All Forum Posts by: Jack B.
Jack B. has started 420 posts and replied 1845 times.
Post: Lot's of leveraged houses vs. one or two paid off houses

- Rental Property Investor
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Originally posted by @Charlie Fitzgerald:
If your goal is to have only 2 houses...I'd rather have 2, 300k houses with 25% of my money in them and 75% of somebody else's rather than 2, 75k houses that I own free and clear. Use whatever numbers you want, the concept is the same.
Ummm...the concept is the same in that what I pointed out above as your reasoning for having leveraged properties works against you, not for you, especially since you would rather have two expensive leveraged properties rather than two cheap paid off properties.
You are just changing your scenario and comparing apples to oranges now, where earlier you made a statement as if leveraged properties are somehow immune from the same vacancy risks, and as if there is no expense there when they are sitting vacant.
Again, your original comments said that 2 paid off houses sitting vacant is lost income. Great, but the same applies to two leveraged properties and then some, since two leveraged properties is not only lost income but a lot of expense as well. Comparing apples to apples would give a better comparison of which is better.
Again, it has nothing to do with a number goal. The question is, which is better, two paid off houses or multiple leveraged houses? For sake of an even comparison, let's use the same values for properties...
Post: Lot's of leveraged houses vs. one or two paid off houses

- Rental Property Investor
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Originally posted by @Charlie Fitzgerald:
2 paid off houses rented out and cash flowing great can be 2 paid off houses not rented out with no cash flow pretty quickly. Leverage to me is the way to go. Your risks are spread over multiple doors. Yes there is more work, but there is also more reward...in my opinion.
Wouldn't 2 leveraged properties be susceptible to the same conditions, for the sake of comparison? In such circumstances, two paid off houses are superior to two leveraged properties, as the paid off properties have far less expenses.
Post: Real Estate vs. Stock Portfolio

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I agree that leverage is really the only real reason I would invest in real estate. I mean don't get me wrong, tax benefits are nice, but you would make far more money over the long run in an index fund with faaar less work, than you would in real estate, unless you are leveraged. Leverage is the main reason real estate is superior to stock investing.
Post: Another way of thinking of returns on real estate?

- Rental Property Investor
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I know a lot of the popular blogs on REI talk about how important cash flow is, but I've seen some investors that talk about equity plays as long as there is SOME positive cash flow, etc.
The reason I ask is because while I paid 64K cash for a old house 5 years ago and make about $700 a month after expenses, not counting appreciation, I make considerably more on a 300K house I bought a year ago, even though it is mortgaged and doesn't have the same amount of cash flow. After ALL expenses (repairs, maintenance, vacancies), there is about $300 in cash flow, but another $350 in principal payment which is still going to my asset column. When you factor that in, it brings me up to $650 in money that goes to my asset column every month.
Furthermore, this doesn't count appreciation or depreciation. I live in a high appreciation area, so I could consider it, but for this example, let's pretend that it's not being taken into account that I get far more appreciation returns on a 300K house than I do on a house that is worth 150K now. For 70K invested, my house went up 35K last year. On the paid off house that is worth about half, I saw about 10K.
However; lets take into account that the depreciation benefit is better on the expensive house, and that more of the income is shielded from taxes due to the tax benefits of the expenses and the depreciation. That brings me up to $819, once I factor in depreciation.
But wait, I'm not done. Although the majority of a monthly rental payment on this house goes to pay the mortgage and expenses, once it is paid off courtesy of my tenants, the profits sky rocket. And I'm still in for 70K (use tenants money from rents to pay for upkeep). And all that time they've been adding money into the savings account called a house for me, but once it is paid off, it is mostly spendable (read that investable) cash rather than money going to principal, etc.
Point is, even if the returns on a property are only 11 or 12 % in my area on a house such as this with the current prices and interest rates, it is still a better return than in the market using a relatively safe index fund, and is not even taking into account depreciation or appreciation, not to mention the fact that over time, more money goes to my asset column, and eventually it will be paid off. It's still a good thing to buy for the long run, even if it doesn't provide AS MUCH benefit to me now as some of those cash flow cities in the Midwest where you can buy a house for the price of a VCR and rent it out for $1,500 dollars...
Post: Lot's of leveraged houses vs. one or two paid off houses

