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All Forum Posts by: Joe Villeneuve
Joe Villeneuve has started 0 posts and replied 12921 times.
Post: Holding costs when paying all cash? Other concerns?
#5 All Forums ContributorPosted - Plymouth, MI
- Posts 13,466
- Votes 19,537
Quote from @Calvin Thomas:
Quote from @Joe Villeneuve:
Quote from @Calvin Thomas:
Quote from @Joe Villeneuve:
Quote from @Stetson Oates:
Quote from @Joe Villeneuve:
Quote from @Stetson Oates:
Quote from @Joe Villeneuve:
Quote from @JM Edward:
@Joe Villeneuve that's a different way to look at it! I thought I was on the right track when @Chris Seveney validated my point, but everything can be seen multiple ways which is what makes these things so tricky. I feel all-cash is less risk because unless the market goes way down I can still likely get most if not all my principal back, even in a half done rehab(?).
As you see it, the lender is taking some of your risk away, but how does that work if there is a loss on the project? The lender takes the title and you lose your down payment and rehab costs? And you end up with a credit record that prevents you from taking out (decent) loans for the next many years? That sounds like more of a nightmare scenario than losing some principal, but I don't think I'm as educated on what this would look like and why you think it would be a better scenario. Can you say more?
Risk is based on 3 parts:
1 - What is at risk. This is ALWAYS the cash that was put into the deal.
2 - Who is at risk. See above. This is the person that put in the cash. When you buy all cash, you are taking on 100% of the risk. When you put 20% down, you are only taking 20% of the risk, and the lender is taking 80%.
3 - Who is the risk. this is the person/entity that is responsible for keeping the investment a good investment. This is the REI. This means the person who is AT risk the most, is the person that put the most cash into the deal, and they are relying on the person who is THE risk to keep their cash safe. So, the person who puts the least amount of risk (cash) into the deal, is the person sho has the least amount of risk.
On the other hand, the greatest risk will always be what you have to risk...which is your cash in any deal. You are either risking the small DP, or all cash. This also impacts legal action. A property with 100% equity is a target, one with 20% isn't,...or is at least a very small target.
On top of that, the cash you put into a positive cash flow property is what the REI pays for that property. When you put up 20%, that's what you are paying for it. When you pay 100% cash, then you are paying full price.
Plus, 20% down means you are buying 5 times as much value compared to paying full price in cash. So, a 5% appreciation generates 5 times the equity increase as well,...and that's exponentially gained on future appreciations.
Using debt responsibly is a good strategy and necessary in most cases if you want to scale. However, debt can be the silver bullet to an investor if not done responsibly. When I was an underwriter and lender, a foreclosure killed the deal. Those are very hard to overcome and would require you going off market for financing for at least 5-10 years before any financial institution would look at you again. Of course, debt allows an investor to scale quicker and take advantage of appreciation on a larger scale but running a risk analysis on who's making loan payments when the SHTF is a useful exercise.
While your assessment of debt vs no debt risk holds water when it comes to litigation, an LLC with an insurance policy and an umbrella sets up a good defense. As well as being in a state with charging order protection.
As I stated above. Foreclosures delay traditional financing, until the REI can show a positive track record after the foreclosure. There are many more ways to finance properties, not involving traditional financing, where a foreclosure shouldn't impact it negatively. These other ways will show positive results to a lender, and help to stop the foreclosure from stopping traditional financing.
So you only recommend holding a mort. for liability concern? What sense does that make? You would rather pay 6%+ than have a paid off property? You do realize, unless the LLC is owned by two members or more, it's not very hard to pierce the LLC veil and go after the owners.
In my humble opinion, this makes little sense. Get a good insurance policy and an umbrella, and most should be fine.
You know, just because a lien isn't filed with the county, doesn't mean there isn't a lien on a property. I do not see the sense in paying 6%+ to a bank on the off chance I get sued. The logic doesn't compute for me; but maybe I am old and senile.
Post: Holding costs when paying all cash? Other concerns?
#5 All Forums ContributorPosted - Plymouth, MI
- Posts 13,466
- Votes 19,537
Quote from @Calvin Thomas:
Quote from @Joe Villeneuve:
Quote from @Stetson Oates:
Quote from @Joe Villeneuve:
Quote from @Stetson Oates:
Quote from @Joe Villeneuve:
Quote from @JM Edward:
@Joe Villeneuve that's a different way to look at it! I thought I was on the right track when @Chris Seveney validated my point, but everything can be seen multiple ways which is what makes these things so tricky. I feel all-cash is less risk because unless the market goes way down I can still likely get most if not all my principal back, even in a half done rehab(?).
