Investment Real Estate question....

[FDCaptain]

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Originally Posted by honobob That’s what I did and ended up a multimillionaire (in real estate equity). First property paid for the next and so on. The original property was paid off 15 years ago only because a 15 year mortgage was all that was available at the time. The difference of the smaller payment was 28% of the rent then ( I could have used that money then) but only 4.6% of the rent in the last year if I’d had a 30 year mortgage. So maybe I’d pay more in interest but because of inflation and the time value of money I probably paid more in hours of work to pay the property off in 15 years. So in year thirty I have a property worth $400,000 free and clear or I owe maybe $3,500 for a net of $396,500! So as long as I can get fixed low rates I’m gonna keep property financed. Appreciates at the same rate paid off or not! I had originally considered liquidating and placing in the stock market but I believe recent events have shown that not to be a good plan. People talk about how liquid stocks are but then have to plan 5 years of cash so they don’t have to sell in a down market. Liquid? I think not! I can always get cash from my properties at market rates and change when rates get even better! As long as I can anticipate fixed mortgage costs, rising rents and a 9%+ long term appreciation rate I think I’ll take my liquidity from real estate!

Thanks for your insight.....something to think about.

Do you hold your properties in an LLC?

[FDCaptain]

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Originally Posted by FinanceDude Don't buy.........stay away.........

Any reasons?

[honobob]

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Originally Posted by FDCaptain Thanks for your insight.....something to think about. Do you hold your properties in an LLC?

You're welcome. My experience only, YMMV.
I hold everything in a revocable living trust. It's been 30 years and the LLC's seemed overkill but then I don't buy the rental car insurance either. Probably will look into it more in the future.

I think you are from Kentucky. I grew up in Northern KY and when I left I was renting a newer 2bd1.5ba in a 12 unit bldg in a cul de sac (called Cookbook Lane) with about 6 bldgs all with the same owner. The rent was $175 mo. in 1977 and my rent was $250 for a small studio in Honolulu that rents for about $1,000 today. What do your rents look like?

[FDCaptain]

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Originally Posted by honobob You're welcome. My experience only, YMMV. I hold everything in a revocable living trust. It's been 30 years and the LLC's seemed overkill but then I don't buy the rental car insurance either. Probably will look into it more in the future. I think you are from Kentucky. I grew up in Northern KY and when I left I was renting a newer 2bd1.5ba in a 12 unit bldg in a cul de sac (called Cookbook Lane) with about 6 bldgs all with the same owner. The rent was $175 mo. in 1977 and my rent was $250 for a small studio in Honolulu that rents for about $1,000 today. What do your rents look like?

I am in Kentucky.
The apartments are 2bd 1ba and rent for $435. The properties are in an "apartment community" of individually owned buildings, either 4 plex or duplex. Their are approximately 15 buildings covering 2 blocks. The 4 plex is in a cul de sac. The duplex on the main road, next to a single family.

[tryan]

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Do you hold your properties in an LLC?

If I had to do it again, I'ld use an LLC. Currently have an S Corp for the free n'clear property (to shield it from the leveraged). Problem is the annual state filing fee ($495) and CPA tax bill ($1050) ... both of these are non-existant with an LLC.

[clifp]

FDcaptain.

First a disclaimer, I am no real estate expert, don't even play one on the internet, and second I've been in Kentucky for almost 20 years so I have no clue about the RE market there.

The thing the that struck me about your post is what is so special about the Duplex?

In the west coast RE market, cash flow positive properties are pretty much mythical creatures only seen in infomericials. Now this may have changed with bubble bursting but I doubt it.

So I can understand the appeal of a cash flow property in the four plex even if it is slow growth Kentucky. Clearly having it 5 minutes away from your house is an very nice bonus.

I don't understand why having a second property next door to is that appealing. I guess if you are out there doing a some routine maintenance it will save you some time. But would really be that big a benefit? I would think if you could find a 2nd positive cash flow property in another neighborhood even if it was 15 minutes that would be a better deal. If the Oven goes out in a unit does it matter that much if the units are next door to each other or 4 miles apart, the appliance guy/or you only goes to one unit.

