All Forum Posts by: George Pauley

I bought my first rental at 44. It was a huge mistake. This year I will be 56, I expect to own 18 rentals by the end of this year. My situation is very similar to yours, the wife and I have day jobs that fund our REIs. But these day jobs mean that our REI adventure is a part-time affair. So no, 45 is not too late. :)

As many have said, don't worry about other peoples opinions.  Life is full of people very ready to tell you why you won't succeed.

My addition to this discussion is to ask you to question whether or not you want your family (other than your wife) even knowing what you are up to.  My extended family vaguely knows that I do some real-estate stuff on the side.  But my wife and I are careful to "spill the beans" on how many rentals we have or what our cash flow looks like.  I'm pretty confident that I'd be asked for loans and flat out hand-outs pretty quickly if they did know.  Just something to consider.

Just to be clear, I was not suggesting or assuming that we were talking about NOT paying the student loan.  I thought we were just talking about paying extra on on the student loan instead of buying the multi-family.  You gotta pay off the student loan, but minimum payments are just fine.

I have second thoughts on my 20th deal!  My first thing I remind myself when I begin to doubt is repeat a mantra:  "Do the math and the math will tell you what to do."  If the deal makes sense (mathematically) then I should do it.  In fact, it would horrible for me NOT to do the deal.  I imagine myself 10 years in the future lamenting the fact that I was too chicken to pull the trigger and make the deal.

Yes, there are a lot of unknowns in any deal so "doing the math" is of questionable use.  But, as we do more and more deals, the "variance" of those unknowns begins to decline.  And even if you haven't done a lot of deals, many others have done those deals and can give advice to help you decrease the unknowns.

Finally, I was at an investment seminar a couple of months ago.  Many of us had gathered for drinks and conversation afterwards.  We noticed that all of us had stories about real estate investments that did not work out the way we expected.  But, importantly, all of these deals did work out, just not the way we expected.  For example my story was about a cash flow investment I made that never actually cash flowed.  But I sold it after 7 years for twice what I bought it for (+$150k).  There are many ways we can make money with real estate, usually if one way isn't working, another way does.  I guess what I'm trying to say is that real estate is actually pretty forgiving so relax and know that it's going to work out.

Do the math, and the math will tell you what to do.  

If the ROI on an investment is higher than the percentage rate on your student loan then invest. You are paying 6% on your loan, 10-12% is fairly typical real estate investment. So you make 6% more by putting the money in the investment. Make sense?

As others have said the first deal is the hardest, so you've got to get it out of the way before you can move on to "easier" deals.

My wife and I have a quip that describes our experience:  With each deal we learn a new lesson.  And by lesson, we mean we pay money for our mistakes.  But, we strive to not make the same mistakes twice, and each new deal has a lower cost for lessons.  :)

Very common question/situation

The root issue is that you will get the best mortgage rates using qualifying Fanny/Freddie loans. The mortgages won't lend to your LLC. Besides you and your girlfriend have a MUCH better income and debt/income ratio and credit score than your LLC anyway. So most folks buy properties in their own name and then move them to their LLCs.

But beware, mortgages have a "due on sale" clause in which states that if you sell the property (e.g. put it in an LLC) then the lender can demand immediate payment in full on mortgage. This is a very real legal issue. That said, I have NEVER met someone this has happened to. (Or even met someone who knew someone this had happened to.) One argument is that the mortgage company knows that if they did try to demand due on sale payment we could just move the house back into our names. :)

Instead of HELOC, what if you just refinance the home? Many lenders are "friendly" to investors and will include at least part of the expected rental income when determining your debt to income ratio.

I really, really, hate that fatherly advice.  As rich dad reminds us, our homes are NOT as asset.  If you want a doo-dad (like a home, car, vacation, etc.), build up your passive income to the point that you can afford it.

Let's look at the numbers a different way.  You are currently paying $2700 in rent to have a place to live.  It would cost you $120k in down payment, to then make mortgage payments greater than $2700 to have a place to live.  Alternatively, your original plan was to pay $30k to make $3k a year.  At this point you are getting 1 month of rent free every year.  Take that same $120k and buy 4 such investment properties.  Now you are getting 4 months of free rent every year.  Or put another way you are now only paying $2100 a month in rent.  Yielding you $600 a month extra cash to start building up a down payment for investment property #5.

Yes, your rent will keep going up, but so will the rents on your investment properties.  Inflation acts on both assets and liabilities, and the two (generally) offset each other.

Yes you run the risk of getting older and still not owning a house.  But do you really care if, at that point, you have enough passive income to cover the mortgage payment?

This was a screaming hot deal, if your numbers were correct.  With $1100 rent, and $20k rehab, you could have taken the offer to $90k and still likely cash-flowed.  I'm kind of surprised that the property only went for $57,550, though apparently the seller was in a hurry.  That extra $50 does smell a little bit like the realtor was rubbing it in a bit.  :)

Remember that the seller's realtor has a fiduciary responsibility to attempt to maximize the seller's profit.  Likely the house went up for sale at $50k and the realtor's phone starting ringing off the hook.  Realtor then realized they had put the house on the market for too low and starting slowing things down a bit to see how much the price could escalate.  I don't think the realtor did anything wrong (other than putting the house up too low in the first place.)

It also feels to me like you put the realtor in a difficult position with your escalator bid offer.  In making such an offer you've let the realtor know what your bid price is.  And, again, the realtor has a responsibility to get best price for the seller.  Accepting anything less than max offer value feels like the realtor is no longer acting in the seller's best interest.  But I'm not a realtor, so I likely don't know what I'm talking about.

Remember that real estate is a relationship business.  Every deal should be win-win lest the other players stop wanting to do deals with you.