All Forum Posts by: Frank Jiang

@Christine Lawrence Ping me!  I used to own rentals in Memphis and Indianapolis (now fully divested).  I am not a crazy who will say one way or another that investing OOS is a terrible or a fantastic idea.

There are definitely pitfalls of which you need to be mindful since there are a lot of bad actors in this space, but many people find decent returns in this space.

All of the things you mentioned are better mitigated by purchasing umbrella insurance, which is a far more important step to take in ensuring personal protection.

In terms of buying the newest condo in an LLC, buying a property in an LLC makes getting a loan on the property orders more difficult.

Leverage enhances your results.  Making up numbers: if you would have had a good property making you 7% before leverage, you will make 15%+ after leverage.  If you have a bad property making you -3% before leverage.  You will make -10% after leverage.

Also, if you're afraid of using leverage, there's really no point in getting into RE in my opinion.  The entire beauty of real estate is someone will be willing to give you money to invest with.  Imagine asking the bank for a loan to go play on the stock market.  Unlevered real estate performance for entry-level real estate is really quite unimpressive and you can get a similar return for far less work by just buying into the stock market or some high yield bonds.

Heartbreaking to read stuff like this.

And this is how the next wave of complaints about GEG from the private lenders starts coming in.   Seems inevitable when you're underwriting 5% > 9% balloons on D class properties.

Once you own the property, at some point, you become the seller.  You have to calculate the fees to exit in your analysis as well.

Because every year you own the property, your equity in it increases by roughly 5K.  When you one day sell the property, you will get all of that principal back in one big cash payment.  So in essence, the principal portion of your payment doesn't count as a true expense because, barring a downturn or excessive exchange fees, you get it back when you sell the property.  Only the interest piece counts as an expense.

There's a ton of other small but not inconsequential stuff you're missing, primary exchange fees (loan origination, realtor commissions, title, etc).  With all this in mind, you can feel pretty decent about this property returning somewhere between high single digit to low teens barring anything extraordinary (market downturn, unforeseen capex, difficult eviction, etc).

Well for starters your CoC calc at the end is wrong.

You have a monthly profit of $432.  You've already deducted the mortgage through P/I so you don't take it out again.  Your actual return is the $432*12 / Down payment = 7.4%.

Technically, you should add back the principal piece of roughly 5K in a year to the $432 so your return is closer to 13-14%.

LLCs' are pass-through.  You just take an owner draw.

Do not take investment advice from Clayton Morris.  Do a quick search of Morris Invest in the BiggerPockets search engine and you'll get yourself hours of perverse Schadenfreude material.