All Forum Posts by: Wayne Kerr

Quote from @Joe Villeneuve:

Quote from @Wayne Kerr:

Quote from @Joe Villeneuve:

Quote from @Wayne Kerr:

Quote from @Henry Lazerow:

Huh? Definitely not a guru, I invest myself and am a realtor with many repeat clients. What is there not to believe about real estate cash flowing? Few years ago every one talked about cash flow on here, now people just talking about appreciation. I only buy positive cash flow and so do my clients. It’s the only safe way to scale and cash flow is most definitely NOT a myth. That 4 I mentioned was bought 5 years ago. Of course you won’t make 25-35k net in year 1 or 2 but if you buy 3/4 unit buildings in a growing market you can after a few years. Rents go up and mortgage stays the same aka they cash flow more and more the longer you hold even with a mortgage. 

 Since when does the mortgage payment stay the same?

Do you not have taxes? Do you not have insurance? Do those both not increase every year or every couple of years at the minimum. Everyone's mortgage payment will increase over time due to taxes and insurance. Ask anyone in Florida near the coast. Ask anyone in California near fire territories. 

Interest rates were what, near 3%, 5 years ago. And what today - probably near 8%. So the pre-covid era is much different than the post-covid era. In terms of appreciation as well. We own a family cabin in Tennessee - was ~275k or so back in 2018. Now it's easily 850k. But do I think it makes sense to cash flow or see the appreciation pre-covid in the post-covid era? No. 

Do I think Chicago Illinois is appreciating like you said? Nope. Getting the appreciation like you mentioned (850k valued 4 plex) and netting 35k/year in cashflow. I doubt it seriously. 

Mortgage payments stay the same.  Just because you pay taxes on the same bill as your mortgage doesn't change the mortgage.  Taxes go up, insurance go up.  they are two separate bills.

Yes, exactly. Point is whatever overall monthly payment you are making on the house increases over time. 

So the notion of - "payment staying the same while rent increases" is false. The monthly expense payment increases over time. You rehab and increase the value - assessed at a higher value and now have higher taxes. 

We've seen a 50% insurance increase here in the last last 2 years - that's like the minimum. Lots of people in higher risk zones are seeing 100%+ or even canceled policies with no option to renew. 

The mortgage payment doesn't change.  The taxes and insurance does.  That isn't the same as the mortgage payment increasing, even though you may pay for your taxes in the monthly payment.  The mortgage part doesn't increase.

Yes, I understand the distinction. 

P&I stays the same for the duration of the loan. PITI increases. 

You're responsible for PITI so your overall monthly payment increases. 

Quote from @Joe Villeneuve:

Quote from @Wayne Kerr:

Quote from @Henry Lazerow:

Huh? Definitely not a guru, I invest myself and am a realtor with many repeat clients. What is there not to believe about real estate cash flowing? Few years ago every one talked about cash flow on here, now people just talking about appreciation. I only buy positive cash flow and so do my clients. It’s the only safe way to scale and cash flow is most definitely NOT a myth. That 4 I mentioned was bought 5 years ago. Of course you won’t make 25-35k net in year 1 or 2 but if you buy 3/4 unit buildings in a growing market you can after a few years. Rents go up and mortgage stays the same aka they cash flow more and more the longer you hold even with a mortgage. 

 Since when does the mortgage payment stay the same?

Do you not have taxes? Do you not have insurance? Do those both not increase every year or every couple of years at the minimum. Everyone's mortgage payment will increase over time due to taxes and insurance. Ask anyone in Florida near the coast. Ask anyone in California near fire territories. 

Interest rates were what, near 3%, 5 years ago. And what today - probably near 8%. So the pre-covid era is much different than the post-covid era. In terms of appreciation as well. We own a family cabin in Tennessee - was ~275k or so back in 2018. Now it's easily 850k. But do I think it makes sense to cash flow or see the appreciation pre-covid in the post-covid era? No. 

Do I think Chicago Illinois is appreciating like you said? Nope. Getting the appreciation like you mentioned (850k valued 4 plex) and netting 35k/year in cashflow. I doubt it seriously. 

Mortgage payments stay the same.  Just because you pay taxes on the same bill as your mortgage doesn't change the mortgage.  Taxes go up, insurance go up.  they are two separate bills.

Yes, exactly. Point is whatever overall monthly payment you are making on the house increases over time. 

So the notion of - "payment staying the same while rent increases" is false. The monthly expense payment increases over time. You rehab and increase the value - assessed at a higher value and now have higher taxes. 

We've seen a 50% insurance increase here in the last last 2 years - that's like the minimum. Lots of people in higher risk zones are seeing 100%+ or even canceled policies with no option to renew. 

Quote from @Henry Lazerow:

Huh? Definitely not a guru, I invest myself and am a realtor with many repeat clients. What is there not to believe about real estate cash flowing? Few years ago every one talked about cash flow on here, now people just talking about appreciation. I only buy positive cash flow and so do my clients. It’s the only safe way to scale and cash flow is most definitely NOT a myth. That 4 I mentioned was bought 5 years ago. Of course you won’t make 25-35k net in year 1 or 2 but if you buy 3/4 unit buildings in a growing market you can after a few years. Rents go up and mortgage stays the same aka they cash flow more and more the longer you hold even with a mortgage. 

 Since when does the mortgage payment stay the same?

Do you not have taxes? Do you not have insurance? Do those both not increase every year or every couple of years at the minimum. Everyone's mortgage payment will increase over time due to taxes and insurance. Ask anyone in Florida near the coast. Ask anyone in California near fire territories. 

