All Forum Posts by: Wayne Kerr

This is an interesting idea - I've actually thought about it a lot lately. 

The main thing is me is that the capital is tied up. What else could that 30, 40, 50k+ downpayment/rehab cost etc do for you if it wasn't tied up in the property? 

We've seen some unique things in the covid era 2020-2024 like high appreciation (that is not the norm), the low interest rates we had (prior to 2022), and the past year the stock market has done incredibly well (up 20% over the last year). Add in the social media gurus and I think expectations for RE investing can get skewed very quickly. 

What is a good deal anyway? The $2000/month cashflow that the guru preaches that retired him to the Bahamas after only 2 properties? $500/month? Do the tax benefits make it a good deal? What exactly is a good deal? According to Brandon Turner is was about $100-200/door. That would absolutely be scoffed at by most people. It can be hard to say what exactly a good/bad deal is...

I also think it can be very easy to get caught up buying RE - when that may not be the best option. I'm guilty of it myself. I made a several good deals, then kind of forced one. Overpaid slightly, tied up a good bit of capital that no doubt would have been better in the stock market (this past year anyway), and "cashflow" a couple hundred dollars a month. Well we listed it for sale - got a few offers, but nothing good enough to really pursue. So I'm renting it back out for another year. Hind sight is 20/20. 

It can also be hard to predict how your own personal strategy may change over time. How your own financial situation may change over time (for better or worse). If you do an "ok" deal and tie up that capital, you may not be able to do the next "great" deal that comes along. At this point, I LOVE having cash on hand. It just leaves the table open for all kinds of options. 

What is the budget for the remodel? 

The 0% credit cards and balance transfers is good to use for fixtures and stuff with hard fixed costs. Easy to use yourself too 

HELOC works (there may be some places that do a HELOCs on rental properties)

I personally have used a 401k Loan on a few occasions - You're essentially borrowing money from your 401k and paying yourself back (interest goes back into your 401k as opposed to a bank) and if you don't pay your 401k back the loan would simply become a withdraw (maybe some tax penalties, but you could probably finagle a workaround). So low cost, low risk in my opinion which is why is it generally my first choice 

After those I would go HML/PML - this is likely going to be your highest cost loan

I think you are overcomplicating this big time 

Simply swap out the "bad" heater and the new one - tell the tenants you're making an improvement and they will need to sign up for gas service. 

Then move on

No need to explain every little thing to the tenants

Welcome JB! 

I live and invest in the Lafayette area myself - I own several in the area - broussard, freetown, broadmoor etc 

There's a decent market here, I think it's somewhat competitive but there is some availability as well

Off-market is the way to go 100%

Purchasing a starter home is a great way to get started - I turned my first home into a rental before I even looked into real estate investing. I just got something small and well within my means - refinanced when rates got low and now it's a decent little cash flowing rental 

This is above my pay grade - but I think there's some good lessons that come out of it. It honestly may be time to slow down. Look at what you have. Make sure you have financial reserves for repairs/maintenance/CapEx

I would personally sell the SFRs - slow market right now, keep that in mind with your selling price expectations. Also these things cost money to sell - agent fees (5-6%), whatever your buyer is going to ask for at closing or try to hit you at during inspections (likely several thousand) plus taxes. It all adds up quick. You have to ensure you are buying at a good discount to make those expenses up if you may have to sell in the next few years. 

Only thing I'd plan to keep would be the larger multi-family - sell the small stuff, all of it and get yourself in a better capital position. 

I think you are too optimistic as well - the more I look at this the worse it gets. And you're mentioning losing 25-30% appreciation annually BUT at the same time you have 2 houses for sale w/ "no bites yet". Those two statements don't make sense together. If you're getting that much appreciation, you're in a hot area and anything decent is going to sell fast. I'm thinking that's not the case. 

The apartment has repairs that presumably can't be made since there's no money to fix them. 