The other thing to consider is if a crack house opens up in one of the other apartments that hurts both of your properties not just one if you have a least neighborhood diversity.

[cute fuzzy bunny]

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Originally Posted by clifp The thing the that struck me about your post is what is so special about the Duplex?

Its there.

[laurence]

What are you living in now? What about you moving into half the duplex, renting out the other half? Could you rent your current home out for positive cash flow?

[FDCaptain]

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Originally Posted by clifp FDcaptain. First a disclaimer, I am no real estate expert, don't even play one on the internet, and second I've been in Kentucky for almost 20 years so I have no clue about the RE market there. The thing the that struck me about your post is what is so special about the Duplex? In the west coast RE market, cash flow positive properties are pretty much mythical creatures only seen in infomericials. Now this may have changed with bubble bursting but I doubt it. So I can understand the appeal of a cash flow property in the four plex even if it is slow growth Kentucky. Clearly having it 5 minutes away from your house is an very nice bonus. I don't understand why having a second property next door to is that appealing. I guess if you are out there doing a some routine maintenance it will save you some time. But would really be that big a benefit? I would think if you could find a 2nd positive cash flow property in another neighborhood even if it was 15 minutes that would be a better deal. If the Oven goes out in a unit does it matter that much if the units are next door to each other or 4 miles apart, the appliance guy/or you only goes to one unit. The other thing to consider is if a crack house opens up in one of the other apartments that hurts both of your properties not just one if you have a least neighborhood diversity.

Positive cash flow in KY is very possible.

Yes another property that cash flows is more attractive.

You are correct about both properties being affected by neighboring problems.

[FDCaptain]

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Originally Posted by cute fuzzy bunny Its there.

Exactly.

[FDCaptain]

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Originally Posted by laurencewill What are you living in now? What about you moving into half the duplex, renting out the other half? Could you rent your current home out for positive cash flow?

That scenario has worked for many. However, with 3 kids, 3 dogs and a 2000 sq' home it will not work for us. There are not any rentals in my subdivision.

[2B]

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Originally Posted by FDCaptain Thank you for your response. By local economy, do you mean real estate should be held in different cities? Would I need to move out of the region as well? Just curious what you would consider a diversified economy if you will.

Any investment that isn't diversified is at risk. The biggest risk for real estate is location. Buy a great location and you do well. Buy a poor location and it won't.

I don't have any real estate expertise. I have seen a number of people that also don't have any real expertise that suddenly decide real estate is where the real money is to be made. They are usually disappointed.

[wolf]

Let's keep it simple. Using your numbers. The 4-plex costs about $150,000. Your yearly rents are $20,880. Subtract your property taxes, insurance expense, maintenance expenses, etc. Your Net return should be around 12 %. You can earn around 5+ % return in a CD, No Risk, No Work. The 7 % additional return is not to bad. If the property appreciates it would be great!

Not a bad deal, if the location is good and does not go down! How are the other Unit's maintained? The obvious, broken car's in the front yard. Boat's in the front yard. Dead or dying lawns? Trash.

I live in the San Francisco Bay area. Been a landlord for over 25 years.

[tryan]

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Buy a great location and you do well. Buy a poor location and it won't.

Depends on what a great/poor location is to the buyer. I've had my best returns in areas most would say are "poor" (inner city) locations. "great" locations are priced accordingly (high) and leave little up side potential ... or at best a negative monthly cashflow.

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Subtract your property taxes, insurance expense, maintenance expenses

Don't forget water/sewer and vacancy costs.

[FDCaptain]

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Originally Posted by wolf Not a bad deal, if the location is good and does not go down! How are the other Unit's maintained? The obvious, broken car's in the front yard. Boat's in the front yard. Dead or dying lawns? Trash. I live in the San Francisco Bay area. Been a landlord for over 25 years.

Thanks for your reply. The other units are well maintained, although some better than others. None of the adverse conditions you describe are there. If any arise local ordinances would assist with correcting the problem. Developers are putting money into the surrounding sq' mile with retail and restaurants. There is also a new condo and single family community going in now. I see the area improving or atleast remaining stable.