[surveyor]

Long answer (cont’d)

2) First year scenario……

As everyone knows here, it is difficult to make predictions over the long term. The ROE calculation of 43% is meant to be something that you examine year after year and make appropriate actions to keep your ROE that high. There are going to be some years where your ROE is low and your property isn’t generating as much money as it should. Steps should be taken to counter that. There will also be years where the appreciation of the property will be higher than the 4% I anticipate. If it happens, great. If not, oh well. Real estate is a slow moving beast so you can direct it properly. Still, the ROE calculation is meant to be a barometer of a 10 year cycle.

As for the mortgages being paid, I pay all the mortgages myself and I do all of them on auto-pay. I could have the property manager of each property do the payment of the mortgage for me, but the banks send the statements to me, and I find it helps if you get your hands into the nitty gritty.

Vacancies… The property is already fully rented so I did not account for vacancies in the first year. The rent is low, at $375 per unit and there is room to move that up to market (which has been running at around $425). I have learned that I have to aggressively rent my units out, so I have instructed my property managers that if a unit is vacated, immediately place an ad offering a rent discount on the first month. This helps generate interest right away and keep vacancies to a minimum. If vacancies happen, that’s the fact of life. However, I have minimized the vacancy risk by the aggressive discount and by the fact that the property is a 4 unit (SFRs have a vacancy disadvantage because once the tenant is out, you’re out the full rent amount, as opposed to multi-units, where if you have one vacancy, you at least have some rent income still available to come in).

3) Miilitary tenants

One of the things that attracted me to Huntsville was, like Jumby said, the fact that BRAC was closing a base in the midwest and expanding operations in Huntsville. There were other aspects to the BRAC report too, because they are moving defense contractors as well as personnel over to Huntsville. So the long term area prospects are good.

I will tell you that I am not specifically targeting military personnel as tenants (and certainly not officers). A lot of investors make the mistake of going after high value tenants (military officers, high income people), and as such buy expensive rental properties as such SFRs. Many investors will buy rental property based on the question, well if I had to live there, what would I like to live in? I avoid that line of thinking entirely because I pursue properties that have cheap rents. Cheap rents allow you to appeal to a huge population of minimum wage earners, vs. having to fight for high income tenants, which are few in number and are chased after by most everybody.

Let’s also remember the “high number” of foreclosures affecting everyone in the country. If Huntsville does go into a situation where there are a lot of foreclosures, forcing owners to rent instead of own, where will they go? WHERE THERE IS CHEAP RENT.

Also another advantage of cheap rent is that you are able to keep vacancies to a minimum.

And lastly:

4) Are the hassles worth it?

Um, let me see, I am able to make an asset which was previously doing jack to all of a sudden generate a 43% return.

I am able to pay ridiculously low taxes even though I have a household income of over $200k.

I’m sure there are others who will pick holes into my investing and will say, well you’re too risky, or you’re a sucker for buying into the real estate makes people rich crowd, or any other comments. And I don’t doubt that this is risky. However, you can minimize risk several ways (as I’ve outlined here) and you can use the factor of time to both make you money and minimize your risk.

[surveyor]

Long answer (cont’d)

2) First year scenario……

As everyone knows here, it is difficult to make predictions over the long term. The ROE calculation of 43% is meant to be something that you examine year after year and make appropriate actions to keep your ROE that high. There are going to be some years where your ROE is low and your property isn’t generating as much money as it should. Steps should be taken to counter that. There will also be years where the appreciation of the property will be higher than the 4% I anticipate. If it happens, great. If not, oh well. Real estate is a slow moving beast so you can direct it properly. Still, the ROE calculation is meant to be a barometer of a 10 year cycle.

As for the mortgages being paid, I pay all the mortgages myself and I do all of them on auto-pay. I could have the property manager of each property do the payment of the mortgage for me, but the banks send the statements to me, and I find it helps if you get your hands into the nitty gritty.

Vacancies… The property is already fully rented so I did not account for vacancies in the first year. The rent is low, at $375 per unit and there is room to move that up to market (which has been running at around $425). I have learned that I have to aggressively rent my units out, so I have instructed my property managers that if a unit is vacated, immediately place an ad offering a rent discount on the first month. This helps generate interest right away and keep vacancies to a minimum. If vacancies happen, that’s the fact of life. However, I have minimized the vacancy risk by the aggressive discount and by the fact that the property is a 4 unit (SFRs have a vacancy disadvantage because once the tenant is out, you’re out the full rent amount, as opposed to multi-units, where if you have one vacancy, you at least have some rent income still available to come in).

