All Forum Posts by: Wade G.

Ben Hughes, all I can say is that is how Steve explained it one time on a radio show. I have a member manual, 1990-2009 copyright, that explains cash flow as being money left after PITI, its depicted on page 6. I know they have "systems" in place that in a perfect world may indeed minimize other expenses but its just not a perfect world. I have not actively listened to the radio show in a few years but they use to constantly say and give examples of someone buying a house and having $200 or $250 a month left after PITI as cash flow that was spendable money. I think they are now saying its more like $400 or so. All of what I am saying can be found on the archives if someone was so inclined to listen to them all. Maybe they have included some repair costs in their more recent radio shows and calculations but years ago they did not. I am not all negative on LU. I think the message they are trying to get across is spot on, but the numbers just don't add up in the real world. Either way I think it is good that you are member because they do help people obtain the right mindset and there are some good people to network with in the group. I like LU, I just don't believe in the numbers they convey.

Jon Holdman, I thought about the refi and payback method but according to the loan officer I have used in the past once you are at four or five mortgages (I can't remember which) you can no longer pull equity out of properties by refi. Maybe I need to inquire other lenders about that or something.

Matt Buckels, I like your idea but I am going to insert the word acronym "FEAR" here mainly since I would be using so much of the money from relatives. I dont know, they are letting me use the money because they trust me not to lose it. Its just one of those big steps that we all cross as we grow.

I always have recommended the $500 level but the one thing that I still cannot accept from LU is their idea of cashflow. They always have, and always will I guess, tell people that cashflow is the leftover money after PITI. Its just disingenuous at best. I heard them explain it once on their radio show that appreciation will make up for any extra expenses outside of PITI so that indeed the cashflow is effectively money after PITI. Only problem is, that is a direct contradiction to one of their own rules which is to not speculate since by their own admittance appreciation is speculation. Futhermore, when such things are brought to light you are just passed off as being negative and not of the right mind set. When all is said and done though they all earn a whole lot more than me so they are probably right.

After a two year break from doing any active investing I think my mind is right again. I have access to about 120k from private money resources with a rate at about 8%. I have about 20k of my own money laying around plus some money for reserves. The investors do not want to tie up their funds in anything long term. I have historically been a SFH buy and hold person so I am at a loss as to how their money can be utilized to buy more SFH and yet return their money back to them within about a year time frame plus some interest to make it worth their while. I have a full time job so flipping is not really a good alternative, plus plan B on a flip that went wrong would be to hold and rent it and that would prevent me from returning the money within a year. It would actually be nice to pursue other options other than SFH. Basically I am looking for a win win investment for both of us. I have four SFH now, so paying cash for another SFH and refi their money out is not an option to the best of my knowledge. Anybody have any ideas?

I live in Harris County Texas and I just recieved my first final appraised value for one of my rentals. It went up 67% in one year. It went from 70k to 117k. It originally went up to 122k but was protested down to 117k. Funny thing is it would never sell for 122k anyway. I thought there was a 10% appraisal cap per year but once again I am wrong. I can't wait to see the other values come in. This may only be the case in Harris County and may not include other areas of Texas though.

College...such a decision. Funny how our society views college. Here is what happens...most people spend way too much money, time, and effort to get some college degree all so they can get some stupid job that they hate and get paid too little for doing. It really makes no sense. The result is a life of quiet desperation. Having said that though I do believe that college is the best investment one can make IF DONE PROPERLY. By that I mean you should get a degree that society actually needs. Colleges are nothing more than businesses and they want to sell you a degree, so therefore they offer all kinds of degrees many of which should not be degrees to begin with. Society needs dentists, engineers, and medical doctors of all sorts for example. Those are real degrees that specialize you making you rare because not just any warm body can do the tasks required of those degrees. To just go to college because its what society says to do is possibly wasting valuable time. College can be a hinderance to your financial well being if done poorly.

In regards to REI the people that I know personally that have done the best REI are highly trained professionals such as the ones I mentioned above. Reason why is their profession offered them the expendable funds for investing. Oh there are always those that had no money and bad credit and were handicapped and homeless etc,, etc,, and they are now millionaires via REI. I here those stories all the time and indeed there really are some that indeed earn a good living by investing in RE with little or non of their own money but its not the norm.

The main point I wanted to make here is if you choose to get a degree then make sure it is one that counts and not some generic degree that certifies you to do nothing. I have one of those degrees and its just not worth it.

I will give my opinion here and just take it with a grain of salt. I firmly believe you should only ask advice from people that have successfully done what you want to do and then do exactly as they did.

I have only done a couple of different REI techniques so I cant offer too much real world advice. I have flipped by the way of buying distressed property and living in it for two years while making the repairs to it and then selling it and moving on to the next one. By far that has been the easiest, safest, and greatest profit route taken. Marriage shut that down for me otherwise I would still be doing it.

