All Forum Posts by: Daniel Miller

Amelia,

Yea that sounds cool. The Monday night meeting is pretty cool. A lot of experience in that meeting. The format is casual and everyone is friendly. You just need to throw yourself in.

Coffee is always cool!

Hey Amelia!

Congrats on getting started...I saw your name popping up on my e-mail alerts the past few days and thought I would say hi. Look forward to seeing you around the forums

Dan

I didn''t think I was speculating...

I thought it was a pretty safe contract.

He is going through the suit to quiet title because the title search shows there are claims on the deed.

When the process is through I am entitled to the property with a General Warranty Deed. I was going to previously cancel the contract...

UPDATE 12/29/2013

The negotiations on this property took an interesting turn and I ended up going under contract last Friday.

The seller decided to pursue a Suit to Quiet Title. We will stay under contract until the case is completed. I only had to put $2,000 down. It could take a couple months. The contract hinges on my ability to obtain Title Insurance and to simultaneously receive a free and equitable title. This should result from the Suit to Quiet Title. I hope to get a General Warranty Deed.

I am not over optimistic. The bank has a case for the remaining balance of the original loan. I do not know how this is going to play out. If the bank wins our contract falls through. If the seller wins I get the property with a General Warranty Deed. I would be really stoked if that happened.

I was scanning a blog I found here on BP when I noticed the following statement.

Total private-market securitization this year: about $13 billion, roughly one week of GSE-based production. The big housing question in 2014: will Mel Watt begin to reverse DeMarco's damage?

Read more at http://www.calculatedriskblog.com/#T8S7psY3tiT2LT5f.99

Is this really true? If it is, it blows me away! I would have never guessed the mortgage market was subsidized so heavily. I find this kind of disturbing and I am curious if this corresponds with the current residential housing market recovery???

The median home value in Spring Hill, Florida is not even $100,000. The area is garbage and super boring...there is no development there! No commerce. Get out of there while you can and try a new strategy.

I can recommend an accountant. She is very reasonable and proactive when performing tax returns. She also owns Real Estate and is familiar with handling families that have large portfolios. She is not afraid of the IRS. PM me if you want her information.

FYI - She is in Bradenton 50 minutes south of Downtown St. Petersburg

I wish I could Bill it would not be realistic.

I cant take out any other financing, other than from the previous owner (holding note) or from the equity line I have open.

@Dion DePaoli

I am not disagreeing with your analysis and I appreciate you taking the time to answer me post. I understand all of the numbers were slanted in favor of Property B. Let me throw out a scenario.

At the end of the ten years you sell both properties for exactly what you paid for them. You will have realized approximately $5,000 more from Property B in CFBTs over the course of ten years. You earn approximately $31,000 (through earning back or not realizing a management fee of 6%) by managing property A (instead of Property A). Principal Reduction realized for Property A over ten years is $50,577, while Property B has been paid down $208,595. I completely agree that all the numbers says Property B is the better property, but in this scenario why is this not better for me? I have not made an offer on Property A because of that. Its held me back a couple different times. It does not seem like a "great" deal. In reality, it is not. But, it is a solid deal and I am looking for a property to hold for ten years. Also, I do believe Property A's location will organically appreciate (near downtown core) and not simply keep up with inflation, like I believe Property B will.

I have time and I am looking for a long term project. Many of them.

I did include replacement reserves on Property A. It was the only expense added uniquely to either property.

@Bill Gulley

Yes it does! They do not come around too often just have to keep your eyes open.

@Dion DePaoli

CBT stands for Cash flows Before Taxes.

It does make sense. Ill post all of my numbers right now. It is not traditional. A couple of my numbers were off and I will correct them right now.

I am 26 years old and my specific goal is to purchase a property that I can and will hold for 10+ years. The entire purchase will be leveraged. I will take advantage of favorable interest rates and choose a property that best fits my location, Cap Rate, Cash-on-Cash return, income (cash flows) and future rent appreciation parameters.

I have an Equity Line I can borrow from at a rate of 7%.

