All Forum Posts by: Rich Weese

Jamaal,

My wife and I are going to be taking a road trip this summer to finish the last three states we have never visited. Nebraska, North Dakota and Iowa! I'd love to break up the trip and chat with you when we are in your area. (We have visited all the continents and 108 different countries)

I learned the following at a very early age:

If owning one house was good, owning 10 houses was better.

If owning 10 houses was good, owning 100 houses was even better.

I continued that trend and I believe four years ago, my wife and I went over the number 1000 in single-family residences we have owned or built in our lifetime. I still have one subdivision and around 400 apartments. I've been winding down for the past 10 years.

Good luck always.

I had two "aha"moments early in my career and I believe I have mentioned them in previous posts. I'm not very active on a daily basis on BP anymore but I have hundreds of threads and thoughts!

Moment number one – after receiving my real estate license and feeling I was spinning my wheels, my employing broker used two comparisons for me. He asked me if I had ever been to a drag race? I had not and he explained what happened to dragsters. "They spin their wheels and then dig in and go off like a bat out of hell!" I understood what he was talking about. The other comparison was telling me his goal had been to get $1 million in debt! I had never thought about that. He then lectured me on the point was, to gain $1 million in debt and be able to make your payments and service your debt. Inflation was extremely high at that time and the value of that real estate was going up by a significant amount annually. It was only on paper but could be converted to cash any time I chose to sell or refinance. I used that method and have explained it in more detail in other threads or in a book.

Moment number two – as a broker, I began doing real estate syndications and raising money. I determined it was much easier if I did not have to raise the extra 6% in cash from investors just to put in my pocket as my commission. I would simply add a second, or third, or fourth mortgage on a property as my commission. It all spent the same. At a very young age, I was able to retire. The biggest part of that was notes in the amount of $1,600,000 on close to 100 notes that was paying 10 to 12% annual interest! I was making in excess of $150,000 annually without going out the door and with no reduction of principal. There was other income also from additional commissions and investments of my own. This was a tremendous amount of income in the 1970s when I retired. Leverage was truly my best friend and the IRS was truly my worst partner!

I remember owning a couple buildings in Fort Collins Colorado hundred years ago, the colony and the Bellavista. There was an Army base there and I remember my attitude was the same toward one-bedroom units. Too much turnover too much delay in re-renting. Just one guys opinion.

I should also add that I sold 154 units in July of last year and the story was the same on one-bedroom units.

I have two medium-size apartment buildings, 128 units and 164 units, and my one bedroom units are always the highest turnover and most difficult to rent. They are not small units either. No ability to increase them to to the bedrooms.

I am not a fan of section 8 and I do not like strictly one-bedroom units. I would not make that acquisition nor have I ever in my lifetime. I have owned and do on apartments at the present time.

I remember when I first got into real estate nearly 100 years ago, I had a very wise broker that opened my eyes with a very simple comment. He said his strategy was to get $1 million in debt. In 1970, $1 million represented a gigantic amount of debt! His reasoning was as follows:

He wanted to be able to have $1 million in real estate debt and be able to service that debt possibly without any positive cash flow.. It was during the time, when 5 to 10% inflation was very possible. On paper, he would be able to make $50,000-$100,000 annually on increase in value of the property he had debt on. in that timeframe, the amount he was making on paper was significantly higher than what people were making on annual salary.

With that thought in mind, I would lean towards the content of leverage is King. I would also point out that you did not give enough of your current status as to strategy, risk tolerance, age, income currently, etc. etc. etc.

There are different options available for a private residence. You always have the ability to pull cash from that property by way of refinance. If you are flexible, you also have the ability to sell that home for a profit every two years tax-free and invest that money. I was able to do that numerous times during my estate building years.

Once you are able to answer many of the questions I stated above as to risk tolerance etc., it would be easier for others to give you suggestions as to which way they would go. It is always possible to make up for a mistake when you are younger than when you are looking closer to the retirement years. That would make a difference also.

My accountant said the same thing and gave me zero sympathy.....

There is not enough info in your situation for me to reply. Your strategy, length to own, attitude toward the tax consequences and benefit to fast forward the loss. Both times cost me about 7K for the study. 154 units and 128. I probably delayed 7 times that amount in taxes the first few years. I'm getting ready to write 1.3 million to the Irs. That just guts me.... 

I have a chapter in my Book called "The worst partner you'll ever have". I feel that way about the irs more than ever before....

I have done it twice over the past few years on larger apartment buildings in the Dallas area. I don't think anyone has mentioned, but you need to make sure you are in the game for the long run. If you decide to sell the building and not do a 1031, you actually have to recapture the depreciation and are taxed at a higher percentage than if it had been straight-line depreciation the entire way. It does help significantly reduce the tax consequences from cash flow on a larger investment property.

Good luck.