All Forum Posts by: Thomas Lorini

@Shiloh Lundahl, THANK YOU!  exactly... I agree with you:  Keith Weinhold, as well as Kiyosaki, are not big fans of equity sitting around not being used either.  you have to be smart, and make sure you have plenty of margins, but the argument that the bank is taking the larger risk when your equity is smaller floats my boat...I have no problem borrowing against properties flush with equity to grab something else that creates a solid cash flow after ALL true expenses..., including equity interest charges; if it's OPM, its an INFINITE RETURN ON MY MONEY, which to me is Zero, if its not coming out of my pocket. 

@Aaron Mazzrillo, how in the world do you build an empire if you don't use equity?  I'm glad your mentor had the luxury of waiting to build up down payments before he moved on property, but I sure don't!  I think a better rule is knowing your market, keeping safe margins and not making dumb purchases.

That downturn did nothing to my tenants but make them settle in and weather the storm.  

@Thomas Lorini, good on ya buddy!  excellent deal, I say, and good job weathering a lot of harsh responses.  I don't remember you saying that first time buyers with no money and no equity can do the same thing as you FOR FREEE!    Perhaps they could if they found a good partner like you to help them with their deals and learn how not to make dumb purchases.  And it looks to me like the equity you bought into on that deal, as well as growing rents, easily justifies the tiny payment on the equity you used to make it happen.

But I love leverage (except car payments!!) and hope to share a mai-tai with you in the islands when all is said and done!

@Aaron Mazzrillo I get what your saying about how risky it is to take out all the equity. However, I disagree with you on who holds the risk. For example, If I have 2 properties, each worth 200k. One has 100k equity and the other that has only 15k equity and both tenants move out and I have a hard time filling them and I get behind in my mortgage payments to the bank, which one is the bank going to foreclose on first? The one that has almost no equity or the one that has 100k in equity? 

The higher leverage the more risk the bank has, the lower leverage the more risk I have. The bank will probably be willing to work with me more on the property with little equity than the one with more equity because they are less likely to get all of their money back by forclosing on the property with little equity. So they may be more willing to extent the time period or something to get the note performing again. Whereas with the property with more equity they are much more likely to get all of their money back including all forclosure fees, etc. if hey foreclose on that property.

The key to all of this is to make sure your property cash flows, then you can ride out the bad times. And where did you hear it was the investors stripping equity in 2006 that caused the financial meltdown? Remember subprime loans were given to homeowners who didn’t earn enough to pay their mortgage when rates adjusted. I don’t know about your neighborhood, but in mine it wasn’t renters that were walking away from their homes it was the homeowner that realized that they were paying a mortgage on a home that was worth half of what they owed so they stopped paying and walked away. Investors who were cash flowing before the crash rode out the financial storm and continued to cash flow and tried to get more properties when houses were at a deep discount. From what I have read and seen, flippers are the ones that tend to get hurt the worse during down turns more than the buy and hold investors.

Keith Weinhold explained the concept of who holds the risk mentioned above in detail on his get rich education podcast #163. Defiantly a mindset shifting podcast worth listening to.

https://itunes.apple.com/us/podcast/get-rich-education/id927263663?mt=2&i=1000395028869

@Aaron Mazzrillo

Your one of the few on here that get it. Its honestly by definition a Ponzi scheme in its truest form.  The presenter paints a rosy picture of a deal on BP. He/She then goes and does another deal gutting all or a portion of the prior deal. Each and every deal this is done to becomes a weaker player in the portfolio. The "glory story' that was offered up for the newbies to fawn over is no longer in place. Then as you do deal after deal what have you built? A lot of very weak properties that collapse under the least amount of stress because you have stripped all value from them. Your equity is just tied up in that next deal. No Thanks ! You are 100% correct on another subject about what happened 10 short years ago. These type of deals are "part" of the reason housing collapsed. The bank not doing their due diligence on borrowers as well but thats a two way street. Your typical investor on this site was jumping all over those loans. Lets keep in mind.....banks offered a product that was being asked for.  In the end.... Its a very risky way to make money. I maintain I do not think the banks should loan on any of these properties without 20% down for owner occupied and 30% for investment.  A little thing called "skin in the game" is a powerful tool to vet out deals and to not get overextended.  Some of these stories you read on BP those investors...gamblers really own nothing. My comments are directed at the folks starting out. Seeing how much you can borrow is not the path to wealth. It the path to bankruptcy in many cases. 

@ Shiloh Lundahl wrote the following "The higher leverage the more risk the bank has, the lower leverage the more risk I have" 

My goodness I read this stuff and just cringe. Did we not learn anything from the 2009 recession? FYI you share that risk with the bank. The fact you dont understand this is troubling and to boot to drive your point you "THINK" you have leverage over the bank if they foreclose on you cause you owe a lot?  The bank can end you ability to borrow hence shutting you out from whatever you are doing. As well owning properties entirely with no loans..leverage...that my friend is called power.........not risk .Banks and investors are at your feet monthly wanting to lend or buy your proprieties for a gain. 

Holy crap the amount of nay sayers in the responses are killing me. The man made a good purchase and is MAKING MONEY! 

Who cares

He did not use actual cash but leveraged from another property, like many others do

Seller did not negotiate and Thomas made a fair offer HE thought was good for HIM and he already has another property in the SAME street- I think he knows that area

Good job Thomas and hope it all works out. Seems like you have a good grip on YOUR investments. The nit pickers will always do it.

Thought BP was a supportive forum not a beat down forum!

Place looks great

Congrats!  What kind of flooring did you use? 

I’m just getting started and trying to dot my I’s. Sorry for the questions.

Are these numbers you use to evaluate a rental comprehensive? Is there an app to utilize?

Thanks for sharing this real life deal ! Always good to see and “analyze” from different peoples perspectives. We all learn something from these type of posts- thank you.

Aaron Mazzrillo your mentor was right mostly; however, I had many wise people tell me that it isn’t smart to use the words never or always as there will always be exceptions. There are many wise people who will tell you it is never a good idea to borrow from a 401k for any reason or any length of time and yet there are very valid reasons for doing exactly that.

I think to be successful you have to be willing to be creative as long as you know where to draw the line. That’s the problem we had leading up to the crash. People got stupid and banks were insanely complicit. I think that if the OP bought the first property right and maintained a sufficient amount of equity to allow debt and cash flow to make sense in most markets it is hard to knock his decision.

For example, if he maintained 20% equity with a balance owed being 60% between market low and high while maintaining positive cash flow after expense adjustments with rent at a 20 year market average then his move was probably pretty smart. If, instead of that, he only maintained 10% equity with a balance owed very near the market high and very little cash flow after expenses with rents also at or near market highs that are well above 20 or 30 year market averages then it is a very risky move.

It all comes back to knowing your market and having the good sense to know when that kind of play is going to put your portfolio at risk.

That was awesome!!! Good on you for doing this!!! Going in full in 2018. You are an inspiration!!!

Great story. Keep it up!