My advice: Sell ALL of the small stuff ASAP

 I like Bruce's idea - I own an old house, built in the late 30s. They had carpeted the bedrooms and common areas, and the living room was still original wood...well I decided to pull up the old carpet and lo and behold - original wood in pristine condition. Sanded, sealed w/ a clear poly and it looks fantastic. Much cheaper than replacing flooring. 

Wood can be patched, sanded, filled etc too - may be easier to repair than aluminum. Lots of caulk, flex seal and whatever other filler you want to use. Then lay down some paint and you may be in good shape. 

I don't think siding will really affect your appraisal - it seems to be more of a "does the house have functional siding or not" type deal

 The depreciation is big - are you able to use it though? You both have W2 jobs - so you're likely not a Real Estate Professionals - so these losses will be passed on until they can be deducted from other passive income in the future. On top of that, I believe you'd be considered a "high earner" - there are limitations there as well. I believe you can deduct the other business expenses (home office, supplies, repairs, maintenance etc) - but the bulk of it (depreciation) is likely passed on to later years.

So first house 2021 - I'll assume 250k purchase price and you put roughly 20% or 50k down. 

What does the house rent for? 

Mortgage payments - call it 44k. Expenses call it 16k. So 60k per year in rough expenses. How did you come to your cashflow number? 

How did you calculate your expenses? I can see depreciation - about 7-8k/year. Property management - maybe 3-4k/year. Mortgage interest 12k or so? I'm trying to figure how you got to 45k? That is a huge number for one house. 

Interesting - 

I think it may be a good idea to run full returns on your properties - cashflow, plus loan paydown, potentially appreciation and tax benefits. And see what you are getting. What is the long term goal?

Don't forget that part of investing (in my opinion) is buying an undervalued property. That's a big part of it for me - the equity capture at the buy. This equity capture can increase your net worth big time. I personally will go all in up to 85% ARV - this give me 15% equity capture at the buy.

Remember, you make your money when you buy. 

I would consider the returns you have now - then run a different scenario where you put that money in a basic S&P 500 tracker. Then compare the two. You might find that the stock market makes you more money with less work (seems you are trying to minimize your involvement w/ the rentals). 

Generating 11k per month - what amount of capital is that requiring - you mentioned 7 paid off houses. How much is this costing? Part of the power of RE is leveraging - imagine one 250k house - paid off. Appreciates 2% or 5k and costs you 250k. Now the same 250k across 5 houses (250k each, w/ 50k or 20% down) all appreciating 2%. See the difference in net worth on paper?

I don't think what you're doing is necessarily bad, but I think a different strategy could give you better results. 

This is a great look cost preventative maintenance thing

It also allows you to "inspect" your property periodically

We all know one of the advantages of investing in real estate is the tax benefits. What does your tax strategy look like? What kind of planning do you do throughout the year to minimize your tax liability? 

I'll share for myself real quick - Mine is fairly straightforward - all long term rentals, filing single. 

Generally - the depreciation on the structure, mortgage interest, property taxes, repairs & maintenance, insurance, property manager, utilities, vehicle expenses (mileage), professional fees (reports/CPA), home office (office supplies, percentage of utilities, continuing education). All this adds up so some serious deductions. One of my goals is to go through my past tax returns, and figure the ROI my rental properties with taking into account the tax savings (I typically calculate the ROI on net cashflow at the end of the year)

I have a W2 so I generally aim to maximize my pre-tax accounts - 401k, HSA, IRA to a backdoor Roth IRA, 529

My "losses" would be passed forward since I don't qualify as a RE professional nor have active RE losses. My CPA has essentially called it a "tax asset" - where you end up w/ tens or hundreds of thousands of dollars in losses that have been passed forward so that at some point you can offset passive gains. 

I have yet to do a 1031 exchange or a cost segregation study (I'd like to see how this plays out long term when selling or doing a 1031 exchange into a different property) or expense business travel/mastermind/classes.