All Forum Posts by: Mike McKinzie

If "free speech" were the ONLY issue, then you might have a point. But there is so much more than just free speech.

Now the Federal Government will HELP you buy a car. Seeing how EFFICIENTLY that is being run, can you imgaine Government run Health Care!!

President Bush raised the National Debit $5T in 8 years, Obama raised it over $1T in just six months.

How much of GM, AIG, etc... does the Federal Government own? Too much for my taste, that is for sure. The whole idea of the United States is to let companies succeed and fail, let new companies rise to take their place.

KEEP THE GOVERNMENT AS LIMITED AS POSSIBLE.

The government should NOT be involved with education, welfare, housing, transportation (other than interstate commerce), communication (again, other than interstate commerce), etc...

Without getting too religious, a quote from the Bible states it all, "If a man shall not work, he shall not eat." II Thes. 3:10.

I will say that the US Economy is in a shambles, but in my opinion, it is from TOO MUCH Government intervention. You can trace the current mess clear back to the Great Depression. Some say you can even trace it back to the Civil War. If Lincoln has not been shot, the US would appear very different today. Johnson was a completely inept leader. But that subject would be for another thread.

Bush's "free speech" zones were WRONG, I agree with the original post. But hailing Obama as "The Chosen One" is even MORE wrong!

Not necessarily. Just because the house is worth $400,000 today doesn't mean that is what the landlord paid for it. I have a house that is worth around $500,000 and I am getting $2,000 a month rent for it. But I only paid $90,000 for the house, back in 1985.

This brings up the topic of another couple of threads on here, one about "Appreciation vs. Cash Flow" and "Investing for Appreciation-Where is the Exit", both excellent thoughts the subject.

Should your friends landlord sell the property and make better cash flow investments? That depends. If he may need to move back into it at a later date, the loss of income is better than having to pay current market price for another home. Then again, he could rent himself, but sometimes a house has more VALUE than just 'cash flow.'

I am really starting to see the 50% rule as a viable tool in analyzing investments. Although there are many other variables, it is a good rule of thumb, and if I own an investment for 10 years and the expenses stay under 50%, then I feel I have done pretty well.

I know that it has been a while since there was a post on this thread, like 7 months, but I would like to 'get my head around' this concept.

So does this concept state, "If the Principle and Interest payment is LESS than fifty percent of the rent, the property will cash flow?"

Also, I am assuming that we do not count all cash purchases when figuring out if it will cash flow?!?

Someone mentioned "one hundred bucks a door" as a target profit. Does this include houses that rent for more than $2,000 a month?

Obviously, as stated before, a house that is 10 years old versus a house that is 80 years old will have a very different Capital Expense over time.

I am just trying to understand, the oldest house I have was built in 1960. I have not purchased an older home in quite a while.

Having been a Realtor in Southern California for many years, up until the 1990s, I still have a few contacts in the business. They are telling me that even the foreclosed homes that the banks own are being released to the market very slowly. One of my best contacts told me that an REO listed for 180,000 sold for all cash, 225,000.

On top of that, the banks are actually fixing many of the homes up to "move in" status, so an owner occupied buyer is moving in.

What this will do in the long run is back up inventory, create a false price appreciation, thus causing a glut and price reduction just to turn RP assets into Cash assets.

California investing is going to take patience in 2009 and 2010. Deals can be made, but pick and chose, and don't get caught up in a bidding war.

I just want to say that I agree with every other poster on here. When it comes to real estate, it will NEVER dry up. I think it was Will Rogers who said, "Buy land, they aren't making any more of it." The number of houses in the United States number in the millions and millions. Even in the best of markets, some areas will still be weak and offer great deals. In strong markets, there is always a 'diamond in the rough' that everyone else is ignoring. Real Estate investing is simple, you buy a house and rent it out. You may need to do some repairs. But it is NOT easy, there is financing, expenses and market variables. There is a lot to learn, but once you learn it, it becomes second nature and you progress forward. Terms like "Return on investment", "Return of Investment", "Capitalization Rate", "Gross Multiplier", "50% rule" (although I like the 49% rule), etc.... need to be learned and understood.

This site is invaluable for learning all this and more.

So, to answer your question "won't the deals dry up", I answer, only if the United States becomes a totally Socialist Republic where no one can own any land.

I have been involved in several lively discussions on here, but I don't think I have introduced myself.

My name is Mike, my wife is Eva and we have six children, all but one is 18 or older now.

I bought my first real estate investment at the age of 19, and have bought and sold, made money, lost money, but have fun doing it.

I work as a Finance Director for a Non Profit company that runs a Head Start, Substance Abuse Recovery and Job Training Program, mostly for Native Americans. Eva is a nurse.