Interest rates were what, near 3%, 5 years ago. And what today - probably near 8%. So the pre-covid era is much different than the post-covid era. In terms of appreciation as well. We own a family cabin in Tennessee - was ~275k or so back in 2018. Now it's easily 850k. But do I think it makes sense to cash flow or see the appreciation pre-covid in the post-covid era? No. 

Do I think Chicago Illinois is appreciating like you said? Nope. Getting the appreciation like you mentioned (850k valued 4 plex) and netting 35k/year in cashflow. I doubt it seriously. 

Quote from @Henry Lazerow:

@Max Emory what you’re saying is absurd, you most definitely can cash flow on leveraged real estate. I have a 4 unit that has a mortgage and consistently nets me 25-35k after everything each year including reserves. I have tons of clients with 3/4 units that also hit similar returns consistently after the first year or two.

So easy to spot a social media "guru" these days. If we inbox you "CASH FLOW" do we get the free guide on how to net 35k after the first year too? 

Quote from @Mary Jay:

Thank you sir!
So you feel like you get plenty of money from your not paid off rentals that allow you to quit your full time job?

 BIG DIFFERENCE between a a few cash flowing rentals vs retiring off of rental income. For example - I have a duplex that rents for $1350 - the mortgage when I started was $636. So roughly 700/month cashflow. Say 50% of that goes towards repairs/maintenance/vacancy etc. That leaves me with $350/mo. 

$350/mo. Going to need about 30 of those to live how I want to. 

So I would say the cash flow is little - more leverage generally means less cashflow as well. But then you put more money down (for less leverage) and there goes the opportunity cost of a lot of over investments as well as your liquidity. 

I use real estate to diversify my investments more than anything now. A little cashflow, some tax deductions to kick down the road, long term appreciation and loan paydown. It's slow money. I think long term it can make sense especially if you can 1031 exchange into something down the road. 

Haha been there done that! Not fun. I've cheaped out and bought doors where I had to chisel out the space for the hinges and strike plates. Never again. Actually stabbed myself in the hand with a chisel when it slipped...

I now just buy a door that comes with the frame. Sure it may require some touch-ups here and there when you're done, but for the most part it turns out to be nicer in the end. They make a trim removal tool that is a like saver

Doors can be weird and no house is square and plumb 

Quote from @Jon Martin:

Quote from @Todd Goedeke:

@Wayne Kerrthere is no need to self manage for the passive investor looking for a fixed NNN return in the 15%+ range.

Smart business owners and retirees looking to diversify their investment portfolio are not looking to run a hospitality business.  Turning over management via a triple net lease is a great way to lock in superior cash flow thru a 15%+ long term lease.

Self managing is easy money with tech and systems. I do relatively well in my day job by today's standards but my hourly rate for self managing is closer to that of a surgeon. 

I have partnerships where I take a management fee off of topline and split profits from bottom line. Partners are happy because I don't charge an exorbitant fee and do a much better job. If I scale to a point where I no longer have time and have to outsource, that line item is already accounted for and the property will still be profitable. 

 It sounds like you are running a small management company for STRs? Is that somewhat accurate? 

Can you explain your partnership? Trying to figure if the partner is the STR owner or another management company that facilitates things through you.

I like it though. I think if you have a little extra time, operating a smaller STR business can pick up some good income. And you can provide a good value by charging a lot less than the big operators. I know of a few in the PCB Florida area

Quote from @Todd Goedeke:

@Wayne Kerrthere is no need to self manage for the passive investor looking for a fixed NNN return in the 15%+ range.

Smart business owners and retirees looking to diversify their investment portfolio are not looking to run a hospitality business.  Turning over management via a triple net lease is a great way to lock in superior cash flow thru a 15%+ long term lease.

Are you comparing a Triple net lease to a managing a STR? The OP is talking about the short term rental business. A NNN lease is completely different and I would agree, much more hands off

I see a lot of 1 star reviews in your future

You don't need a plumber, just get the PM company to send a maintenance guy. This is super simple work. 

This has got to be one of the dimmest, easily solvable predicaments I've read on here 

Quote from @Dmitriy Fomichenko:

Quote from @Wayne Kerr:

I'll have to look into this 

I typically contribute the max to a IRA then do a backdoor conversion to a Roth IRA. This is after-tax money though, so doesn't really do the same but gives me some tax free gains down the road.

Interesting concept 

Jeremy, this will not work for a backdoor Roth IRA conversion because you are converting what already has been taxed.

"This is after-tax money though, so doesn't really do the same but gives me some tax free gains down the road."

That is quite literally what I said in my post. 

This seems like an odd strategy - purposefully invest in an asset that loses value, with the hope that it will regain value (so you at least get your initial investment back) all to save a little on taxes. 

So in this example your taxable income changed from 50k to 21k - let's call it a taxable income of 30k for simplicity's sake. 

For myself that would be taxed at a 35% rate just going off income tax brackets. So it would save roughly 30k * 35% = 10.5k on taxes. Not shabby. 

What I don't like about it personally - this seems like a very risky move. You literally have to invest in something that will lose value, in the hopes of saving on taxes. I'd rather just invest in something that would gain value and get deductions through an active business - created for the purpose of tax deductions. Zero.

Seems you're simply converting 21k to a Roth as opposed to 50k. How are you converting to a Roth with 20k? I thought there was limitation on 401k or SDIRA to Roth conversions - like 7k or so for the backdoor conversion or 60k or so for a mega backdoor conversion (in either scenario you would be paying taxes on the conversion though). 

How much are you saving here - would you run us through the math like we're 5 years old? Lol. I think it's super cool but I'm having a little trouble completing the puzzle - I know it makes sense, but I'm not quite there.