if Raleigh becomes the Silicon Valley of the East coast? Well, then my bet, with very little downside, would turn into a nice investment.

That Risk/Reward scenario makes sense to me.

If I only buy in areas that meet your criteria of 1.5% of rents to purchase price, then I can't do it in Raleigh. Well, I can't do it in the good areas of Raleigh. Maybe, if I got super-lucky and had the perfect connections, maybe I could find 1 property in the good areas of Raleigh at an extreme discounted price. Why do I need to wait for the perfect property if I am making a bet on the long-term growth of an area?

Since I am a stock trader, let me explain it in terms of a stock. The stock CMG (Chiptole Mexican Grill) was trading at around $80 a few years back. At that time the PE (price to earnings ratio) was 45. For those who don't know how PE works, 45 is quite a high number. I know many investors who wouldn't even consider CMG at that price because the PE was so high.

Today CMG is trading at $384/share. The PE is even higher at 57. That is an incredible return on one's money in just a few years. The people that only looked at the high PE missed an incredible return.

If I were to follow your 1.5% rule, then I would have an extremely difficult time investing in a top quality area in Raleigh. The reason CMG had such a high PE, was precisely because it was considered a top quality company. The reason I can't find any properties in the best areas in Raleigh for 1.5% rent ratio is because Raleigh is viewed as a top quality location.

I may be 100% wrong about Raleigh. But that is why it is called an investment. There is uncertainty. But it would seem silly to NOT make a bet just because I can't find a property that meets the 1.5% rule. Even I am wrong about Raleigh, I will still come out ahead, or at least even, in the long run. If I am right, then it can be a very nice investment. I like those odds.

Oops...13 weeks is really 13 years. We human beings make plenty of mistakes LOL

I chose Raleigh because my business partner is in Raleigh. We have done 3 units together so far. Unfortunately, he doesn't have enough money right now to keep investing.

I am debating of moving to Raleigh. If I would take this to the next level, then I would move there. I can still trade remotely from there. My plan would be to slowly weed out trading over the next couple of years. I would spend my time managing my properties. With rates at all-time lows, with patience and persistence, I believe this would be a successful strategy if i take a long-term approach. It would be a new challenge for me.

Hey Jon

1)Rents are between $1,200-$1,400 (cash flow around $250 a month)
2)I am NOT playing for appreciation. But I am betting on Raleigh for these reasons:
a)3 top 50 colleges in area (Duke, UNC, NC State)
b)State capital (stable jobs from government positions)
c)RTP (home to companies like IBM, CSCO, Biogen adds around 40,000 solid jobs to the area)
d)Growing population. Major highways being built. Friendly taxes.
3)Properties I'm looking at have been built in the last 5-6 years. They each probably need $1,000-$2,000 in touch ups. But, all the major items are in good shape.

I am really thinking of making a bet to preserve my capital. Kind of like a retirement account. Hopefully it would help me generate good cash-flow in 10-12 years from now when I look to retire. I have plenty of reserves.

Hi all.

I have been a somewhat successful stock trader for the last 13 weeks. I have been getting a little sick and tired of trading. I would like to get more into the real estate game.

Here's the strategy I was thinking of trying out. I have allocated $500,000 to real estate. My plan is to buy 6 units in the Raleigh North Carolina area. The average 3 bedroom/2 bath townhome/SFR with a garage in a good area goes for around $150,000 to $200,000. So for simplicity, i'll assume all 6 properties go for $175,000 (obviously, I will be bargaining to try to buy below Fair market)

1st 2 properties=I buy for cash ($350,000)
next 4 properties=I buy with 20% down and get a standard 30 year loan around 4.5%. (so, that would be around $35,000 for each property for a total of around $150,000)

Then, I use the cash flow from the free and clear properties (and the excess cash flow from the other 4 properties) to pay down the debt of the other 4 properties. I maintain a good reserve for vacancies, evictions and repairs. If it takes me around 10 years to pay all them off then I will have 6 free and clear properties. If each one brings in around $10,000 a a year, that will be $60,000 a year in free cash flow.

Do you think I am better off just putting the money in a REIT (or a couple of REIT's) or do you think strategy like this, although it will have more headaches, will probably be better for my money?

Thnx,

Dave

Hi all. Does anyone have a good property manager in the Raleigh area?

Thnx,

Dave

Hey Rob. Do you think the biggest problem with the deal that Shawn proposed is that it is a "duplex"? If it was a SFH in a solid area where there is a good chance tenants might stay 2-3 years, would you still consider it a poor deal?

What I am really asking is this: Is buying property with 20% at rates that are at all-time lows a bad investment if one is building a retirement and plans to hold property for 10-12 years?

Thnx,

Dave

Hi all,

I've read alot of articles on this site pertaining to property managers. The general sense that I get is that it is quite hard to find a solid property management company.

With that said, I am looking to invest in the Raleigh/Durham area. Does anybody have any experience with any property managers in that area?

Thnx,

Dave

Thnx Cheryl for your reply. That makes much more sense to me. I am spending several hundred thousand dollars to purchase properties through my agent. It seems that the least she can do is place it on MLS for us.

Well, I am going to ask her to place it on MLS for free. I will also offer to pay 1/2 of a month's rent to the agent who finds me a respectable tenant. And, if she says she can't do that for me, then I will find a new agent.

Do you also recommend paying my agent a small bonus if someone else finds a quality tenant for me on MLS?