All Forum Posts by: Mike McKinzie

First off, I think it would be fair to say they everyone who posts here has made money and is making money in Real Estate. There are a few that are learning and the rest of us hope to enlighten you, entertain you and maybe even teach you a little about what we have learned, so maybe you will not have as many hard knocks as we have had.

I will admit that I have lost money on two pieces of real estate, one I lived in and the other was a rental. The owner occupied I purchased when I thought the bottom had been hit in Southern California, in 1992, and my timing was wrong. We sold it in 1996 for a loss. The other was a cheap rental in So Cal in 1988 and I ended up just deeding it to the tenants. So it happens to all of us, a bad deal now and then. But it also wise to know a bad deal and get out of it as soon as you notice it to cut your losses.

I real earlier in this thread that MikeOH stated something along the lines, “I can virtually guarantee you that 1% will not cash flow.†My personal life experience has proven otherwise. I can guarantee you that you can cash flow at .50% and even .25%. And this is whether you bought 2 years ago or 20 years ago. One example is a rental I bought in Texas 2 years ago, purchase price $103,000 and rent $1050 a month, 1.02%. I put 20% down and got an 82,000 loan at 6.875%. I make my PITI payment of $855 and my management company automatically deposits $966 every month into my bank account. The house was brand new when I bought it, so my total repair costs over the past two years was $70. It has never been vacant. Even if I average one month a year vacancy, I still ‘cash flow’, and in two years, there have been no vacancies. Last year, my uncle (who makes a six figure a month income on rentals) purchased a home in Fort Collins, Colorado for $248,000 and gets $1,250 a month rent, .5%. He manages it himself (not bad for an 82 year old man), paid cash so he receives $15,000, pays out 3,000 in taxes and 1,000 in insurance for a new of $11,000. That 4.4% annual return sure beats .85% on a six month CD, plus he can use the depreciation for more return, and we are not counting appreciation into the calculations anywhere. Let’s say my uncle only got $625 a month rent, .25%. He would get $7,500 a year, less taxes and insurance of $4,000 and he get $3,500 a month rent, 1.4%, still better than a CD.

I do have a question for MikeOH. I do want to say that I highly respect you and I think you have done well in real estate investing. The question is, where in the United States can you buy a single family residence for $300,000 and get $6,000 a month rent? Why would a tenant give you ¼ of your sales price back, in rent, in one year? I have an investor friend in CA who is buying patio homes for $55,000 and renting them for $1,250 a month. BUT, here is the catch. When he buys them, they are missing all the drywall, all the plumbing, all the fixtures, all the carpeting, etc.. He is basically buying a partially built house. When it is all said and done, he is into it at $100 to $120K, around the 1 percent mark. Plus ungodly, constant repair bills. I prefer 10 year old or newer homes, cuts way down on repair costs. If you want to be your own repairman, your own maintenance man and have the time, I guess you could buy a “clunker†and turn it into a cash cow. But some of us want to treat a rental like a passbook savings account. Don’t bother me with anything, just send me my check once a month.

For those that are buying houses from a bank, from a wholesaler or from a distressed seller, appreciation is NOT part of the formula. You are just buying at a discount and selling at full retail. Yes, you made money, which is the goal, but you did not experience appreciation in the true sense of the word. I bought a house in 2001 for $130,000 and sold it in 2004 for $200,000, that is appreciation. Why did I not turn it into a rental? Because it would rent for less than $1,000 a month and I used the profit to build a custom home to live in. I sold two rentals to help pay for a fairly nice custom home. Another benefit of owning rental real estate!

Also, I keep seeing the 50% mark being tossed around like it is some holy grail of real estate investing. If I understand it correctly, no more than 50% of the monthly rental income should go to all expenses. If I had a property that cost me 50% of the months rent for expenses, I would unload it as soon as I could. This is not counting debt service.

I need to correct myself from an earlier post of mine. IF, and that is a big IF, all my properties were currently rented, the scheduled gross income would be $30,245.00 per month. I have one commercial building that has been vacant for two years, which has cut into my monthly income severely. I had it sold but the sale died Friday, the buyer could not get it financed, so it is back on the market. I have a few other vacancies, but am still bringing in around $20,000 a month right now. Once it sales or leases, $30K a month will be easy. For those that are interested, this encompasses 21 different properties, 30 separate rental units. The lowest priced rental is $700 a month and the highest is $2,095 a month (not counting the commercial unit). Only three of the units have debt, total of $3,600 a month. My goal by the year 2020 is to have 50 rental units bringing in a gross of $50,000 a month and have less than $10,000 in monthly debt service. I should be able to retire on that. The current administration may screw me over, but that is out of my control, so I just keep on investing.