I treat this equity line like a 20 year loan. It does have some adjustments a few years down the road but it should not alter the property substantially. I want to pay this down quick.

Property B is a 6 unit property that currently costs $150,000.

Its breakdown is as follows:

6 units, 3 separate duplexes each at 1700 square feet, block buildings, C+/B- part of town and not near the downtown core that I live in and see prospering quicker than the rest of the county.

Gross Potential Rents $43,200 - 10% VAC Loss = $38,800

Total Operating Expeses (RE Taxes $5,367, Water, Sewer and Trash $3,600, MGMT Fee 6% $2,332.79, Repairs and Maint. $3,600, Insurance $5,301, Lawncare $1,200 = $21,400.81

Net Operating Income = $17,479.19

I borrow all the money at a rate of 7% (additional 3% added to purchase price to account for closing, and entity creation and register)

Total Purchase Price = $154,500

Cap Rate - 11.31%

Debt Service for FIRST year only:

Principal Payments: $3,675.48 Interest Payments:$10,698.56

Total Debt Service:$14,374.04

Cash Flows Before Taxes: $3,105.15

To me, Cash Flows and Principal Reduction are my two biggest goals. The management fee, because it is paid to myself, cancels itself out. So, I add $2,332.79 back to the Cash Flows Before Taxes.

Cash Flows before Taxes + Principal Reduction + Management Fee = $9,116

The property will be either giving me cash flows or creating equity through repayment of principal (the property will be working for me) at a rate of $9,116 a year. That is what I gain, not including any appreciation, from owning and managing Property B in the FIRST year (that number will continue to increase).

My question is that if I am going to hypothetically own a property for 10, 20 or 30 years, is leveraging out as much as possible even if the numbers might be more competitive at a lower price point a solid strategy, within reason?

I think it is. The 13 unit apartment complex I mentioned earlier in this thread (Property A) is something I am leaning towards. It is in a neighborhood that is going through minor/medium revitalization. It is close to the downtown core. Its numbers are as follows:

Gross Potential Rents $97,200 - 10% VAC Loss = $89,748.00

Total Operating Expeses (RE Taxes $8,002, Water, Sewer and Trash $7,164, MGMT Fee 6% $5,384.87, Repairs and Maint. $8,450, Insurance $7,400, Lawncare $1,200 AND REPLACEMENT RESERVES $2,600 (Property B was built in the 1980s and is concrete/block. Property A is two separate buildings. One building is a wood frame, asbestos tile 4-unit. It will have the occasional issue that Repairs and Maint. cannot cover) = $40,200.87

Net Operating Income = $49,547.13

This transaction has a different debt service set-up. The first loan will be from the Equity Line and will be treated like a 20 year loan. It is borrowed at 7%. The second loan is at 5% and will cover the remaining balance of the purchase price. (additional 3% added to purchase price to account for closing, and entity creation and register)

Total Purchase Price = $576,800 ($154,500 financed at 7%. $422,300 at 5%)

Cap Rate - 8.59%

Debt Service for FIRST year only:

Principal Payments: $3,675.48 + $11,717.60 = $15,393.08

Interest Payments:$31,527.06

Total Debt Service:$46,920.14

Cash Flows Before Taxes: $2,626.99

I then add back in the MGMT Fee and the Principal Reduction and my total equity realized and cash flows for the year is $23,404.94. This project for me, right now, trumps Property B. Its cap rate is not nearly as high. Its ROI is not as high either. But, there is a significant advantage in the debt service (and management fee getting added back in). The principal reduction will increase from $15,393.08 in Year 1 to over $19,000 in Year 10.

I understand that you cannot "count" profit in principal reduction, but in reality if you have a very good understanding of your local market and are diligent about keeping good financial records one can have a very clear and accurate understanding of what their property is worth. Thus, reducing principal annually factors nearly as much into my decision making as cash flows, within reason. I am not suggesting put $100,000 down for a $1,000,000 building that will produce negative cash flows right off. I would never condone that.