All Forum Posts by: Kevin McGuire

@Scott V. Seems like you’re financially responsible with no non-mortgage debt and a high savings rate. I think what matters next is “why”. If it was for status then that’s be a red flag but this seems to be about your passion and life without passion is pretty dry. My read of why people are here on this forum is about achieving financial freedom and it happens that real estate is a great way to do that. So your decision really comes down to one of delaying financial freedom to have this car now. That’s the real cost of the car. To me the key is clarity of that cost and being ok with it. After that, I think it’s better to only take on debt for assets.

Kevin

Yes totally makes sense for that usage. 

Maybe overkill for residential.

Thanks!

@Clint G. and all, have you looked into electronic locks? I’ve had August Smart Locks recommended. The idea being you can give out codes which are easily changed including codes for contractors which you can revoke. I’ve been considering them. Obviously more expensive. Thoughts?

@Jeff T. I’d eat the cost but let the tenant know you’re giving them a freebie. It sounds like the error was on the part of your PM. Your PM authorized the expense, and as your agent you did. If you pass the bill onto the tenant you’d be in effect charging them for something they didn’t agree to and that wasn’t necessary. You were prepared to spend the money but they weren’t, if it was known it was soap scum they might’ve elected to clean it themselves, and I’m always sensitive to the fact that a tenant’s finances might not have much flex. In any case sounds like a bad business practice with a good tenant. This is cost of doing business for a decision you made. Besides, creating a slight sense of indebtedness with your tenant is not such a bad thing. Take the long view.

That said, your PM needs a good talkin’ to!

@Luis Vaca congratulations on your first deal! As others have said, the first deal's purpose is to teaches you how to make the next deal. 

These things happen, I'm sure everyone here on PB has a story of a surprise (taxes, HOA status, rehab costs...), me included. OK so the deal wasn't the one you thought you had. The question then becomes, "Is it still a deal I like?" That's the question one has to answer to avoid sunk-cost bias; all you can do is evaluate the deal you have, not the one you thought you had or wished you had. It sounds like you still ended up with a good deal, and you signed knowingly.

Let's do a thought exercise: pretend you haven't signed and the deal is before you. Knowing what you know now, would you take it? If yes, you're good! Take the due diligence lesson as a cost-free learning opportunity (after all, you didn't lose any money, you still liked the deal). If no, then maybe the real lesson is that the deal was too skinny to begin with, also a good learning, and in reality all you've done is pay an opportunity cost versus the next best investment choice you could've made with that money.

Of course the other option is to just beat yourself up, but that only robs us of the learning opportunity and leaves us feeling bad about yourselves, which in my experience neither produces success nor happiness, both of which I'm assuming are your goals.

@Seth M. Jones My pleasure, it was helpful to me to write it out. 

Regarding REITs, that makes sense, although I'd like to you encourage you to find more efficient ways for you to invest in real estate, for example syndications. 

Your point though made me consider the topic more broadly. There's real estate as an asset class and there's real estate as an investment vehicle where your expertise and control can produce superior results. For the former REITs are fine but it's then strictly a sector bet and I frankly have no idea whether one sector is any better than another to invest in. I do however love the entrepreneurial aspect of real estate investing because my success is more tied to my ability to learn and apply effort. It's the one sector where I can turn the dials. My guess is that's what draws others here too.

@Seth M. Jones My model is 50% REI equity, 35% stocks, 15% bonds. Age 55. Here's how I think about it:

Bonds: purpose is "dry powder" for stock rebalancing; ability to buy into a down market. I'm not relying on bonds for income.

Real estate: purpose is income generation first, capital appreciation second. In my financial plan they sit between bonds and stocks. I think of it as a stock that generates crazy dividends with low volatility, protected downside, good appreciation. Downside is low liquidity. Ability to extract equity through cash-out refinancing is one lever to pull but that's not a high reliability strategy due to market valuations and interest rate. 

Stocks: purpose is capital growth with liquidity. I'm not banking on the liquidity for funds in retirement, that's what the REI is for, but I do want some financial agility should I see a good opportunity. I will over time slide the % of stocks down and % of REI up, shifting higher volatility assets (stocks) into a lower volatility / higher income generation assets (REI). I may do that through property acquisition or paying down mortgages, not sure yet.

Second to that, I consider the risk/return of leverage. I do not have a margin account for stocks, that kind of freaks me out a little , but I do have mortgages because I wanted to accelerate my acquisition rate. What that confirms for me is that emotionally I regard real estate as very low risk. You can run all the math you want but ultimately I think leverage reveals your emotional reaction to the perceived risk of the asset being leveraged.

As a final comment, to @Steve Vaughan 's point, I don't see the purpose of owning REITs if you're on this site: they're a very inefficient way to own real estate, ok for passive investors who don't want to get their hands dirty, but if you're here you want to get your hands dirty and will get superior results and more control by doing so.

Michael, that's extremely well put. There's a lot packed into that model. For example, decreasing living expenses has the same effect as increasing income. Net worth is a nice number but in the end what matters is, can you afford your lifestyle, and then, how are you going to fund it.

Well what is life without dreams :)

Maybe then you want to look at the cabin primarily as your vacation home and, as a bonus, you can generate AirBnB income off it. If nobody rents it you can still afford to hold it. Then you don’t risk the dream during a recession where people won’t have spare cash for vacations. You said you were going to buy one anyway so this “bonus cash flow” model would hopefully work and then it’s just a matter of budget (e.g. don’t rely on the income, don’t get used it it, pour it back into the mortgage to accelerate equity).

The other REI's are a different beast, a pure business model, and for that reason I find a lot simpler since less emotional investment.