All Forum Posts by: Dan DiFilippo

Amazed to see some seriously uninformed people on parade here.

But crypto has always been polarizing.

I encourage people, by the way, to bother to learn about crypto more broadly. Rather than just Bitcoin. If you don't understand the primary differences between Bitcoin, Ethereum, and Ripple, your opinion on Bitcoin is evidently not worth much.

It was mentioned above that Bitcoin should be regarded as an option and that's exactly correct. Crypto currencies have the opportunity to be the perfect money. Truly finite supply, proof of work/stake, perfectly liquid. It's had two episodes of 10x'ing and it still hasn't achieved adoption by the RIA's. It's still an asset that most people only own because they want to. Not because they feel they *need* to.

It could go to 0. It could go to $1MM. On that basis, you decide what the proper allocation is for you. But there isn't really much else in the market with that much asymmetry. And give consideration to Ripple, Ethereum, Litecoin, Tezos, Compound.

@Nicholas Mitrano they call Fayetteville a playground market for a reason. It enjoys the low property values/taxes of the south, while the tremendous need for rentals and constant turnover (not to mention foreclosures) makes it an opportune market for both flips and cash-flow (although market conditions have been a bit abnormal lately). And the general reality of rents being regressive pretty much everywhere means that the lower value markets are better cash-flowing. I have a thesis that supposes that Fayetteville and the south broadly will benefit from inordinate price appreciation over the next 5-10 years. It can be surmised by reading my diatribes in my post history here. Alternatively, I enjoying a good private discussion as well, and always welcome a PM!

@Meghan McGill cool! Mark and I are actually both brokers on the same team. We specialize in dealing with out of state investors. I have a background in property management and he's involved in short term rental management right now. Feel free to reach out - we'd both be happy to talk more in PM.

 I think rent-ready/turnkey is the best strategy for real estate investment in the Fort Bragg area presently.  I will PM you.

It sounds like you've already gotten a lot of good advice.  To just add onto it, I would consider thinking about it in terms of a funnel.  How many properties do you see on your desktop?  Then how many do you actually go look at?  You've said 30.  Then how many do you offer on?  You've said 6.  Then how many are accepted?  It sounds like none.  And even inside of that, you have to funnel further down to deals that actually close.  So you might look at around 150 deals that roughly fit your criteria (supposing).  And then you decide that 30 look like good candidates.  So you take a look at them.

Based on all these numbers I would say that you're already viewing too many properties.  If you're only even sending in offers on 20%, then something is wrong.  If you're shopping for your primary residence, then this is more reasonable, but looking for investment homes?  Nope.  You should *at least* be offering "your number".  Which is to say that there should be margin of properties that you view in person where you say "well, it's not what I'd hoped, but why don't we offer $XXX?"  And your agent might probe the LA and see if there have been offers yet, etc, and they will let you know if that's even got a decent chance of being accepted or not.  But you shouldn't look at homes on your desktop and only decide once you've walked them to offer on 20%.  You need to be paring them down more sharply from your computer.  So for 150 properties on your computer, maybe go see 10.  The viewing should only be used to more or less "affirm" the listing.  The viewing should not itself be the case for buying it.

And for those 10, it sounds like you still aren't offering competitively.  Even if you still offered on 6 of those 10 (which I would say is reasonable), you should probably be offering so that you could expect 1-2 of those to be accepted.  Because somewhere around there is the average number of acceptances you need to actually close on the property.  And all of this makes sense.  Typically, agents want to have something to stand by once you've seen 10-12 properties.  If you're just evidently not competitive after you've seen that many, they're going to rapidly lose interest.

I steep myself in macroeconomic content and one thing I always try to explain to my clients is that returns are a function of interest rates.  And interest rates are at 5,000 year lows right now.  The Treasury rates are under 1.50%.  That's the "risk free" rate of return.  They used to be much higher.  It's not an exact science, but the rough indication is that returns are going lower.  You may need to look and see what returns people are really willing to accept.  As @Russell Brazil mentioned, and I don't think I've ever seen him make a poorly made point or one lacking in insight, the market offers you a return, and you have to either accept it or not.