As you see it, the lender is taking some of your risk away, but how does that work if there is a loss on the project? The lender takes the title and you lose your down payment and rehab costs? And you end up with a credit record that prevents you from taking out (decent) loans for the next many years? That sounds like more of a nightmare scenario than losing some principal, but I don't think I'm as educated on what this would look like and why you think it would be a better scenario. Can you say more?
Risk is based on 3 parts:
1 - What is at risk. This is ALWAYS the cash that was put into the deal.
2 - Who is at risk. See above. This is the person that put in the cash. When you buy all cash, you are taking on 100% of the risk. When you put 20% down, you are only taking 20% of the risk, and the lender is taking 80%.
3 - Who is the risk. this is the person/entity that is responsible for keeping the investment a good investment. This is the REI. This means the person who is AT risk the most, is the person that put the most cash into the deal, and they are relying on the person who is THE risk to keep their cash safe. So, the person who puts the least amount of risk (cash) into the deal, is the person sho has the least amount of risk.
On the other hand, the greatest risk will always be what you have to risk...which is your cash in any deal. You are either risking the small DP, or all cash. This also impacts legal action. A property with 100% equity is a target, one with 20% isn't,...or is at least a very small target.
On top of that, the cash you put into a positive cash flow property is what the REI pays for that property. When you put up 20%, that's what you are paying for it. When you pay 100% cash, then you are paying full price.
Plus, 20% down means you are buying 5 times as much value compared to paying full price in cash. So, a 5% appreciation generates 5 times the equity increase as well,...and that's exponentially gained on future appreciations.
Using debt responsibly is a good strategy and necessary in most cases if you want to scale. However, debt can be the silver bullet to an investor if not done responsibly. When I was an underwriter and lender, a foreclosure killed the deal. Those are very hard to overcome and would require you going off market for financing for at least 5-10 years before any financial institution would look at you again. Of course, debt allows an investor to scale quicker and take advantage of appreciation on a larger scale but running a risk analysis on who's making loan payments when the SHTF is a useful exercise.
While your assessment of debt vs no debt risk holds water when it comes to litigation, an LLC with an insurance policy and an umbrella sets up a good defense. As well as being in a state with charging order protection.
As I stated above. Foreclosures delay traditional financing, until the REI can show a positive track record after the foreclosure. There are many more ways to finance properties, not involving traditional financing, where a foreclosure shouldn't impact it negatively. These other ways will show positive results to a lender, and help to stop the foreclosure from stopping traditional financing.
So you only recommend holding a mort. for liability concern? What sense does that make? You would rather pay 6%+ than have a paid off property? You do realize, unless the LLC is owned by two members or more, it's not very hard to pierce the LLC veil and go after the owners.
In my humble opinion, this makes little sense. Get a good insurance policy and an umbrella, and most should be fine.
Post: Percentage of Cash Transactions - Last 10 Years
#5 All Forums ContributorPosted - Plymouth, MI
- Posts 13,466
- Votes 19,537
Quote from @Jake Andronico:
Joe, everything OK?
Post: Holding costs when paying all cash? Other concerns?
#5 All Forums ContributorPosted - Plymouth, MI
- Posts 13,466
- Votes 19,537
Quote from @Stetson Oates:
Quote from @Joe Villeneuve:
Quote from @Stetson Oates:
Quote from @Joe Villeneuve:
Quote from @JM Edward:
@Joe Villeneuve that's a different way to look at it! I thought I was on the right track when @Chris Seveney validated my point, but everything can be seen multiple ways which is what makes these things so tricky. I feel all-cash is less risk because unless the market goes way down I can still likely get most if not all my principal back, even in a half done rehab(?).
As you see it, the lender is taking some of your risk away, but how does that work if there is a loss on the project? The lender takes the title and you lose your down payment and rehab costs? And you end up with a credit record that prevents you from taking out (decent) loans for the next many years? That sounds like more of a nightmare scenario than losing some principal, but I don't think I'm as educated on what this would look like and why you think it would be a better scenario. Can you say more?
Risk is based on 3 parts:
1 - What is at risk. This is ALWAYS the cash that was put into the deal.
2 - Who is at risk. See above. This is the person that put in the cash. When you buy all cash, you are taking on 100% of the risk. When you put 20% down, you are only taking 20% of the risk, and the lender is taking 80%.
3 - Who is the risk. this is the person/entity that is responsible for keeping the investment a good investment. This is the REI. This means the person who is AT risk the most, is the person that put the most cash into the deal, and they are relying on the person who is THE risk to keep their cash safe. So, the person who puts the least amount of risk (cash) into the deal, is the person sho has the least amount of risk.
On the other hand, the greatest risk will always be what you have to risk...which is your cash in any deal. You are either risking the small DP, or all cash. This also impacts legal action. A property with 100% equity is a target, one with 20% isn't,...or is at least a very small target.
On top of that, the cash you put into a positive cash flow property is what the REI pays for that property. When you put up 20%, that's what you are paying for it. When you pay 100% cash, then you are paying full price.
