All Forum Posts by: Dustin Beam

 Oh ok, and that's true. Just a level of comfort of the landlord, which we know.

For me though, if I'm not getting something around the low teens in cash on cash return, I don't think I'd bother with real estate. Of course, IRR matters too, but you get a better IRR when you leverage as well, so that doesn't strengthen the all cash argument.

My main point, if one is to be taken, is that an all cash investor should really look at their expected ROI. If it's not substantially stronger than other hands off investments, don't do it. REI will come with headaches, pretty much guaranteed. I'd personally avoid the hassle if I wasn't at least hitting double digits on expected IRR (and as I've said, I'd rather be in the double digits with CoC and even higher IRR).

Everyone has different thresholds for risk, expected returns, etc and should only do what they feel is "best".

 I don't follow what you mean. My example shows the mortgage getting paid.

I kinda just jumped into the fire with 12 units and I work a full time job (often with overtime hours). 

First, it's possible. If you really believe in the deal, get it. You'll figure out the rest as you go along. I mean, you have a lot of resources right here at BP to answer questions you'll have.

For me, and frankly even after 1.5 years, I still struggle finding the "right people". I have a plumber I like finally. I have a flooring guy that does ok work at a good price. But general maintenance type items...kinda hit or miss. I would kill to have one reliable guy that did all the little stuff at a reasonable price. I don't know that guy (yet). Maybe you don't either, but maybe you do.

If you do think you have plenty of contacts for the maintenance type items, you're in good shape. If not, I would encourage you to keep after that deal and start talking with local investors to see if you can get some names of people that do the work you don't want to at reasonable prices. 

If your deal truly is a good price, you have two options if managing them becomes overwhelming. You can hire a good manager, or you can sell them for a profit. A "good" deal should allow you to do both and end up ok.

Like @Ali Boone said, the ROI or Cash on Cash return diminishes when you don't leverage them. But if that's what it takes to sleep at night, it might be worth it.

The one catch to that is that real estate is not your only option of investing. A very attainable "deal" in my area are houses that would follow the 1% rule. So let's say I get a $100k house that rents for a $1000. If we assume 50% rule, $500 goes to expenses, then I deduct somethign like $250 out for mortgage. I cashflow $250. 

If I assume 20% down, that's about 15% cash on cash return. That's pretty good compared to most opportunities.

Let's now assume I paid all cash. I still have $500/mo on average expenses, but now I cashflow twice as much with $500.  

500x12/100000 = 6% cash on cash return. 

Considering real estate is not actually passive, I'd much rather thrown that $100k into a mutual fund or something that actually is passive and get similar returns.

So basically saying what Ali said, only showing that you could go elsewhere an make similar returns if you're paying all cash. JMO.

Hi Basit, I'm in the middle of a 1031 right now and intend to get some money out of the sale. I was just hoping that I could pull out my initial down payment instead of refinancing it out or paying taxes on it since its not a real gain. But the IRS doesn't see it that way haha!

I'll end up refinancing it to get that money back.

Hey Matt, that's actually what my plan is. But that amount is less than my original down payment, so I had the not so bright idea that I could pull it out ahead of time and skip the refi costs. Ah well

 Thanks for clarifying Dave. I read this sentence and took it the wrong way:

"You must purchase at least as much as your net sale and you must use all of the proceeds in the next purchase or purchases"

I understand what you mean now, though. 

I'm not often the smartest person in the room, but I know I'm not challenging the IRS unless I have to lol. A certain song by the Clash would be my theme song if I did. :)

 Thanks Dave! I did not know that you had to apply all proceeds to the next purchase. I assumed you could withold whatever portion you wanted as long as you accept that you pay tax on that witheld amount. Good to know!

Hello beautiful people of BP,

So, I'm no CPA, but it would seem that if I do not apply my original down payment on a property towards the new purchase, it would not be taxable as it wasn't actually a gain. So if I originally bought a $100k property w/ 20% down, I should be able to pull out that $20k after the sale and not be taxed on it. 

Anyone know if that's kosher with our friends at the IRS?

These discussions remind me of a line in the movie The Patriot. Mel Gibson is teaching his son to shoot a rifle and says "aim small, hit small". The point is that don't aim generally, aim as to as small a point as possible and then if you miss, you're probably close.

While I do think that some of these guides can be helpful or even accurate, they don't always apply. So aim small and really look at each property to determine if it makes sense. I have a spreadsheet I use that I feel comfortable with (I happened to just upload a newer version of it this morning https://www.biggerpockets.com/files/user/DustinB17... ).

I don't care if you use mine, yours, or someone else's, but I do believe a person should try and account for any and all expenses you can think of before you purchase.

Also, I HATE using percentages for Cap Ex type stuff. That makes zero sense if you step back and look at it. Two identical house in different neighborhoods will have very similar Cap Ex costs. However if one is in a bad neighborhood it could be bought at 1/3 the price and 1/2 the rent of the other. If you're using percentages to calculate Cap-Ex, the numbers won't be the same, yet they should be.