At one time, my father and I owned two Century 21 Franchises in Southern California, along with two escrow companies and a construction company.

Personally, Eva and I own three rental houses plus the house we live in. But last year, I started managing my parents estate which is currently 30 properties. I have already bought and sold three properties for them, in the past 12 months, improving their monthly cash flow each time.

The reason that I started reading Biggerpockets is that I need to be sharper with my parents investments, along with my own. I have always thought of my investment real estate of just adding a few extra bucks each month to our income, and then have the properties paid off when we retire. But I need to expand that thought into helping my parents make more money, now.

So I will debate, agree, counter and ask lots of questions. I am always willing to learn.

Thank you for all the advice so far!

Rich
Although I can appreciate your great success and see that a buy and hold is an excellent investment strategy, there comes a time when you should sell, if for no other reason than getting a better return. To exaggerate the point, if you had a house worth $1,000,000 and could only get $1,000 a month rent, you would be better off selling, doing a 1031, and buying 10 houses, $100,000 each, getting $1,000 a month rent. Why mortgage the $1,000,000 home just so you could keep the $1,000 a month income on it? By selling, you change $1,000 a month income into $10,000 income, and have no debt. Sounds like a better choice than just refinancing.

Again, this is an exaggeration, but it brings up the point of MikeOH's original question, "Where is the exit". BUT, he was asking those who are investing for appreciation, which you, Rich, are not doing. You are buying for cash flow. Cash flow is king, but appreciation is like a "Christmas Bonus". Sometimes the Bonus can be bigger than your salary, so you should TAKE IT.

For me, anytime the rent falls below .25% of the market value, it is time for serious consideration of selling, ie, if I am getting $1,000 rent and the house has appreciated to $400,000, as the saying goes "TAKE THE MONEY AND RUN".

With investing, the word "IF" always is in play.

Let's take MikeOH. You buy a house for $40,000 that rents for $800 a month. Let's say you made a steal and the house has a fair market value of $80,000. IF (there is that word), the house reached a Fair market Value of $500,000 and your rent was only $1,000 a month, would you sell it?

Most investors, including ME, make the mistake of saying "only a little more" when it comes to appreciation. And when it starts to drop, we say "it will come back", and thus we NEVER make the decision.

Therefore, the crux of my question is "When do we take the appreciation profit?" to make sure we don't have the attitude "only a little more AND it will come back" thus NEVER making the decision.

I think most investors have the attitude of "Don't make the wrong decision" when, instead, we should be thinking "Make the right decision." I know I am RIGHT THERE.

Just to add a little to my example, the home has a 15 year, fixed rate loan at 4.875% and the balance is only 5 digits and 7 years remaining. Having a concrete tile roof, a new roof is not really a concern. Paint, carpet, plumbing, HVAC, etc.. will be. The tenants are excellent, an Attorney and a Nurse with a young family. So other factors come in beside just the financial numbers. Zero vacancy in five years has some value.

Anyway, my original question is about appreciation versus rental amount. There must be a certain time that experts know it would be better to move the appreciation to a better cash flow property, so WHEN?

I would like to try and simplify things a little bit, just so I can have a couple of more calculations to use when analyzing an investment.

First, if we use the 50% rule, are most of you saying that if the PITI is MORE than 50% of the rent, the property will not cash flow profitably? Then, if we can't get there, ie, I have a rental at $2,095 a month and PITI of $1,388 a month, can we say that I am banking on appreciation as well as cash flow for profit? Also, over the past five years, OE on this property is running around $5,000.00 annually (taxes, insurance, yard care, repairs). In ten years, this property will be free and clear, and rent will be around $2,500 a month. The cash flow right now is miniscule, but I think it is still a fairly good investment.

I am not sure how many folks on here have SFR rentals that rent for over $2,000 a month, but I think those of us who do are looking at appreciation rather strongly. The aforementioned house was purchased for $180,000, and actually reached $700,000 before falling back to around $400,000. If we had sold it at the top of the market, the $500,000 increase in value makes up for a LOT of lost monthly cash flow.

Which brings another question for all the experts. At what point do you sell a rental if the value is increasing faster than you can raise the rent? If the rent is 1% of market value? .5%? .25%? Even you die hard cash flow folks must have a point at which appreciation is more important, right?

I am out in California at the moment taking care of mom who is fighting Lung Cancer and dad who is in the final stages of Alzheimers, therefore, my posting time is limited. We are trying to get some in home care for them, but mom is reluctant to admit she can't take care of dad any more. She wants help but doesn't want help. Being the 'sandwich' generation is a real juggling act.

But I try to catch up late at night when I can on these boards. I hope to post more when I get back home to Colorado.