All Forum Posts by: Account Closed

I know the debate on leveraging has been raging for quite a while on this forum and there are several people who are pro leverage (Rich, Will, JScott) as long as it is used responsibly and there are others that talk about playing it safe and owning F&C properties (including primary residence) in the event of things going south. I am a big fan of leverage myself but also want to account for worst case scenarios. So, if you stashed away 6 month reserves for all your rentals into a separate fund, is that good enough to wiggle yourself out of a sticky situation in the future or does it need to be more than 6 months? I am not able to imagine any problem scenarios except vacancies or a major repair. Is there anything else I am missing?

Also, I would think since this separate fund would have a considerable amount of money, it would make sense to keep it working by using maybe 70% of it for private lending and make some return on it. Again, since it is highly unlikely that you would run into problems with all properties at once, I would think, the 30% should cover your immediate expenses and since private lending is short-term anyway, I should have access to all of it reasinably soon. I have other liquid assets that I could use for the reserves but having something sectioned off with a plan in place would just make me feel better about it. Thoughts?

So far, I have stuck to purchasing 2000 or newer for my buy and hold rentals. Yes, the cash flow numbers are probably not as great as the older ones and it is harder to get these at a discount but at least I have greater peace of mind when it comes to future repairs and maintenance.

Happy Birthday Jason! I have thoroughly enjoyed reading your blog and posts.

Also, this topic has two perspectives when it comes to the response: one is based purely on math/economics and the other is psychological. Of course, leveraging your primary residence is the better option purely from a financial standpoint. Psychologically though, owning it F&C might be worth much more for some - so I don't think we will ever have general consensus on this topic.

JScott and Rich said it best. We are building a new house and I was about to pay cash for half and finance the rest. When I started working on the deals I had on the table and thinking about how I could use that money to finance those deals to fetch returns in excess of 35%-40%, it was a no-brainer to just finance as much as possible. Why would I park all my money on my primary residence and then borrow money at 12% (instead of 3.75%) from a private lender to finance my projects? Of course, it would make sense if a person is not an active RE investor i.e. they do not have other deals they are looking into or just have so much money that he/she does not know what to do with it.

Wade,

I am in Houston as well and did SFH buy and hold rentals exclusively up until a few months ago. I wanted to branch out to multi-gamily/apartment buildings and started reading up on analyzing multi-family deals. Get familiar with the terms i.e. NOI, cap rate, value-add etc. Also, start looking at loopnet to see what kind of deals are out there and how much money you would need to get into the kind of multi-family you have in mind. It took me 6 months to find my first commercial (apartment building) deal but it was a homerun. You are right - you need to have financing lined up or else sellers are not going to take you seriously. Your best bet is to partner up with someone who can put cash into the deal as well.

Thanks guys! I really appreciate the advice.

Scott - I'm a big fan and read your blog quite a bit.

I have a flip deal where the numbers make sense. The house is in a sought after area and I can easily make around 40K based on the comps even if we priced it lower than market. My dilemma is this. This is the first time I am dealing with a house that had a mold situation. It was built in 2002, so it is a newer house. I know a house will sell as long as the price is attractive enough. Would the fact that the house had mold at some point be a deal-breaker for most buyers or would they be willing to look past it as long as the current inspection is clean. What has your experience been? Appreciate your advice.

Thank you both.

I am pursuing a deal of 16 condos that are fully leased out in a condo community of 88 total condos. That is not the attractive part about this deal. What pulled me in is that it comes with land within the same community, large enough to build 20-30 condo units and sell. My question is: how do I find out if there are any restrictions when it comes to building on this land. I just want to make sure there are no surprises later when I am about to construct the condo units. Any advice is appreciated.