3) Miilitary tenants

One of the things that attracted me to Huntsville was, like Jumby said, the fact that BRAC was closing a base in the midwest and expanding operations in Huntsville. There were other aspects to the BRAC report too, because they are moving defense contractors as well as personnel over to Huntsville. So the long term area prospects are good.

I will tell you that I am not specifically targeting military personnel as tenants (and certainly not officers). A lot of investors make the mistake of going after high value tenants (military officers, high income people), and as such buy expensive rental properties as such SFRs. Many investors will buy rental property based on the question, well if I had to live there, what would I like to live in? I avoid that line of thinking entirely because I pursue properties that have cheap rents. Cheap rents allow you to appeal to a huge population of minimum wage earners, vs. having to fight for high income tenants, which are few in number and are chased after by most everybody.

Let’s also remember the “high number” of foreclosures affecting everyone in the country. If Huntsville does go into a situation where there are a lot of foreclosures, forcing owners to rent instead of own, where will they go? WHERE THERE IS CHEAP RENT.

Also another advantage of cheap rent is that you are able to keep vacancies to a minimum.

And lastly:

4) Are the hassles worth it?

Um, let me see, I am able to make an asset which was previously doing jack to all of a sudden generate a 43% return.

I am able to pay ridiculously low taxes even though I have a household income of over $200k.

I’m sure there are others who will pick holes into my investing and will say, well you’re too risky, or you’re a sucker for buying into the real estate makes people rich crowd, or any other comments. And I don’t doubt that this is risky. However, you can minimize risk several ways (as I’ve outlined here) and you can use the factor of time to both make you money and minimize your risk.

[surveyor]

Long answer (cont’d)

2) First year scenario……

As everyone knows here, it is difficult to make predictions over the long term. The ROE calculation of 43% is meant to be something that you examine year after year and make appropriate actions to keep your ROE that high. There are going to be some years where your ROE is low and your property isn’t generating as much money as it should. Steps should be taken to counter that. There will also be years where the appreciation of the property will be higher than the 4% I anticipate. If it happens, great. If not, oh well. Real estate is a slow moving beast so you can direct it properly. Still, the ROE calculation is meant to be a barometer of a 10 year cycle.

As for the mortgages being paid, I pay all the mortgages myself and I do all of them on auto-pay. I could have the property manager of each property do the payment of the mortgage for me, but the banks send the statements to me, and I find it helps if you get your hands into the nitty gritty.

Vacancies… The property is already fully rented so I did not account for vacancies in the first year. The rent is low, at $375 per unit and there is room to move that up to market (which has been running at around $425). I have learned that I have to aggressively rent my units out, so I have instructed my property managers that if a unit is vacated, immediately place an ad offering a rent discount on the first month. This helps generate interest right away and keep vacancies to a minimum. If vacancies happen, that’s the fact of life. However, I have minimized the vacancy risk by the aggressive discount and by the fact that the property is a 4 unit (SFRs have a vacancy disadvantage because once the tenant is out, you’re out the full rent amount, as opposed to multi-units, where if you have one vacancy, you at least have some rent income still available to come in).

3) Miilitary tenants

One of the things that attracted me to Huntsville was, like Jumby said, the fact that BRAC was closing a base in the midwest and expanding operations in Huntsville. There were other aspects to the BRAC report too, because they are moving defense contractors as well as personnel over to Huntsville. So the long term area prospects are good.

I will tell you that I am not specifically targeting military personnel as tenants (and certainly not officers). A lot of investors make the mistake of going after high value tenants (military officers, high income people), and as such buy expensive rental properties as such SFRs. Many investors will buy rental property based on the question, well if I had to live there, what would I like to live in? I avoid that line of thinking entirely because I pursue properties that have cheap rents. Cheap rents allow you to appeal to a huge population of minimum wage earners, vs. having to fight for high income tenants, which are few in number and are chased after by most everybody.