The other route I chose was SFH rentals of which I consider myself to be a failure at so my method should not be followed. I'm not saying SFH don't work, but don't do it my way, find someone that did it the right way. I bought 3/2/2 homes in nice neighborhoods that needed heavy repairs, usually a total gut. When all is said and done I would usually be out of pocket 15k - 20k. My final LTV would be 60 - 70%. The houses would cash flow around $350 after PITI and actually more precisely about $100 - $150 after applying the 50% rule without a PM. After doing this for several years I have determined that just plowing money into a 401k or IRA would have been a better option after looking at my returns and more importantly time spent. I do my own repairs and management and I can tell you that if I had to hire a plumber to fix little plumbing problems or electricians or painters or whatever then I would be lucky to break even. As far as I am concerned SF rentals are only good for appreciation while using leverage. Best advice I can give here is if you plan to do SFH then be sure your cash reserves are very, very large because at some point all heck will break lose and your cash will give you the staying power you will need to make it through the storm.

I have abandoned the idea of SFHs for rentals and I am now looking for flip deals. The beauty of REI is there is no one way. You just have to figure out what will be best for you and your lifestyle. I have no experience with it but it seems as though multifamily is much more lucrative than SF. You should join a REI club and meet successful people who don't want to sell you something. If any so galled guru ever tells you that cash flow is money you can spend after PITI then walk away from them...fast. Most people will tell you that REI is a bad idea because they know nothing of it, but they can recall hearing about 401ks and IRAs and its what their parents most likely did so to them that is the way to go.

To elaborate a little. These houses are typical 3/2/2 brick early '80s build in nice well maintained neighborhoods. I bought these homes as I buy all homes...at a large discount due to a state of disrepair. I never pay retail for RE. Most everything was replaced when I bought them. Typically if the house was worth 100 ARV then I bought it for 55 or 60k and usually put around 15 - 20k into repairs...thats just what a typical deal has looked like for me so being underwater equity wise is not an issue.

The repairs...
- Freon leaks on units less then 5 years old
- galvanized pipes in attics with pinhole leaks
- cracked slabs (and all that goes with that repair from cracked tiles to cracked walls)
- AC condensing unit stolen in vacant house
- underground plumbing leaks
- and the best one was a voltage surge in a house that burned out the transformer on the AC unit, and burned out the stove digital display, and ruined two outdoor mercury vapor lights. AC was $220 to replace the transformer, and the stove was $370 to replace the digital display, and $90 to replace the lights. Turned out to be the fault of a transformer (or something like that I cant recall), but it was essentially due to a component on the utility pole that caused the problem, nevertheless, I had to pay for it. My expenses for all the above repairs would actually be alot higher but I am very handy and have been able to do alot of the plumbing repairs myself...at the cost of vacation days at work.

Basically all that has happened has been stupid things that you really cannot prevent in the practical sense. In hindsight, I guess at purchase I could go ahead and replace all the pipes in houses that are more than 20 years old. I guess I could install some sort of automated foundation watering systems. I guess I could have the ac units disconnected and stored in the garage during vacancies. I guess I should not have installed ceramic tile in living rooms and bathrooms.

I dont know. All I can say is my business model has not worked.

Well its been a rough year as a landlord for me so far. Even worse than the year Hurricane Ike caused its damage. To date since January first of this year I have spent an average of $1475 a month for repairs and vacancies on four SFHs which totals $10,325 for the year so far. Vacancy costs only contributed to $964 of that total and the rest has been repairs. Each of these homes was completely rehabbed before becoming a rental as to reduce future repair problems. The average rehab cost was about 20k. The point being that even though everything that could maybe even consider breaking was replaced when I bought the house there are still stupid repairs that are not the tenants fault. The main point that I want to drive home is if you want to be a landlord you had better have a very large reserve fund. I use to believe that about 5k per house was a good rule of thumb but that is being tested right now. Every month like clockwork there is a repair to do and it just won't stop. I have never seen anything like it. Last year from September to December I spent 9k on repairs and vacancies. Much of that was my fault because I let a bad tenant slip through the screening process and I paid for it with a destroyed house. In eight years that was the one bad tenant. In those eight years though there were a couple of years that I did not have one dollar spent on repairs and vacancies so it has not all been bad.

After eight years of landlording with four homes this is what I have learned for me:
- leveraged SFHs really do not cashflow for personal spending. Cashflow goes right back into repairs and vacancies...all of it
- Appreciation and mortgage pay down are really the only way money is made landlording SFHs...and appreciation has been negligible the last five years.
-Paid for SFH are not worth the headache and risk as your ROI is low and all your equity is at risk
- Constant sacrificing to save money to buy homes is not worth it. Investment vehicles such as IRAs may not earn much but its much less sacrifice and headaches.
- If you keep sacrificing year after year to acquire more property then what have you really done. If you have to wait 20 years to see a good return on your homes then you may as well of used the IRA and freed up your valuable time. Also, SFH are actually diminished returns over time.

Well all that is only my opinion but for me I'm done with landlording, its just not worth it. I recommend buying homes with instant equity so that even in a down market you can sell and come out ahead. I use to believe Dave Ramsey gave good getting out of debt advice and terrible investment advice. I have become a believer in his investment advice recently. My plan now is to sell my homes once we have a solid market and use the gains to pay off my primary residence. Some may disagree with me and I'm glad it has worked for you. This is just my experience.

I use to believe that holding was the only way to go for true wealth. I am not so sure about that anymore. Buy and hold has proven to be diminishing returns for me over time especially over the last five years of no appreciation. Insurance increases alone has outpaced the rate at which I can raise rents. Over the course of the last year my strategy has changed to flipping. Where to put the gains from flips for future passive income I do not know anymore.