All Forum Posts by: Dory Peters

Originally posted by MikeOH:

A multi-unit isn't really more complicated, but it is MORE. More leases to look at; more units to inspect; more tenants to evaluate; more evictions; more lawsuits; more problems; more money (in and out); more maintenance; etc.

I certainly wouldn't suggest jumping from a few SFHs to a 200+ unit complex. That would almost certainly be too much.

Mike

Mike, you have a way with words. :cool:

Alex, you have another option: invest with a group of investors in a larger property (aka syndication). This way you can get into a larger property, and get a higher yield than you'd otherwise get on your money invested.

Linear combination is a mathematical term (used in linear algebra, calculus, differential equations, etc) that precisely expresses the relationship between 2 or more independent variables. For example, let x, y, and z represent cash-flow, appreciation and positive leverage respectively. The following equation is a linear combination of those 3 variables: ax + by +cz = d (where a, b, c, and d are constants).

Actually, Jim beat me to the draw, and I agree that there was insufficient information about that deal and the potential buyer. What if the buyer were a neural surgeon making $4M per surgery, and needed some kind of loss to write off against his/her income? That negative cash-flow could actually be a good thing for him/her.

Here's another example. Perhaps that "cash-flow loser" property is in the path of progress. Maybe one of the local developers is buying up blocks of properties each at 120% of FMV, and that property is only 1 or 2 blocks away. By the way, this also isn't a hypothetical example. Both Cleveland Clinic and University Hospitals are doing this in several areas in Greater Cleveland. Similar things are happening to the row houses in Baltimore near the harbor, and I could name a few other examples.

Again, I believe it's unwise to speak in terms of absolutes when it comes to cash-flow, appreciation, and positive leverage, because in the end what matters most is the strategy or strategies used. Ultimately, the strategy will help to determine how to optimize a, b, and c so that one will end up with the most d.

Mike, you're preaching to the choir about positive cash-flow. All I'm saying is--although I'm personally not into acquiring properties with negative cash-flow--I'm aware of strategies where it can actually make good business sense to acquire properties with negative cash-flow.

Additionally, the issues I raised about risk and speculation were simply to show that cash-flow has some exposure to risks and speculation just as appreciation and leverage do--albeit different amounts and/or types. Incidentally, actuaries use/create math models to account for the various risks. Insurance funds grow when they're right, and grow like AIG's funds have grown lately when they're not.

Now, please don't twist my words to say that I stated/inferred/implied that cash-flow is risky, is riskier than appreciation, or any other nonsense. That's completely contrary to my position all along. My position is that I choose to use all 3 in whatever combination that will work to give me the highest yield. Again, you can choose between chocolate and vanilla if you'd like, and I'll choose Neapolitan.

So, Nick or Scott, you wouldn't even have tried to offer 5 cents on the dollar for the second note, offer 60 cents on the dollar for the first note, transfer the IRS lien to the person, and continue the foreclosure action or get the deed in lieu?

Nick, it's almost scary the stuff you know about all kinds of liens. I never even knew that a child support lien could even be attached to a property.

This is fantastic.

Scott, I never thought about marketing renters to other investors. :D

Originally posted by nationwidepi:

You are also correct that if a person located their rental business in a small town that had only one major employer and that employer shut down, that would be a problem. Of course, that would be true almost regardless of what kind of business you owned.

None of that is the issue here.

Why is that not part of the issue? It certainly is a factor, regardless if you are a landlord or a flipper, and it is certainly of INCREDIBLE importance for a cash flow investor as he/she will be in that area for a long period of time, unlike a flipper who can get in and out before it affects them.

That's exactly my point.

Plus, it should be obvious--especially during the economic conditions of today--that plant closures, layoffs, and other job related changes (like relocations) are affecting small and large cities alike--albeit not necessarily to the same degree. Seattle isn't a small city. Although Microsoft isn't the only major employer there, I'm sure that the rental--both commercial and residential--took a hit after Microsoft had downsized several thousands of workers. I don't even need to go there with Cleveland or Detroit--neither of which are small cities.

The point is it's only fair to compare and contract future cash-flow with future appreciation, current cash-flow with with recently actualized appreciation (as in the case of a flip), and past cash-flow with past appreciation. Hindsight is 20/20, and the future is unknown. There are ways to structure deals using a linear combination of cash-flow, appreciation, and positive leverage in a way to reduce the amount of speculation involved, and there are ways to roll the dice using a combination of the 3.

I believe Rich presented an excellent nuanced argument for using multiple strategies. He even hinted at how one could use negative cash-flow constructively (to help reduce one's taxes). I believe he stated--perhaps more eloquently than I did--that one's exit strategy ultimately will determine what to use and when, and that's what I've been saying (or at least trying to say) all along.

Originally posted by MikeOH:

Future cash flow (positive or negative) is not speculative in nature. It is a virtual certainty based on the price you paid for the property. Future appreciation is highly speculative.

Mike

Projections of future cash-flow--as any other projections--are subject to ; natural disasters; crazy/peaceful tenant interactions; decreases/increases in taxes, insurance, cost of living, jobs, . . .; etc. For example, a rental might burn down 2 months from now. Most cash-flow projections--that I've seen--don't account for this. One or more major employers in an area might decide to relocate or downsize several thousands of employees 6 months from now. Although those situations aren't the norm, they can and do happen.

Again, the projections are speculative by nature.

Originally posted by Tim Wieneke:

I think the Patriot Act set up the precedent for off the record extending of powers beyond it. I think the time for the Patriot Act to end is coming, if not here already.

I think it's a bit worse than that. I believe the previous administration abused the threat of suspending habeas corpus as a means to bully Congress into passing the Patriot Act, and then everything else you said.

However, I suspect it's here to stay for a 3 word reason: One World Order. Is it a coincidence that China, which has traditionally been less open, is opening itself up more, and the US and Canada, which have traditionally been more open, are legalizing more restrictions? I don't think so.

The US has been spying on its citizens for decades, so I don't know why anyone would fine it somehow surprising. Don't even get me started! Nevertheless, I'll give you another freebie: warrant-less wire-tapping is mere child's play in comparison to what they were able to do via their data-mining efforts. Here's another one: google on hancock and AT&T. (Hancock is a programming language created for handling tasks such as mass surveillance.)

Do you want the blue or red pill? Here's a third freebie: check out a few issues of 2600 or Blacklisted if you really want to know what's going on with respect to the ongoing spying efforts. That stuff will blow your mind--at least I know it blows my mind.

After the note seasons, then you could sell it, and use that cash for your deals.