Let’s also remember the “high number” of foreclosures affecting everyone in the country. If Huntsville does go into a situation where there are a lot of foreclosures, forcing owners to rent instead of own, where will they go? WHERE THERE IS CHEAP RENT.

Also another advantage of cheap rent is that you are able to keep vacancies to a minimum.

And lastly:

4) Are the hassles worth it?

Um, let me see, I am able to make an asset which was previously doing jack to all of a sudden generate a 43% return.

I am able to pay ridiculously low taxes even though I have a household income of over $200k.

I’m sure there are others who will pick holes into my investing and will say, well you’re too risky, or you’re a sucker for buying into the real estate makes people rich crowd, or any other comments. And I don’t doubt that this is risky. However, you can minimize risk several ways (as I’ve outlined here) and you can use the factor of time to both make you money and minimize your risk.

[surveyor]

Lots of questions! Long answers.

1) Taking equity from California

The money ($12k) in question is coming from a rental property in California. The money is from a HELOC of 8.5% (thank you for lower interest rates, hahaha, it used to be at 9.5%, but still it’s not a lot of difference). It’s not fully used.

As for the wisdom of making a property cash flow negative by equity withdrawal, it is not recommended for most conservative people, but I have taken it into account already. The number to watch is called “cash on cash”. Whenever you are borrowing money to make money, the “cash on cash” calculation is key in order to make your decision.

So I am borrowing money at an interest rate of 9% (more or less). However, the property generates a cash on cash of 18%. That cash on cash number means I am able to generate enough cash flow to pay back the loan at an accelerated rate if I wish.

Risky? Yes. Can use of this make a property in California go from cash flow to negative? Yes. SO WHAT. The new property generates enough cash flow by itself to offset that negative.

Let’s also look at the ROE. We took $12k from a rental property and now it’s cash flow negative (it’s not, but let’s say it is). Let’s say I will pay back that loan in ten years at a rate of 9%. The rental property will now be cash flow negative at $152/mo. The new property’s ROE is 43%. For the cost of $1824 a year (the $152*12), I have generated a value of more than $17000 ($12k+12k*(0.43)).

So again, so what if the property is cash flow negative? I’ve been able to generate enough money to pay it back potentially in the first year. Also, let’s remember, I am only borrowing $12k. My household generates that in a month. So the risk to me is somewhat minimal.

Is this process for everyone? HELL NO. Everyone I have described this process to personally has called me crazy. =shrug= But think about it – the equity in the properties we have we can’t access unless we either sell the property or we refi the money out. This process allows me to generate money out of something that was previously doing NOTHING. That to me is a win-win.

But like I said, there are risks. I have offset that risk somewhat by various methods – doing due diligence, making sure the cash on cash calculation fits my requirements, and lastly my household generates enough income on its own so that a $12k hit means little. It hurts, but my household has $400k in liquid accounts (apart from the real estate).

I read here (and on other blogs) about how people will MEW (mortgage equity withdrawals) themselves into a new boat, or a new car. We did none of that. The money we take out of the properties, we make sure it generates a decent return.

I don’t have a fear of negative cash flow as most people on this board do because I know that in the long run, it will pay off for me. And this negative cash flow mentality has also made it unable for most people to see how to get rich using real estate.

Again, here is the math for emphasis:

$1824/year in negative cash flow => generates $17000 in value.

$1824/year in negative cash flow for rental property =>
generates $3600 in cash flow, leaving you $1776 left over to pay the loan.

Anyways, remember, math is your friend.

Also remember, because of the above, many people have called me CRAZY.

[surveyor]

Lots of questions! Long answers.

1) Taking equity from California

The money ($12k) in question is coming from a rental property in California. The money is from a HELOC of 8.5% (thank you for lower interest rates, hahaha, it used to be at 9.5%, but still it’s not a lot of difference). It’s not fully used.

As for the wisdom of making a property cash flow negative by equity withdrawal, it is not recommended for most conservative people, but I have taken it into account already. The number to watch is called “cash on cash”. Whenever you are borrowing money to make money, the “cash on cash” calculation is key in order to make your decision.

So I am borrowing money at an interest rate of 9% (more or less). However, the property generates a cash on cash of 18%. That cash on cash number means I am able to generate enough cash flow to pay back the loan at an accelerated rate if I wish.

