All Forum Posts by: Edward Liu

You should refinance this property, somehow take as much cash out to still have positive cash flow and invest in something else.  

First all, you can not assume property will always appreciate at rate of last few years.  No matter where you live, these rate of return is not sustainable.  I live in one of the more expensive areas in the country (medium house price is $2.67M in Dec 2017).  It took 8 years for home price to get back to 2008 level.  Don't assume you will have $100k appreciation every 2 years.

Second, use leverage to maximize returns.  Same amount of cash can produce a lot more returns when leveraged.  For example, in 2016, I sold one of my rental townhouses (with mortgage and lot of appreciation) in the bay area and ended with 650k in cash from the sale.  I used that 650k cash to trade for 60 units outside of CA in many cities, leveraged (with many loans) to purchase properties worth about $1.5M.  Today, these 60 units conservatively are worth about $2.2M+ with strong positive cash flow.  One of properties I brought for less than $500k in Dec 2016 - I am in the process of selling it for about $925-950k.  3 offers is on the table waiting for me to decide this weekend.  If I kept the rental townhouse in the bay area, in the last 2 years, it would have appreciated by about $200k.  Is $200k appreciation bad?  No, but we can do better if used the money wisely.

My advice is never pay cash unless the deal is so small that it is not worth the effort to get the loan.  I can easily pay off many of my loans, but never do.  Due to inflation, money will be worth less in 10 years. 

You need to understand local markets on where are the C or B or A areas through a lot research.  I have found duplexes in Cleveland where total monthly rent is $1400 and cost of the duplex is less than $15k.  However, they are in or near the warzone and no property management company is willing to manage them.  If there are that many good deals in the same area, usually implies area is very bad for investment.  Else, these deals would be gone by now.

It really depends on risk tolerance and holding time horizon.  If only for 1-2 years and you want to be safe, 2 suggestion:

1) TIPS bond funds (Treasury Inflation Protected Security).  

- TIPS is tax free, low risk (issued by the US government, and somewhat inflation protected), and decent returns (better than saving account).  

- As with all bonds, it can lose value during time of rising interest rate, so not risk free.

2) Purchase US Treasury Bills directly from US Government

- Risk free (if you hold until end of set term) and set interest rate (better vs. savings account).  Tax free

- Low liquidity.  But you can buy various maturities (4, 8, 13, 26, and 52 weeks)

Rehab cost is learned through experience and many failed estimates.  Normally we all tend to underestimate the cost.  Also, cost tend to differ quite a bit depend on area.  For example, Bay Area is known to have higher cost vs. other parts of the country.   You should go to other parts of forum and get advise or lesson on rehab costs.

I can not teach you negotiation.  Look at historic sales record for this property and see how much owner brought it for. Many seller has this psychological barrier about not losing money.  By talking with seller, you need to have a gut feeling of her selling point.

First, do you have a seller who really wants to sell?  If not, you are not going to get much lower price than his asking.   Second, If you ask 90k, with negotiation (if seller truly wants to sell), it will end up being more close to $110k.  Is this what you are shooting for?  You need to have a point where you will walk away from deal if not achieved.

Without knowing the property and see inside, I can not judge what is the right price.  After all the analysis of numbers, lot of times it comes down to gut feeling whether its a good deal or not at the negotiated price.  I think the key is to try and see - never be afraid to ask.  Even if you don't get this deal, so what?   

2 years ago, I brought a building in Cincinnati.  Negotiated price was $630k based on numbers, etc.  After inspection and talking with the seller, I could tell this seller really wants to sell and there are hidden problems.  He stated best price was $600k, but knowing he really want to sell, I only agreed to pay $470k (Seller brought building for $420k during 2010 from bank.  After all the fees, he won't lose money at $470k) and held firm.  My agent thought I was crazy to ask such huge discount and thought the deal was dead.  In the end seller relented and I got my price.  I just put this building on the market this week and likely it will sell close to $1M, maybe more.  The deal was good such that after valuation by the bank, it approached me and told me that I don't need to put down 25%.  I only put in $60k for the down payment to get this loan.  It is very rare for bank to tell you to lower down payment requirement at their initiative.

This is example where as negotiator, you have to be very clear of what you want, but at the same time understand seller's motivations and selling point.

Last recession was the buying opportunity of a lifetime. I know people who brought 100+ SFH from bank for avg of $90k per house in the BAY AREA in 2010. Think about it is in the bay area and price of SFH now. They made $75-100 million in that recession from those 100+ SFH alone.

Coming recession is probably not going to be that severe as the 2008 crisis.  However, there will definitely be opportunities.  By that time, cash is the king and credit will be tight. 

I would never risk your parent's biggest investment.  In addition, my advice is not to mix investments with your dad, specially if you have siblings.  I have seen too many example of things don't end well.

Sounds like your family wants to do major upgrade to the house - suggestion is look at value of the home and see if such major investment is worth the money.   Many times people are so emotionally attached to their own home that they put in upgrades that don't add any value to their home.  

I would save up the capital and then buy the rental - you are still young.  Set a goal on how much you need and how to achieve.  It might be boring initially, but many of us has gone through this phase (some people call it the rat race).    

Not sure how much you are making, but try to see ways to increase your income.  Maybe even get a college degree - avoid online college.  

You are already ahead of many people by just think about this and post on this forum. When I was at 20, all I think about is girls, parties, and beer.  

Price seems too high.  You should read about the 70% rule and see if it applies to your situation.  Given this is continuously rented, so might be in better shape.  I always worry about foundation issues (not clear how severe), rest of stuff you mentioned are just money.

I would call the police.  

In addition, for every repair and purchase of supplies (such as water heater), I always ask for scan copy of receipts, so at least you know he brought a water heater from a legit store.  It doesn't mean he actually installed it at your property, but still good to have. 

Both my wife and I are self-employed, it is not a problem getting loans, as long as you have at least 2 years of data doing the same thing and showing good income.  At least 2 years of tax returns.  Obviously it helps if you have high net worth.

2nd option is purchase multi-plex with more than 4 units, thus commercial loans (not personal loans).  For commercial loans, their approval depend more on the value and cash flow of the property.  Your high credit score would help, but loan is more tied to the property income, not your income.  Terms of commercial loans are different, usually review by bank every 5 years.  Try to understand it first before sign on.