- Rental Property Investor
- Seattle, WA
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I know that they say leverage allows you to increase your returns, however; I've heard a popular investor say that he used to think that many leveraged properties were the way to go, but that now he realizes that one or two paid off properties that cash flow like crazy are the better way to go. But he doesn't say WHY.
The one thing that comes to mind is if you have 50 leveraged houses, you have 50 roofs to deal with, 50 kitchens, etc. That's a lot of money spent on upkeep, but if it is factored into the rents and budgeted for, then I don't see why this still isn't a better way to go. Perhaps it's the way to go when building wealth, but paid off properties are good for when you want to "retire".
Thoughts?
Post: Cashflow Doesn't Build Wealth?

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I think with the right quantity of rentals in the right area, even cash flow can make you rich , especially if you have a frugal lifestyle.
I'm considering moving to Florida and buying 10-20 rentals in the next 6 years or so, paid outright. I should see 120-240K a year depending if I have ten or twenty rentals, and since my lifestyle is frugal, (I still have nice things just no Benz or Rolex) I can live on about 15K a year comfortably. As such I would invest that profit into either more rentals, or index funds, REIT's, bonds, and other businesses. Appreciation is nice, and in my case the Seattle area appreciation will help my goal when I 10-31 exchange out of here and into Florida.
Post: Buy house with MIL apartment as primary residence?

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I have a few single family homes in the greater Seattle area and am looking at buying another house. It's a large house and has a MIL apartment with separate laundry, entrance, kitchen, and bathroom. It is a studio but setup to be able to convert a section into a bedroom.
I like the house because it is close to Seattle for commuting (though I currently work mostly from home, but planning ahead) and is about a half a million. The house itself is nice, and in an upscale neighborhood with no HOA (hooray!).
Anyways, is it a bad idea to have a MIL apartment rental? One thing I've considered is that if I move out of the main house and convert it into a rental as well, the utilities will not be metered. Perhaps I could give them a $100 discount per month to cover the MIL utilities or something?
Or perhaps I would be better off buying two properties with the money, each worth about 250K? The MIL apartment situation allows me to switch to living in the MIL if I want and slow down a bit if I wanted, while renting out the top two floors (the main house).
Post: Buy now before interest rates go up?

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@Russell Brazil
Thanks again, that's hugely helpful.
Post: How do you cope emotionally with nasty tenants?

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I'm introverted, though my friends say I'm gregarious and out going. I can be, but generally like to spend time by myself, so I get where you're coming from.
Been a landlord for 3 years now, and I know what you mean. Heck, for me dealing with contractors for repairs has been the worst part, but I try not to let it get to me as I'm working toward a goal. Also, compared to the stuff I deal with in my day job (IT), it's not that bad, and ultimately, I'm in charge, so if a tenant or a contractor is not working out, I invite them to leave within the law in my state.
The contractor who recently replaced my doors was invited to leave mid project, as he was not only clearly disorganized, had piss poor communication skills, and incompetent. Literally he had to call in help because he wasted hours trying to figure out hot to install a deadbolt on the new doors, forgot to take the right measurements, had to go back twice, raised his price a little on the job, and I could go on and on. I had him give me bids for some other jobs but after my bad experience with him and a heated argument, I told him to forget about the other projects and just finish up the doors and be on his way.
It was stressful for me, but what helps balance it is to remember that YOU are in charge. You are the CEO of your own company. There is no manager above you, no share holders, and no risk of being fired. Think about that for a minute. I wish I had that kind of power at work, so I could just remove people who are obviously not working out.
Post: Non payment due to medical hardship

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- Seattle, WA
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Originally posted by @Amanda Davis:
.I would approach them about an agreed move out date and have them sign an amendment terminating the lease. This would allow to avoid an eviction on their record and you the costs
If an eviction process.
Also, there may be some agencies that will help them pay their rent. If they call the United Way they probably can give them a list of agencies that offer rent assistance. If they are a veteran, have them contact the VA. They might pay you the rent while they get on their feet
Good Luck!
This is a really good suggestion. I'd explore the idea of building a payment plan for any rents still owed into said agreement as well, so that they don't ding their credit. This is a good argument for only picking tenants with good credit, so they have something they want to protect. With deadbeat 500 score tenants. I think I'm going to set a threshold and start enforcing it moving forward.