Risky? Yes. Can use of this make a property in California go from cash flow to negative? Yes. SO WHAT. The new property generates enough cash flow by itself to offset that negative.

Let’s also look at the ROE. We took $12k from a rental property and now it’s cash flow negative (it’s not, but let’s say it is). Let’s say I will pay back that loan in ten years at a rate of 9%. The rental property will now be cash flow negative at $152/mo. The new property’s ROE is 43%. For the cost of $1824 a year (the $152*12), I have generated a value of more than $17000 ($12k+12k*(0.43)).

So again, so what if the property is cash flow negative? I’ve been able to generate enough money to pay it back potentially in the first year. Also, let’s remember, I am only borrowing $12k. My household generates that in a month. So the risk to me is somewhat minimal.

Is this process for everyone? HELL NO. Everyone I have described this process to personally has called me crazy. =shrug= But think about it – the equity in the properties we have we can’t access unless we either sell the property or we refi the money out. This process allows me to generate money out of something that was previously doing NOTHING. That to me is a win-win.

But like I said, there are risks. I have offset that risk somewhat by various methods – doing due diligence, making sure the cash on cash calculation fits my requirements, and lastly my household generates enough income on its own so that a $12k hit means little. It hurts, but my household has $400k in liquid accounts (apart from the real estate).

I read here (and on other blogs) about how people will MEW (mortgage equity withdrawals) themselves into a new boat, or a new car. We did none of that. The money we take out of the properties, we make sure it generates a decent return.

I don’t have a fear of negative cash flow as most people on this board do because I know that in the long run, it will pay off for me. And this negative cash flow mentality has also made it unable for most people to see how to get rich using real estate.

Again, here is the math for emphasis:

$1824/year in negative cash flow => generates $17000 in value.

$1824/year in negative cash flow for rental property =>
generates $3600 in cash flow, leaving you $1776 left over to pay the loan.

Anyways, remember, math is your friend.

Also remember, because of the above, many people have called me CRAZY.

[surveyor]

Lots of questions! Long answers.

1) Taking equity from California

The money ($12k) in question is coming from a rental property in California. The money is from a HELOC of 8.5% (thank you for lower interest rates, hahaha, it used to be at 9.5%, but still it’s not a lot of difference). It’s not fully used.

As for the wisdom of making a property cash flow negative by equity withdrawal, it is not recommended for most conservative people, but I have taken it into account already. The number to watch is called “cash on cash”. Whenever you are borrowing money to make money, the “cash on cash” calculation is key in order to make your decision.

So I am borrowing money at an interest rate of 9% (more or less). However, the property generates a cash on cash of 18%. That cash on cash number means I am able to generate enough cash flow to pay back the loan at an accelerated rate if I wish.

Risky? Yes. Can use of this make a property in California go from cash flow to negative? Yes. SO WHAT. The new property generates enough cash flow by itself to offset that negative.

Let’s also look at the ROE. We took $12k from a rental property and now it’s cash flow negative (it’s not, but let’s say it is). Let’s say I will pay back that loan in ten years at a rate of 9%. The rental property will now be cash flow negative at $152/mo. The new property’s ROE is 43%. For the cost of $1824 a year (the $152*12), I have generated a value of more than $17000 ($12k+12k*(0.43)).

So again, so what if the property is cash flow negative? I’ve been able to generate enough money to pay it back potentially in the first year. Also, let’s remember, I am only borrowing $12k. My household generates that in a month. So the risk to me is somewhat minimal.

Is this process for everyone? HELL NO. Everyone I have described this process to personally has called me crazy. =shrug= But think about it – the equity in the properties we have we can’t access unless we either sell the property or we refi the money out. This process allows me to generate money out of something that was previously doing NOTHING. That to me is a win-win.

But like I said, there are risks. I have offset that risk somewhat by various methods – doing due diligence, making sure the cash on cash calculation fits my requirements, and lastly my household generates enough income on its own so that a $12k hit means little. It hurts, but my household has $400k in liquid accounts (apart from the real estate).

I read here (and on other blogs) about how people will MEW (mortgage equity withdrawals) themselves into a new boat, or a new car. We did none of that. The money we take out of the properties, we make sure it generates a decent return.

