All Forum Posts by: Kaiser J.

I maintain a mix of policies with face amount significantly in excess of my real estate debt.  That way the insurance proceeds would fully pay off all properties with money left over, and nobody would be forced to sell a property if it did not make sense.

The return of your deal is not 7%. You also need to incorporate the funds from a hypothetical sale or refinancing event. This is commonly illustrated by doing a 5 year scenario where you sell the property at the end of that term. Figure out your NOI and apply an assumed cap rate for the sale, then subtract sales costs such as a broker commission, and then subtract the remaining mortgage balance. Add the residual amount to the returns and use an IRR calculation to value it property. Best practice is also to sensitize the cap rate upon sale, so that you understand how that will impact the IRR.

I have a comparable number of units and use Tenant Cloud.  It's far from perfect and can be cumbersome until you learn the quirks, but the online payments are fairly straightforward and have worked for me.

The best write up I have seen on the topic is on a website called White Coat Investor.  It was written be an ER doctor turned blogger.  He's very knowledgeable and wrote a 5-part series on it.  Definitely worth checking out.

Agree with Joel that you need someone to help you understand your rights. I would also look at the HOA docs to see if a 100% vote is required to convert the property to apartments or force a sale of the complex, that sort of thing. If so, you hold all of the cards. If the contract at this point has lapsed then raise the price substantially and tell the buyer he can take it or leave it. He needs your units more than you need to sell them, and they are worth more to him than they would be to anyone else.

Please do not fall for these gimmicks. Not only will their math be based on an apples-to-oranges comparison, but you can do this yourself for free. If anyone ever tells you that you can save money by refinancing your debt into a higher interest rate, something is wrong. 

A single member LLC is very easy to set up on your own, directly through your state website. No point in paying extra to do it through LZ. An EIN is even easier and takes no more than a few minutes. Registered agent services are a dime a dozen. I would not pay LZ for any of those. For the lease or a partnership agreement, use an attorney.

Others may know better than I do what forms they found value in from Legal Zoom (and I would be interested in knowing, too). 

As others have advised, make sure you understand the whole life policy thoroughly.  Much of the jargon is just that - jargon.  What an insurance company calls “interest” is actually just return of premium, i.e., “we charged people more than we needed to so here’s some of your money back.”  When they say that you earn a certain dividend, they neglect to mention that it’s only on the amount of cash that you have left after they take a very high fee.  If you earn 5% on the money, but they took 20% of the money on day 1, then you still lost 16%.  The guaranteed IRRs are often quite low and barely keep up with inflation even over the long-term.  The returns are guaranteed to be negative for years.  My guess is that a majority of sales are made to individuals who do not understand what opportunity cost is and cannot calculate it. 

That being said, the policies can make a ton of sense for an individual who wants to ensure that they can take care of a family member or meet another obligation that they know they will need to regardless of their ability to obtain term insurance well into the future.  A person with a disabled child who will require medical or other care long-term, for example.  

If not for that type of purpose then in my opinion this type of policy should only be considered if you have already done ALL of the following:

- maxed out your employer 401k match and are funding at the annual limit of $18,500+
- maxed out your IRA
- maxed out your HSA
- paid off all of your debt, including the mortgage on your primary residence
- are in the top marginal tax bracket and don’t want to simply own more insured, tax-exempt bonds, which would be much easier and more liquid
- have extra cash every year that you want to accumulate in a semi-liquid vehicle, and are OK with the fact that you will pay someone to hold your cash and then have to pay them interest if you want to use it for something
- value the fact that this may be off limits to creditors / lawsuits (in some states, you should check yours) 
- value the ability to leave a legacy even if it is less than what you could have left without the policy

If you can’t check all of those boxes then there are much better alternatives for you.  You’ll notice that almost anyone who claims otherwise makes their living by doing so.

One cheap alternative if you really insist on buying this (again, for reasons other than health): buy term life insurance and then take the money you have left over and buy an insured, zero-coupon tax-exempt bond.  Presto, you’ll beat the insurers guaranteed return.  You’ll trounce it if you buy a riskier asset instead, and you can sell your investment with the click of a button if you change your mind, buy it back the next day, whatever you want.  What you don’t get is asset protection from creditors/lawsuits, but you may not have gotten that anyway depending on your state and a good umbrella insurance policy can perform a similar function for many people. 

Again, I’m not saying that nobody should buy this.  I own some myself, actually.  I just think that far more people own it than it actually makes sense for.

I submitted a bid yesterday for ~60,000 square feet of warehouse space across three buildings, located in an industrial park that I already own a building in.  The asking price of $1.7 million is well below replacement cost but they will need around $400k of work just to be class B space (ceiling height is limiting factor).  All are currently rented but the lease terms are below market given the state of the buildings.  

My plan is to approach the tenants to see if they will renegotiate their leases if I pay for the renovations now.  Things like cosmetic upgrades, expanding office space which is currently too small for modern needs, upgraded lighting, sprinklers, etc.  If they decline, I will simply wait until their lease is closer to maturity and then pay for the upfit in conjunction with finding the next tenant.  Should cash flow at a 10% cap rate even before the work is done, plus I hope to pick up an extra $18k/year by getting the tax designation changed based on the currant usage and gross rent lease structure.

For residential, read Building Wealth One House at a Time (John Schaub).  For general, read Real Estate Principles: A Value Approach (David Ling and Wayne Archer).  Also good is Foundations of Real Estate Financial Modeling (Roger Staiger), and anything by John T. Reed.  Learn the fundamentals and skip the books that are just looking to sell you the dream.