Plus, 20% down means you are buying 5 times as much value compared to paying full price in cash. So, a 5% appreciation generates 5 times the equity increase as well,...and that's exponentially gained on future appreciations.
Using debt responsibly is a good strategy and necessary in most cases if you want to scale. However, debt can be the silver bullet to an investor if not done responsibly. When I was an underwriter and lender, a foreclosure killed the deal. Those are very hard to overcome and would require you going off market for financing for at least 5-10 years before any financial institution would look at you again. Of course, debt allows an investor to scale quicker and take advantage of appreciation on a larger scale but running a risk analysis on who's making loan payments when the SHTF is a useful exercise.
While your assessment of debt vs no debt risk holds water when it comes to litigation, an LLC with an insurance policy and an umbrella sets up a good defense. As well as being in a state with charging order protection.
As I stated above. Foreclosures delay traditional financing, until the REI can show a positive track record after the foreclosure. There are many more ways to finance properties, not involving traditional financing, where a foreclosure shouldn't impact it negatively. These other ways will show positive results to a lender, and help to stop the foreclosure from stopping traditional financing.
Post: Grandma will loan me anything at 5% rate
#5 All Forums ContributorPosted - Plymouth, MI
- Posts 13,466
- Votes 19,537
Quote from @Shiloh Lundahl:
@Ethan Tomlinson you don't have to have a lot to offer. Here is an idea, find some investors in your market that have between 3 and 10 properties. Reach out to them and say, my name is Ethan and I'm pretty young but I've been learning a lot about real estate investing. I was wondering if I could treat to to lunch within the next couple of weeks to ask you about how you got started investing in real estate. You will likely get a good response if you approach it this way.
Post: Holding costs when paying all cash? Other concerns?
#5 All Forums ContributorPosted - Plymouth, MI
- Posts 13,466
- Votes 19,537
Quote from @Stetson Oates:
Quote from @Joe Villeneuve:
Quote from @JM Edward:
@Joe Villeneuve that's a different way to look at it! I thought I was on the right track when @Chris Seveney validated my point, but everything can be seen multiple ways which is what makes these things so tricky. I feel all-cash is less risk because unless the market goes way down I can still likely get most if not all my principal back, even in a half done rehab(?).
As you see it, the lender is taking some of your risk away, but how does that work if there is a loss on the project? The lender takes the title and you lose your down payment and rehab costs? And you end up with a credit record that prevents you from taking out (decent) loans for the next many years? That sounds like more of a nightmare scenario than losing some principal, but I don't think I'm as educated on what this would look like and why you think it would be a better scenario. Can you say more?
Risk is based on 3 parts:
1 - What is at risk. This is ALWAYS the cash that was put into the deal.
2 - Who is at risk. See above. This is the person that put in the cash. When you buy all cash, you are taking on 100% of the risk. When you put 20% down, you are only taking 20% of the risk, and the lender is taking 80%.
3 - Who is the risk. this is the person/entity that is responsible for keeping the investment a good investment. This is the REI. This means the person who is AT risk the most, is the person that put the most cash into the deal, and they are relying on the person who is THE risk to keep their cash safe. So, the person who puts the least amount of risk (cash) into the deal, is the person sho has the least amount of risk.
On the other hand, the greatest risk will always be what you have to risk...which is your cash in any deal. You are either risking the small DP, or all cash. This also impacts legal action. A property with 100% equity is a target, one with 20% isn't,...or is at least a very small target.
On top of that, the cash you put into a positive cash flow property is what the REI pays for that property. When you put up 20%, that's what you are paying for it. When you pay 100% cash, then you are paying full price.
Plus, 20% down means you are buying 5 times as much value compared to paying full price in cash. So, a 5% appreciation generates 5 times the equity increase as well,...and that's exponentially gained on future appreciations.
Post: Holding costs when paying all cash? Other concerns?
#5 All Forums ContributorPosted - Plymouth, MI
- Posts 13,466
- Votes 19,537
Quote from @Bruce Woodruff:
@Joe Villeneuve just makes too much sense. Listen up newbie investors!
Actually, if it only makes cents, it makes no sense, but if it makes dollars, it makes perfect sense.
Post: Holding costs when paying all cash? Other concerns?
#5 All Forums ContributorPosted - Plymouth, MI
- Posts 13,466
- Votes 19,537
Quote from @Bruce Woodruff:
Quote from @JM Edward:
@Joe Villeneuve that's a different way to look at it! I thought I was on the right track when @Chris Seveney validated my point, but everything can be seen multiple ways which is what makes these things so tricky. I feel all-cash is less risk because unless the market goes way down I can still likely get most if not all my principal back, even in a half done rehab(?).