I don’t have a fear of negative cash flow as most people on this board do because I know that in the long run, it will pay off for me. And this negative cash flow mentality has also made it unable for most people to see how to get rich using real estate.

Again, here is the math for emphasis:

$1824/year in negative cash flow => generates $17000 in value.

$1824/year in negative cash flow for rental property =>
generates $3600 in cash flow, leaving you $1776 left over to pay the loan.

Anyways, remember, math is your friend.

Also remember, because of the above, many people have called me CRAZY.

[surveyor]

Lots of questions! Long answers.

1) Taking equity from California

The money ($12k) in question is coming from a rental property in California. The money is from a HELOC of 8.5% (thank you for lower interest rates, hahaha, it used to be at 9.5%, but still it’s not a lot of difference). It’s not fully used.

As for the wisdom of making a property cash flow negative by equity withdrawal, it is not recommended for most conservative people, but I have taken it into account already. The number to watch is called “cash on cash”. Whenever you are borrowing money to make money, the “cash on cash” calculation is key in order to make your decision.

So I am borrowing money at an interest rate of 9% (more or less). However, the property generates a cash on cash of 18%. That cash on cash number means I am able to generate enough cash flow to pay back the loan at an accelerated rate if I wish.

Risky? Yes. Can use of this make a property in California go from cash flow to negative? Yes. SO WHAT. The new property generates enough cash flow by itself to offset that negative.

Let’s also look at the ROE. We took $12k from a rental property and now it’s cash flow negative (it’s not, but let’s say it is). Let’s say I will pay back that loan in ten years at a rate of 9%. The rental property will now be cash flow negative at $152/mo. The new property’s ROE is 43%. For the cost of $1824 a year (the $152*12), I have generated a value of more than $17000 ($12k+12k*(0.43)).

So again, so what if the property is cash flow negative? I’ve been able to generate enough money to pay it back potentially in the first year. Also, let’s remember, I am only borrowing $12k. My household generates that in a month. So the risk to me is somewhat minimal.

Is this process for everyone? HELL NO. Everyone I have described this process to personally has called me crazy. =shrug= But think about it – the equity in the properties we have we can’t access unless we either sell the property or we refi the money out. This process allows me to generate money out of something that was previously doing NOTHING. That to me is a win-win.

But like I said, there are risks. I have offset that risk somewhat by various methods – doing due diligence, making sure the cash on cash calculation fits my requirements, and lastly my household generates enough income on its own so that a $12k hit means little. It hurts, but my household has $400k in liquid accounts (apart from the real estate).

I read here (and on other blogs) about how people will MEW (mortgage equity withdrawals) themselves into a new boat, or a new car. We did none of that. The money we take out of the properties, we make sure it generates a decent return.

I don’t have a fear of negative cash flow as most people on this board do because I know that in the long run, it will pay off for me. And this negative cash flow mentality has also made it unable for most people to see how to get rich using real estate.

Again, here is the math for emphasis:

$1824/year in negative cash flow => generates $17000 in value.

$1824/year in negative cash flow for rental property =>
generates $3600 in cash flow, leaving you $1776 left over to pay the loan.

Anyways, remember, math is your friend.

Also remember, because of the above, many people have called me CRAZY.

[surveyor]

Lots of questions! Long answers.

1) Taking equity from California

The money ($12k) in question is coming from a rental property in California. The money is from a HELOC of 8.5% (thank you for lower interest rates, hahaha, it used to be at 9.5%, but still it’s not a lot of difference). It’s not fully used.

As for the wisdom of making a property cash flow negative by equity withdrawal, it is not recommended for most conservative people, but I have taken it into account already. The number to watch is called “cash on cash”. Whenever you are borrowing money to make money, the “cash on cash” calculation is key in order to make your decision.

So I am borrowing money at an interest rate of 9% (more or less). However, the property generates a cash on cash of 18%. That cash on cash number means I am able to generate enough cash flow to pay back the loan at an accelerated rate if I wish.

Risky? Yes. Can use of this make a property in California go from cash flow to negative? Yes. SO WHAT. The new property generates enough cash flow by itself to offset that negative.