This is not to start a new debate or argument or to say “I am right, you are wrong.†It is to state that there are all kinds of ways to make money in rental real estate and most of the so called ‘gurus’ don’t have a clue on how to do it. You just need to have goals, do your homework, or as other’s call it “due diligence†and take the leap. Don’t expect to get rich quick, I have been buying rentals since 1979. Things happen like DIVORCE, RECESSION and CHILDREN. (What my children have cost me the past 6 years, I could have bought 2 rental houses for CASH) Slow and steady, smart and savvy, and you can have a much better retirement than Social Security could ever offer.

MikeOH, the rentals are MINE. I was using the CD as an example of what a SAFE investment returns today. Personally, I only have 25,000 in one CD, the rest is used in buying rental real estate. The 25,000 is my 'repair reserve.'

Mike OH, I was neither. My father, who was a Real Estate Broker for 36 years, helped start the company called Century 21. He was the one who actually brought the first "Gold Jackets" to the first Brokers Meeting. There were 19 Brokers who started Century 21, my father was office number 17. Back then, his brother-in-law had a Red Carpet Franchise and they wore Red Jackets, so my father wanted some type of Jacket that represented SUCCESS. After I graduated from College with my Bachelor's Degree in Business and Accounting, I joined my father's firm and we opened a second office. My title was Chief Financial Officer. Every transaction that closed came across my desk before we would pay the agent their commission. This means that I initialed every single page of every contract, every disclosure, every piece of paper in the file.

When I joined my father's firm, he had 12 agents. We built it up to 60 agents. At the height of the market in the 1980s, we were the 62 largest office, by volume, of over 7,200 Offices nationwide.

My father was the consummate salesman. He did all the training, problem solving and deal making. Me, I was the technician, making sure every "i" was dotted and every "t" was crossed.

In my career, you could say I have seen everything, from the mundane to the unusual to the completely bizarre. From all cash to no money down. My father said he has done deals where chickens and cows were used as a down payment. I have dealt with murder, drownings, houses burning down and letting the DEA in to bust a Columbian Drug Lord. I could write a book.

"I have a curious question and I hope you don't get it in the wrong way. With so much experience in real estate investment, how did you get to invest in CDs at the worse time when interest is so low?"

I am a Finance Director for a Non Profit. One of our Federal Grants gives us all the money in January, nearly $1M. Therefore, I put some of it in short term CDs as I will need it the last quarter of the year.

Yes, taxes hurt, Uncle Sam gets 25K to 50K a year from me.

I want to THANK all the posters here for an entertaining education. Although I have been involved with a few Real Estate closings in my life (over 5,000 to date), there is always something new to learn. Cash flow is good for those that want the month to month income. Appreciation is good for those that want to say they have a "High Net Worth" and when they sell.

Appreciation and Cash Flow is like "Time and Space". Once you get the actual CASH from appreciation, like Time, it is done, gone forever (reinvestment would be considered a "new day"). Cash Flow, on the other hand, is a constant, just like a "location" is a constant. Cash Flow can change, just like a location can change due to weather, time, etc..., but it is still considered a constant, a physical space.

As human beings, we exist in both TIME AND SPACE. They compliment each other. For those posters who say they invest MAINLY for Cash Flow, you can bet that when they SELL, the LOVE Appreciation. For those posters who say they invest for Appreciation, if the house does not sell, they LOVE the monthly cash flow, whether it is a positive cash flow or it reduces the negative cash flow!

I do want to comment on the $140,000 purchase price for a house that rents for $1,400 a month. That is a good deal, maybe a very good deal. Since I purchase for CASH only, that is what I will use here. Not a GREAT deal, but still a good deal.

I have opened 4, $100,000 CD's this year. Six month CD's that are paying me an average of .85% through a Major Bank. I will make $850 on each or $3,400 this year on $400,000.