As you see it, the lender is taking some of your risk away, but how does that work if there is a loss on the project? The lender takes the title and you lose your down payment and rehab costs? And you end up with a credit record that prevents you from taking out (decent) loans for the next many years? That sounds like more of a nightmare scenario than losing some principal, but I don't think I'm as educated on what this would look like and why you think it would be a better scenario. Can you say more?
Never ever assume anything like that! There are many factors at play that can take your money. Market direction is one, but Mr Murphy and his band of cohorts are always hanging around. The cost of doing business is usually under-estimated. And the big one is the real cost of your remodel/construction...especially when you are new to the game and don't know construction, permits, codes, etc....
REI must keep in mind that the actual cost to the REI of a cash flowing property, is ONLY the cash they put in. So the more cash they put in, the more they are paying for the property. This also means, the more cash they put in, the more cost they must recover before they start making a profit since profits only come after the investor (like any business) recovers all of their cost. The less cash in, the less cost. The lower the cost, the less to recover...and the faster to profit.
...and, the lower the risk.
Post: Holding costs when paying all cash? Other concerns?
#5 All Forums ContributorPosted - Plymouth, MI
- Posts 13,466
- Votes 19,537
Quote from @JM Edward:
@Joe Villeneuve that's a different way to look at it! I thought I was on the right track when @Chris Seveney validated my point, but everything can be seen multiple ways which is what makes these things so tricky. I feel all-cash is less risk because unless the market goes way down I can still likely get most if not all my principal back, even in a half done rehab(?).
As you see it, the lender is taking some of your risk away, but how does that work if there is a loss on the project? The lender takes the title and you lose your down payment and rehab costs? And you end up with a credit record that prevents you from taking out (decent) loans for the next many years? That sounds like more of a nightmare scenario than losing some principal, but I don't think I'm as educated on what this would look like and why you think it would be a better scenario. Can you say more?
Risk is based on 3 parts:
1 - What is at risk. This is ALWAYS the cash that was put into the deal.
2 - Who is at risk. See above. This is the person that put in the cash. When you buy all cash, you are taking on 100% of the risk. When you put 20% down, you are only taking 20% of the risk, and the lender is taking 80%.
3 - Who is the risk. this is the person/entity that is responsible for keeping the investment a good investment. This is the REI. This means the person who is AT risk the most, is the person that put the most cash into the deal, and they are relying on the person who is THE risk to keep their cash safe. So, the person who puts the least amount of risk (cash) into the deal, is the person sho has the least amount of risk.
Post: Grandma will loan me anything at 5% rate
#5 All Forums ContributorPosted - Plymouth, MI
- Posts 13,466
- Votes 19,537
Quote from @Bryant Jaske-Moser:
@Joe Villeneuve my suggestion is not irresponsible. But maybe I misunderstood the terms of the deal.
#1. I'm under the impression Grandma offered to lend 100% of the purchase price. If I misunderstood and grandma is ONLY lending the down payment, then I agree with Joe. That's irresponsible, don't do it because that is over leveraging.
If I understood correctly, and Grandma is offering to finance 100% of the cost, then as I said ... get people in with a lease ... track all income/expenses and claim it on you taxes (which is a must), then go to a bank after 2 years or more of tax returns to get a loan that pays off grandma's loan. My suggestion is to get around the W-2 issue.
#2- have you heard of DSCR loans? They look at your credit and the potential income of the property instead of your W-2. Instead of borrowing from grandma you could look at this as an option. Or you can borrow some from grandma to help with DP, but I don't recommend it. I only recommend accepting the loan if it's for 100% of property cost (minus your down payment), so you have 1 loan to manage at a time, you can more easily pay down the principal, and at the end of the loan term you can get that first bank loan to take care of the balloon payment to grandma.
#3 do you know how to financially plan for expenses? "Rule of thumb" changes based on property type (new vs old vs rhab). If it's a new build, keep 1% of purchase price is cash reserves, account for monthly principle/interest payments (aka PI), 30% of the monthly rent should be added to your cash reserves to cover future expenses/problems/taxes/property management.
Some people might say 20% to cash reserves, but instead of PI, they account for PITI which is principle/interet/taxes/insurance.
If you buy an older home, assume you need a lot more in cash reserves. Being young (and I assume inexperienced in construction/rehabs) I would suggest looking for a deal on a new build.
Whatever you do Ethan, don't over borrow or over leverage the property. Whatever you save, before signing a contract or paying a DP, ensure you keep a certain amount of money in cash reserves to cover unexpected expenses.
***I may be new at real estate, but I am not new to investments/risk management. Everyone has different risk tolerances, but there is a difference between risk and irresponsibility; which is what I assume Joe was getting at. So don't over leverage, and keep cash reserves. Some people say keep more cash reserves that my recommendation. I feel my recommendation is very conservative for a new build.