All Forum Posts by: Jim Goebel

@Thomas S.

I'd caution to not broad brush certain things. I'd bet our SFH returns beat your MF ones. I'm not trying to be all competitive or anything I just really think that the answer is typically 'it depends' and although it takes longer to understand someone's unique situation, that's a great place to start.

@Carlos Zappatos

So, from our personal experience, I'd advise you to at least be OPEN to buying properties as a primary where you keep the option/flexibility to eventually convert into an investment.

The advantages of this, vs. the route you're suggesting include (from my view) the following:

• You get much better financing terms as a primary residence purchaser (lower rates, etc)
• You get to evaluate homes/properties that you LIKE and can relate the the tenant that will want stuff that's nice/that you like

@Steve Vaughan

Steve I think you're misunderstanding something.  Thanks for the comment though.

What I'm getting at is that comparing two scenarios....

#1 I'm at a $200k property value with a $160k balance

#2 I'm at a $200k property value with a $60k balance on 1st note and $80k balance on HELOC. Total $140k debt

Scenario #2 is better from an equity position compared to scenario #1.

Why would this hurt our credit, is my point?

Thanks for the other comments by the way...  I am confused though why/how your credit score has not impacted your ability to borrow since 2012?  I mean, our credit score is deemed excellent so maybe there's a point of diminishing returns but I definitely have seen an uptick in our offered terms (%) on financing in the last couple loans.

We use MINT.com, which is nice.

According to MINT, what is largely dragging our credit score down (it's a 758) is credit utilization.

That's a few credit cards here and there but predominantly our HELOC is 60% utilized and bringing up our total credit utilization up over 40%.

I'm under the understanding that many people use HELOCs as a great way to pull out equity from their primary residence.

I don't understand why one would be penalized from having a stronger equity position in their primary residence?

Take for instance if we own a $200k house, and are maxed LTV and fully financed with a 1st mortgage, balance of $160k as compared to say having a first mortgage balance of $60k and another $80k balance in a HELOC.

Seems the 2nd scenario is worse for our credit (because of revolving debt) than the 1st - which confuses me.

Anyone have anything to share on this?

@Mike Delavanti

Hi Mike

I actually was daydreaming thinking about this very subject today driving down the road in central Iowa.

Personally I'm ruling it out and here are my reasons:

1. Risk which breaks down into:
   
   1. Regulatory - zoning could change, traffic patterns may change, 
   2. Appreciation Risk - what happens if something changes and/or you're not in a strong position to get out of the deal later on - at some point depending on your time horizon you'll feel like you 'need' to sell to get out from it UNLESS you have a strong development / etc capabilities..... Or if the property doesn't appreciate 10x like you hope it will in 20 years
2. Opportunity Cost of Capital
   1. Time Horizon - while you're waiting years and years for this investment to come to fruition you could be deploying that capital to produce income for you and most importantly developing the capabilities that would give you the leverage to develop that valuable land later in life (buy it from some other bozo that had your plan, at a fire-sale, and develop it yourself)

All this said, my caveat questions are:

What's your time horizon?

Do you have capabilities to develop the land yourself and capitalize on the land?  (much stronger position to hold it if so)

What's your portfolio look like?  Something like this may pencil out from a risk perspective if say it only makes up 5-10% of your overall holdings, in my opinion.....  Mainly from a diversification strategy......

With the right answers of the last 3 questions and such, it MAY make sense.  Just not very likely I'd guess!!!!

@Sergio Castillo

I've yet to delve into the partnership stuff as I'm a control freak... But honestly, this sounds very very convoluted to me.

The most important question I have is who has decision authority?

You'll have a lot of decisions to make.

Who is passive and who is active?

How do you avoid the freeloader problem?

Do it on your own if at all possible..............................

@Brandon Craig

Hi Brandon I'm going to be the first response here and the 'wet noodle' of sorts.

Firstly, get your credit working for you.  If you want to delve into the investing world, based on what you've shared- this is critical.  We don't have the full picture here but if you're married and present well to banks as a 'package deal' (say with your wife) then I might modify some of what I write below.... But if that's the case, provide more of that info and I think you'll find more useful thoughts from people... 

Once you're deemed credit worthy by lenders you can start using leverage which needs to be used VERY carefully but is also extremely powerful.

I personally do NOT recommend that someone with a trades or self employment 'life track' as you are describing is best suited to buy a first house with cash, and for instance use your time to fix it up.

Few reasons here:

1. Firstly, often the kinds of 'cash deals' available are ones that can to generalize tend to be more cash flow type properties (as opposed to equity properties).  My strong opinion is that an equity property is a better fit for most people for their first purchase (cash flow still needs to be there but you should be looking for low time/maintenance type stuff with good school systems where you can sit back and let your payments do the work for you)
2. These kinds of deals tend to be more time intensive.  While you may be able to stretch the time at first, this doesn't work indefinitely to scale (ie what's your next step)
3. If you don't figure out the financing part of the equation (ie your credit etc) then you'll be stuck waiting a LONG time for cash flow to get you to the point where you can do something after this kind of deal....

After just reviewing now it appears that our loan to value ratio is:

53%

I'm pretty happy with it.

We will be starting to put on average $50/mo on more aggressive pay-downs with existing notes, starting next month. 

I am following up on this.  Partly to keep the thread alive but I've found others valuable when there's follow up over a long period of time.

We have used this truck specifically for 2 projects, both of which would have been probably unfeasible without something like it.  

I have found that I personally enjoy working in the bucket, especially doing tree trimming work.  It's far safer than working on ladders, and it also has some unbelievable storage space.

On the possibility of the business arrangement per the previous post, we actually had a business arrangement gone bad, of sorts.  An individual that we had engaged on a small gutter project and been involved during the purchase of the truck - I had the outlook as essentially functioning as the 'capital provider' and going in together on a business - as he had gutter and exterior maintenance experience.

Let's just say it was a bust.

I'm not always the easiest person to get along with, but on two separate (and important, and close together occasions) I was essentially stood up by this 'soon to be partner.'  I wasn't overly impressed with the actual gutter work, either.  The resolution was a bit contentious and we actually got a nastygram facebook message from the individual's mother in law.  

The truck is nice to have but we probably utilize it I would guess about 15-20% of the total time we've had it.

We will be keeping it and selling off the old skid loader and box truck here soon, though.

Will have to keep everyone posted on this!

We own 9 SFHs and 1 duplex.  1 is our home, but we'll have 10 units / doors rented soon.

Our goals are tied more to increases in net worth, equity, and/or cash flow than number of units

We own 1 house outright and have currently about $900k in equity, with about 150-200k of that is freely accessible.

We've discussed the possibility of me going back to a W-2 job at some point and waiting til the next downtown to resume buying.  Who knows, we'll see what comes along next.

I still do a little bit of engineering on the side.  I enjoy that work!

Love my wife and 20 month kid!!!  Good stuff.  I feel very fortunate to be where we are.

@Rich Lopes

Trust your numbers and your gut, I think.  Those numbers are not good.  I don't know what all drives the supply and demand picture in your area but I'd run fast from that stuff.  Unless there's some sort of ambiguous 'prestige factor' of owning MF in that area that you somehow 'need' ----  I'd definitely be looking elsewhere.