So instead, I buy a house for $140,000 that gives me a gross income of $16,800 this year. In CA, I pay $1,750 for taxes, $1,680 for Management, $800 for Insurance and put aside $1,000 for repairs/vacancy. Therefore, I have a net of $11,570, annually. This equates to an 8.25% Cap Rate. I have had California rentals since the 1970s, so I know what I am talking about. So instead of buying $400,000 in CD's and making $3,400, I buy three rentals for $420,000 and make $34,710. The reason I have the CDs is that it is in my business and I need the liquidity of that money. I have bought one new rental in Texas this year, it closed today and should give me a 7% Cap Rate.

Do I want to buy in someplace like Ohio, Indiana, Minnesota, etc... NOOOO! Give me CA, AZ, NV, TX, CO, UT, OR and WA.

Also, I NEVER want to see the house, never want to meet or talk with a tenant and never want to worry.

My current monthly rental income is in the $25,000.00 range. In ten years, I hope to double that.

For those of you telling me to do my own research, part of that research is ASKING QUESTIONS OF OTHER INVESTORS. I thought the pool of investors on this website might be a viable part of my research.

I do not want to hear from people who have property to sell, I want to hear from investors who have actually purchased somewhere and are having positive experiences.

I am closing on a property in Texas later this month. Tenant and management are already in place, giving me a 6% Cap Rate (paying all cash). I am in the process of making an offer on another Texas Property. My wife and I plan on making an investigative trip to Phoenix and Las Vegas. If anyone has any additional information that we can accumulate about these areas, it would be much appreciated.

Thank you Rich. This is the type of thing I like to hear. Whether I should research an area more or move on. I have seen other post about areas such as Mississippi, Indianapolis, etc... Can anyone else add areas that might be good to research?

I like Single Family, the maintenance costs seem to stay lower and the tenants seem to take better care of a SFR than they do a unit.

Nationwide, I am working with a Dallas Broker at the moment, I have had good returns there. I am also in contact with a California Broker, a North Carolina Broker and checking my neck of the woods here in Colorado.

Karen, don't trip over your little sand castle in your little sand box.

As for having a thick skin, back when I ran a Real Estate Brokerage, my agents called me "The King of Stress" for how I handled all the stress. I have been through a 2 year old drowning in a pool of a home I managed. I have been through a husband murdering a wife while we had their house under contract. I have had to open a rental for the DEA to do a Raid. Houses in escrow burning down. Sat in the driveway of a home under escrow, with gun in hand, as carloads of gang members drove by, taunting me. I have been through more stress than anyone on this board can imagine. Watching my brother die of Leukemia. Having to live in my car. Watching my mother fight Breast Cancer. And much, MUCH worse.

So, let me rephrase my question. During this year of our Lord, 2009, which areas of the United States, whether state, city, or neighborhood, are we as real estate investors, seeing as being a good area to make a new investment for cash flow purposes as opposed to appreciation? It would be assanine to put all your eggs in one basket, just ask folks who invested heavily in Phoenix, or Las Vegas, or Denver, or Silicon Valley, or Orange County in 1995-2005.

If you all want to have a smart a$$ exchange, I can hang with you all day long. But at the moment, I need to finish a 1031. Most likely it will be in the Dallas/Forth Worth area since I already have Brokers and Management in place. I was just hoping to look at a few other options, if it isn't asking you to stretch your brain too far!!

I don't believe the responses I get on this forum, what a waste of my time. I have asked two questions and all I mostly get are smart a$$ responses, what the hey? I belong to several forums, coin collecting, metal detecting, online gaming, precious metal detecting, etc.... and whenever I ask a question, I get a courteous and helpful answer.

Let me add this. I have 10 rental units in the Fresno, CA area. I have 10 rental units in the LA/Orange/Riverside County area of California. I have 33 units in Texas. I own a duplex in Colorado and one house in Virginia (strange story on that one). I have been investing since the 1970s (divorce cost me about half my properties). The last property I bought was in Fort Worth, Texas. I make a profit on it, but the Property Taxes in Texas are just taking too much of my cash flow. So now I am looking to see if there is a better return in other states. I was a Realtor for many years but left the industry in 1997 so I am not up on what is a good area to start looking for investments.

So I thought I would start researching and asking questions on Online Real Estate Investing Forums. But it appears that folks on this forum do not really want to help, everyone seems to be out for themselves. There are other forums that I will pursue, I apologize if I have wasted any of your precious time.