Let’s also look at the ROE. We took $12k from a rental property and now it’s cash flow negative (it’s not, but let’s say it is). Let’s say I will pay back that loan in ten years at a rate of 9%. The rental property will now be cash flow negative at $152/mo. The new property’s ROE is 43%. For the cost of $1824 a year (the $152*12), I have generated a value of more than $17000 ($12k+12k*(0.43)).

So again, so what if the property is cash flow negative? I’ve been able to generate enough money to pay it back potentially in the first year. Also, let’s remember, I am only borrowing $12k. My household generates that in a month. So the risk to me is somewhat minimal.

Is this process for everyone? HELL NO. Everyone I have described this process to personally has called me crazy. =shrug= But think about it – the equity in the properties we have we can’t access unless we either sell the property or we refi the money out. This process allows me to generate money out of something that was previously doing NOTHING. That to me is a win-win.

But like I said, there are risks. I have offset that risk somewhat by various methods – doing due diligence, making sure the cash on cash calculation fits my requirements, and lastly my household generates enough income on its own so that a $12k hit means little. It hurts, but my household has $400k in liquid accounts (apart from the real estate).

I read here (and on other blogs) about how people will MEW (mortgage equity withdrawals) themselves into a new boat, or a new car. We did none of that. The money we take out of the properties, we make sure it generates a decent return.

I don’t have a fear of negative cash flow as most people on this board do because I know that in the long run, it will pay off for me. And this negative cash flow mentality has also made it unable for most people to see how to get rich using real estate.

Again, here is the math for emphasis:

$1824/year in negative cash flow => generates $17000 in value.

$1824/year in negative cash flow for rental property =>
generates $3600 in cash flow, leaving you $1776 left over to pay the loan.

Anyways, remember, math is your friend.

Also remember, because of the above, many people have called me CRAZY.

[surveyor]

The ROE calculation was created to bring together the profitable aspects of real estate but usually were not supposed to be calculated together. At its heart is a simple return on investment equation. However, pick at it enough and it gets deep. Still, it is a useful calculation to judge how well properties perform over several different areas, locations, and sizes.

Like I said, cash flow is easy and most everyone knows how to calculate that.

Tax savings/benefits, is much more difficult to quantify and so therefore I leave a simplified calculation so that people can see how it is done.

[surveyor]

The ROE calculation was created to bring together the profitable aspects of real estate but usually were not supposed to be calculated together. At its heart is a simple return on investment equation. However, pick at it enough and it gets deep. Still, it is a useful calculation to judge how well properties perform over several different areas, locations, and sizes.

Like I said, cash flow is easy and most everyone knows how to calculate that.

Tax savings/benefits, is much more difficult to quantify and so therefore I leave a simplified calculation so that people can see how it is done.

[surveyor]

The ROE calculation was created to bring together the profitable aspects of real estate but usually were not supposed to be calculated together. At its heart is a simple return on investment equation. However, pick at it enough and it gets deep. Still, it is a useful calculation to judge how well properties perform over several different areas, locations, and sizes.

Like I said, cash flow is easy and most everyone knows how to calculate that.

Tax savings/benefits, is much more difficult to quantify and so therefore I leave a simplified calculation so that people can see how it is done.

[surveyor]

The ROE calculation was created to bring together the profitable aspects of real estate but usually were not supposed to be calculated together. At its heart is a simple return on investment equation. However, pick at it enough and it gets deep. Still, it is a useful calculation to judge how well properties perform over several different areas, locations, and sizes.

Like I said, cash flow is easy and most everyone knows how to calculate that.

Tax savings/benefits, is much more difficult to quantify and so therefore I leave a simplified calculation so that people can see how it is done.

[surveyor]

The ROE calculation was created to bring together the profitable aspects of real estate but usually were not supposed to be calculated together. At its heart is a simple return on investment equation. However, pick at it enough and it gets deep. Still, it is a useful calculation to judge how well properties perform over several different areas, locations, and sizes.

Like I said, cash flow is easy and most everyone knows how to calculate that.

Tax savings/benefits, is much more difficult to quantify and so therefore I leave a simplified calculation so that people can see how it is done.

[surveyor]

Haha mice…

Yup, sorry, it is “debt service” or “mortgage payment” not mortgage interest…

[surveyor]

Haha mice…

Yup, sorry, it is “debt service” or “mortgage payment” not mortgage interest…

[Author]

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