@Dustin Crawford I would *at least* wait and see how COVID shakes out. You might move to a city with a lot of commercial real estate that proceeds to get hollowed out. I contend there are three things every investor needs to consider.

1) Where people work

Will a city lose its economic driver as workplaces start to go partially or fully virtual and let their employees live wherever they want?

2) Where people retire

A lot of people are retiring over the next 15 years. Which side of this movement is your market on?

3) Recession

Due by virtually all economic metrics. Are you prepared for this as well?

@Mario Arellano I'll PM you.

@Casey Waters local broker here. That all sounds pretty exciting! And you've certainly done some research because it sounds like you've made some solid effort in developing your plan and conceptualizing your portfolio. I work with the Five Pillars Team in Fayetteville. We specialize in investors clients and I am personally very committed to understanding market trends, both housing and economic more broadly. I'd be thrilled to discuss some of the thoughts I have on those topics. PM me if you'd be interested.

Yeah, so you're borrowing hard money.  Not necessarily a bad thing, but take an accounting of your deal.  Remember that financing is extrinsic to the fundamentals of the deal.  You might have a homerun deal that you just can't do because you don't have the ability to finance it at a low enough cost.  Here's an example of flip using somewhat simplified numbers to help illustrate the point.

$100,000 Purchase Price
$50,000 Renovations Budget (including, we will suppose, six months of carrying costs from close to close)
$200,000 ARV

So we've got $50,000 in equity to build.  But then we account for the disposition.  I advise investors to just underwrite for 10%.  You might end up under, but 10% would be prudent.  After you consider brokerage fees and closing costs that you may have to pay as a part of your deal, plus maybe even a couple of small repairs and maybe throw in a home warranty, 10% is probably a good number to work with.  So your $200,000 sale will already only be worth $180,000.  Now so far, these figures are true no matter how you finance it.  These numbers still only pertain directly to the deal itself.  This is your starting point for when you go to analyze it in terms of your ability to undertake it.  If you are buying cash, then your deal will pretty closely resemble these numbers.  If you're financing in some way, we will need to account for the ways in which this will impact your costs.  If you're borrowing hard money, then we need to look at the expense profile associated with that form of financing.  We can typically presume something along the lines of a $2,000 fee associated with the loan origination, as well as 2 points as a fee, and the interest will be, suppose 12%.

Let us suppose that your lender is willing to finance 80% of the total project cost.  That means that your loan amount will be $120,000.  This is the basis upon which your points and interest will be determined.  Given this, we can determine your financing costs to be $2,000 from the fixed fee, $2,400 from the points, and if you are in and out of your project in 6 months, then you will pay 6%, or $7,200, (12% annual rate means each month is 1%) in interest.  Thereby, total financing costs come to $11,600.  So the project may net you $30,000, but your cost of capital is $11,600.  So really you stand to make $18,400 in this deal.

Again, these are rough numbers, so yours may be completely different.  This deal as I've wrote it is actually not that bad.  The Capital Share Of Productivity (meaning the $11,600 versus the $30,000) is 38.66%.  That's essentially the lender's cut of your project.  It seems like a lot, but remember it gives you the ability to make $18,400.  You might consider that the deal may be worth it even if the Capital Share is 80% and you were only left with 20% of the net profit.  Because it's still enabling you to play with someone else's money in order to make money.  You just have to weigh the risks associated with the project overall against the return that is in it for you at the very end of the day.  It's all a decision that you have to make based on your risk tolerance and your opportunity costs.  Just make sure you are applying the right formulations in your analyses.

@Hobart King JFC, mate! That's like two insurance bills! I mean, I don't specifically know your area, but that's abhorrent. Like 25% of your gross receipts? Brutal.

As a general rule, I tell investors to diversify insurers and property managers as soon as practically possible. Even if you use one more heavily than the other, you never want all of your eggs in one basket. Whether it's because of an emergency situation, adverse operational changes, or increase in prices, you want to have the ability to just pack up your account and walk it across the street without even needing to vet the provider. It also subconsciously gives you a confidence boost when negotiating with your existing providers because you don't have the anxiety of being wholly dependent on them in the immediate term.