All Forum Posts by: JD Martin

Well, the money spent is a capital expense so you will be able to depreciate it on the property, so it's not as if it's wasted. I would just get a decent, affordable storage shed and be done with it. 

Generally you are going to make more money, longer, if you use smart leverage. If this is your first deal, and that's all your savings, you would definitely want to leverage, because you never want to be hard-asset rich and liquid-asset poor. The trade-off in a little less cash flow and paying interest allows you to a) do more deals, b) have a bigger safety liquid position. 

Whether the house makes sense is hard to say. It looks like it should if you got it at 100k based on what you put down on here. My advice if this doesn't work out is to think about sticking to SFH until you get some legs under you. It diversifies your risk of vacancies, neighborhood devaluation, and other issues that may be beyond your control, and also opens you up to more possible buyers if you ever want to sell. Only investors will buy MFH, and they want a deal unless you find a sucker.

 Thanks for the update! It's always interesting to see how things turned out on these types of deals. I would have said to rent, too, but your initial estimates on possible sale prices seemed like quite a hefty profit to be made that fast. 

 OK, I feel a little dopey glomming on to a thread that's 3 months old, but it is such a good thread! 

The biggest obstacle to using the DR plan is not the impatience part, it is the mortality part. If you figure the average person has 40 good working years, it doesn't take a rocket scientist to figure out that the "risk-free" method of saving all your money and buying cash will be a dubious way of getting you to the finish line with any kind of reasonable passive income, which is what everyone's ultimate goal is since there will come a day when you will not want, or be able to, work. 

What leverage does is create a type of "compounding interest" scenario. All investment gurus, that I know of anyway, recommend using the power of compounding interest to make your investment nest-egg grow. Buying 4 good houses with $100k, 25% down, each cash flowing $500 after PITI, is going to get you to that line faster than buying 1 $100k house cash (let's assume all houses gross 1%). If everyone started at age 20, yes it might be possible to work and save your way into a reasonably comfortable retirement, but the reality is that most people have got to figure out some way of making any money they've accumulated through their labor or good fortune make more money. Even Ramsey didn't "save" his way into comfort - he sold products and services. If he was talking for free all these years, he'd have very little in the way of wealth.

Furthermore, finances is also about risk management. One might argue that having 1 paid-for house is safer than 4 mortgaged houses, but that's not really true either. In the 1 house scenario, if the house goes vacant, you now have $0 income. There are certain costs you cannot escape - property taxes, for example, and insurance unless you're crazy - so you will now have $0 income stream to pay for these things. On my previous example, you had $2000 coming in on 4 houses, clear, and $1000 coming in on 1 house, clear. If one of those 4 houses goes vacant, you still have $1500 coming in - no money out of pocket. If 2 houses go vacant, you still have $1000 coming in - no money out of pocket. So you have to be in calamity situation, where everything goes vacant at once, and stays that way, to be on the wrong side of the 1-house guy. And, since all that time you had double the income coming in, you should have been bankrolling a lot of that income so that you have a hefty security net that gets you through that scenario. 

Investing in real estate, whether flipping, renting, speculating on appreciation, etc. is all just a business venture. Someone else said it in here somewhere, and it was a great example, that total risk aversion means near-total rejection of opportunity. 

One question: did you have a copy of the email sent to yourself? I make sure to do this so I can see what the tenant gets/sees. More times than not these kinds of problems, regardless of company, are user errors. Just a thought.

You can still usually have insurance coordinate the repairs, they will just not cover the bill until you hit your deductible. It could be a way of avoiding confrontation with the tenants, rather than the " I know a guy" method. The eviction for non payment is a separate issue.

Great post. I think it is admirable your intentions; that said, you have to consider how a misstep in this area could compromise your ability to share your good fortune in other areas. For example, if your tenant turns out to not pay, fight you to the death on eviction, and damage the place, the thousands you spend will reduce your ability to spend on more worthy causes.

For that reason, I agree with everyone else. Keep business and philanthropy separate in this arena. If they were more or less equally qualified, I could see giving the one who needed it more a break, but I would not take a lesser qualified tenant for that reason.

I don't know - I don't like it, especially for a new investor. Septic tanks work great when you control what goes into them, not so well when you have no idea what your tenants are flushing down the drains and toilets - grease, wipes, etc. And wells are great until the pump or pressure tank goes bad, or the well goes dry and needs to be refracked, or all of a sudden develops a bad iron or sulfur problem. All of these issues then end up being your issue, instead of a municipal issue. It sounds like a self-contained gas system as well (propane). 

Without knowing your family member, and realizing I am going to probably sound cynical and paranoid, I suspect it is more likely that he found that there wasn't any market to develop that additional property in a rural area and that's why he didn't do it, or he couldn't find a bank or investor willing to fund such an endeavor. 

Unless you live right next to this place, I think your hunch that you are getting in over your head with this property is dead-on (your title for this thread). Multi-family is trickier and more involved than SFH units anyway, and then you have the added stress of it being very far away and not connected to public utilities. It is a lot of risk and work for pretty low cash flow. I would walk away from this.

I would do as everyone else said and get into something better. The other property will probably work itself clean, but if it doesn't it would be foolish to throw another 40k at it. In fact, it might be worthwhile to try to insulate the new property on the off chance you had to walk on the first.