All Forum Posts by: Paul B.

No dice from the swap desk. It would need to be attached to a credit package for them to do this.

If the HOA takes care of the outside, and the inside has been renovated, you should not have much in the way of maintenance, etc., given that it's a condo, so I'm not sure why you would pay 10% of your rent to a management company to basically collect your rent.

Generally speaking, I don't like condos as investments. There seems to be little appreciation, even in the DC area.

Does the $750 HOA fee (that's monthly, right?) cover your property taxes? I assume you're still liable for property taxes and insurance, is that right?

You'll hear about the 50% rule which is that, if managed, a property, on average, will consume 50% of the rent in expenses, including both the current expenses and a set-aside for capital expenditures. In your case, though, you should not have too much in that regard given that it's a condo and the HOA is presumably taking care of the roof, systems, etc. Of course, maybe they are not reserving enough money for these things and you are exposed to a potential special assessment.

Overall, I don't think your deal is terrible. It probably does not cash flow as much as most people here would like, but I know in the DC area that can be hard to do.

The good news is that you don't have any debt on the property, so even if you end up keeping only 30% of the rent as your real profit, you're making $5K a year on a $73K investment. Not a home-run by BiggerPockets standards, but better than you'd get parking the money just about anywhere else.

Love to hear what the bank says. If they are locally-based, my guess is that they won't be able to help you. You probably need a bank with a real swap desk. I've pinged an ex-colleague to see if the bank would entertain this.

Don, unless you have mistakenly switched debt and equity in this post, I am going to need mega clarification to understand your point of view, which I respect and appreciate.

Thanks!

Edit: Never mind. I think I get it now. You're looking at it from the point of view of the person needing the money, not providing it. Got it!

Sounds like you need to focus on properties with a long DOM or those that are so in need of repair that "gentlemen investors" won't touch them.

Are you looking to wholesale or retail, and if retail, to end-buyers or investors?

If your only source of properties is the MLS, then yes, I think you're going to have a tough time in some markets.

That's why "I Buy Houses" marketing is key. You need a constant source of inbound inquiries where you might be the only one talking to a seller.

Of course, that all worked a lot better in the day when more people had equity in their properties.

But, when you get a call from an older couple that has had their house paid off for 20 years, and they know it's something of a wreck and the thought of strangers traipsing through their home annoys (or embarrasses) them to no end...cha-ching!

"If they enter into it in good faith and perform according to the original terms of the deal I don't see how one can call it immoral."

Agreed.

Ryan, could you walk us through how you came to select four as the number that you needed to use to hedge your loans?

It has been 20 years since I traded a Eurodollar contract, but my recollection -- and perhaps things have changed -- is that each contract is for $1 million, but because they are 90-day futures, each basis point (BP) is worth $25 per contract.

Is that still true?

If that is accurate, then I'm wondering how using these futures will really help you on a recurring basis. What I mean by that is this...

Presently each BP move on your collections of ARMs is going to add $100 in annual interest expense. So, if you short four Eurodollar futures contracts, and rates move up 1 BP, you gain $100. That offsets your added interest expense for the year; so far, so good.

But, what about next year? Assuming everything stays the same after that, your ARMs will still cost you $100 more each year, but you won't have any recurring profit from your futures positions.

How can you use futures on a recurring basis?

You know, with a million dollars in notional value, you just might find a bank willing to create an interest rate swap for you, assuming that you can post some collateral for the risk they calculate. That is really what you want here. I did this for clients in a past life, but of course it was all tied to the variable-credit product that we were offering. Maybe the bank wouldn't do a stand-alone swap. Can't hurt to ask, though.

This information might just be on the Web somewhere. Have you tried Googling your name and the phrases "unclaimed money" or "money owed" and the city/state?

"Yep, I understand. What I really hate is how they have you pay all that interest at the beginning of your loan term..."

I have never understood why people say this. You're only paying interest on the balance outstanding. The balance is higher so the interest is higher. The banks are not "front loading" interest in the beginning or anything surreptitious. If anyone can help me understand this point of view, I would certainly appreciate it.

And as for banks making an "ungodly" amount of money, the margins on most real estate loans are incredibly small. Most banks aim to make a 1% return on assets and about a 15% return on equity. I don't really call that exorbitant.