All Forum Posts by: Jacob Sampson

My understanding is that, though it can be done, there are so many land mines that can end up derailing your retirement plans, it isn't worth it, unless you really know what you are doing.  Even then, I don't know that the benefit out ways the potential for problems.

Sure, maybe you get to purchase property with pre tax dollars and they get to grow pre tax but it's not that difficult to take a loss with REI due to depreciation so really the only gain is the initial pre tax dollars used to buy the property. And you lose a lot of control over that money as another downside.

If you were unable to sell the home for the price you wanted you likely don't have 50% equity.  That being said here are my random thoughts.  Keep in mind I'm not making any assumptions about property appreciation.

Currently you have 25%-50% of the value of your property invested in the property.  Equity = your cash invested in the property.  That cash invested is losing you money.  I can't say how much but it sounds like a decent amount, long term probably several $100/month.  In that scenario I would talk to a realtor and find out what price gets this property sold.  If you can take the remaining cash and invest in a property that cash flows even $50/month (though, you don't actually want that deal) then you are hundreds of dollars a month ahead.  You are, literally, better off having nothing than this property, outside of the education it is giving you. 

I always recommend sticking within the bounds of your bank roll.  Play the game for which you are prepared.  unload this property, and find another small investment with which to continue your education. 

Learn to execute exceptionally when small and then you will be prepared to move up.

Any lender is going to want to feel that you have a reasonable ability to repay the loan. Though I have never dealt with a portfolio lender or HML, my understanding is that the asset itself is the most important part of the equation. That being said, they will likely want a complete picture before moving on the deal.

Understood.  If cash flow is the goal then NY probably isn't the place to invest.  Probably good that I live in Kansas, I don't have the fortitude to invest without cash flow.

The equation I use is monthly rent - 30% (vac. & Maint.) - PITI = reasonable estimation of long term cash flow. I max out at 60 X monthly rent as a purchase price. The above mentioned "reasonable estimation of long term cash flow) has to be at least 12% CoC ROI when putting 20% down + some amount for closing costs.

E.G. if a property rents for 1000/month.  I will pay up to 60k for it, including any rehab needed.  I only do 15 year notes so that makes it a bit difficult as well, to find cash flow.  If I pay $12k down and $3k in closing then I need to clear $150/month in long term cash flow.

That's a pretty broad question and probably depends on your state. That being said, my experience is the vast majority of REIs use an LLC for the purpose of seperation.

Move on properties you are prepared to move on.  If there was a 2 million dollar property for sale for 1 million I would have to pass because I'm not prepared to play in that particular game.  Maybe one day, but we all will be much more successful if we play the game we are prepared to play and move up slowly.

Oh yeah, you better count on 20% vacancy and maint. as a long term monthly average.  Not every stock is worth buying and not every area is worth investing in.

If your goal is to live rent free, this isn't the deal for you.

BUT, I wouldn't make a decision about an area's prospects based on 3 months of looking.

I think the difference of $150 isn't that big a deal.  I think the bigger deal is the propensity to spend on ego. In general, a rule I live buy is, ego is never permanently satisfied and never gives a return on investment.  So why spend any time or money on it.  While the stainless steel may look nice, I don't think it will be a deciding factor in any future tenant decisions.  And current tenants aren't going to stay longer because of the dishwasher. 

That being said, it's $150.  Not really that big a deal.

Good questions.  I think @Kyle Scofield hit it on the head.  Beyond that here are some random thoughts.

People don't have the proper expectation. They buy into the idea that real-estate can make you wealthy quickly rather than the reality that REI IS A GRIND. IT'S ABOUT TIME, and QUANTITY, and ...TIME. If it's too exciting then you're probably doing it wrong.

People aren't properly capitalized so when they have a bad combination of events, tenant destroys the place and won't move out.  Finally tenant is evicted, but the owner doesn't have the money to perform the repairs or at least can't perform them quickly so they go several more months getting repairs done slowly, without collecting rent.  That can be disheartening.  That situation can convince someone to sell and get out.  BIG PILES OF SWEATY CASH, IS THE ANSWER.

People don't treat it like a business.  You need to boot tenants as quickly as the law allows.  This isn't about helping people out.  When you are wealthy from real estate you will be able to help more people out in a bigger way.  Also, keeping detailed numbers.  Filing taxes is only the smallest reason to keep detailed numbers right from the beginning.  The more important reason is so you have data with which to make decisions.  IF YOU DON"T MEASURE YOU CAN'T IMPROVE.

You should be able to tell what the average vacancy rate is for your multi families vs SFH. You should be able to tell what each properties actual long term cash flow is. You should be able to tell how much of maintenance is going to labor vs materials. All of this and MUCH more will give you the ability to make correct decisions. Is that cheap carpet only good for the upfront numbers but long term is very expensive? Is your area saturated with MF units and so you can make a killing on SFHs? Is one of your properties dragging down you cash flow and you should unload it?

People don't recognize that there are many ways to invest in RE and not every area can support every option.  Some areas just won't support buy and hold.  Don't invest in an area that doesn't support the option you prefer.  Not every stock is worth buying and not every area is worth investing in.

Back to keeping numbers.  A couple of bad years can make this seem like a failing business.  If you have the numbers and can see the bigger picture you may realize the current situation is abnormal.  The problem is temporary and you should be able to pull through.  You can't see this sort of thing without data.  DON'T MAKE PERMANANT DECISIONS BASED ON TEMPORARY PROBLEMS.  And vice versa.

People don't invest in what they know. The area they live in. Many people can invest successfully out of state but if this is your first step into REI and you chose to invest out of state, you are just rolling the dice.