Pyriel Real Estate Corner

[pyriel]

That's definately Risky business P:

Hope it works out for you.

Like what I said, it is risky for those who are not too knowledgeable about RE. And I also wouldn't want to recommend to anyone to follow what I am doing. Lets just say that I am in the Advance level now and anytime I get into this type of deal, I've looked at the numbers and did my analysis to minimize those risk. So for me, this is really light risk or no risk at all. Let me show you.

1. I was able to secure a property that it is hard to come by nowaday here in area.
2. I have a tenant ready to move in so I don't have to worry about paying for the monthly mortgage.
3. Lending institution is allowing me to only put 5% of the property value.
4. I will be getting a huge deduction at the end of the year for my closing (minimal) and my renovations. (this is called phantom income)
5. Interest paid by my tenant will also be tax deductible (also called phantom income)
6. My rental house will appreciate in value. Current appraise value now is 121k which i bought for 120k. After the renovation, it will most likely go up to 135k-140k. (also called phantom income)
7. Since i have no prepayment clause in my closing, another bank is ready to give me the loan next month is I put 20% down on this property. This will eliminate the 11.5% APR to 6.75 APR. With low monthly payment, my return will be higher so that I can start recouping the money i will be putting into this property.
8. My tenant market is under GHURA which is backed by Uncle Sam. So I get an automatic payment with my rent.

Now lets look at the risk with stocks.
1. You have no control of the market.
2. You can't use the money now. You have to wait for retirement.
3. Majority of the people (Us in TSPTalk are an exception) do not know how to manage their accounts.
4. Every month I know something is coming to me. We can't say the same with stocks... Many of the baby boomer who thought they were good to go before the crash in 2002 are now back to work because they relied on a market that they have no control of.

There are many more that i'll stop. I will reiterate that my way of RE is risky to other people who are not familiarize with RE transactions. Please learn more about it and start with something small before you proceed with RE. As for me, I love it;-)

Pyriel

 

[Show-me]

When I wrote it I was not think along that line, I am now. Real estate, gold, silver, and livestock are what I meant. Things that are not of paper or electronic. I will try to chose my words more carefully next time.

FAYETTEVILLE, Ga. - A giant wild hog boasted to be bigger than the near-mythical “Hogzilla” caught in southern Georgia a few years ago has been killed in a suburban Atlanta neighborhood.

The hog hung snout down from a tree Friday in William Coursey’s front yard, not far from where the avid hunter said he shot the beast. He said he hauled it to a truck weight station, which recorded the hairy hog at 1,100 pounds.

MO, I was just cracking a little joke at your extremely chaeuvenistic (sic) (pig-like) remark.......all in fun!

GA

 

[GGal]

Re: Show-Me

"Exactly! Nothing like a nice piece of tangible assets!"

RAOTFLMAO!

Maybe I'm the ONLY one who saw the humor in this. Everybody else was asleep at the wheel.

Usually, Milk Man wouldn't let one like this slip by him.

GA

 

[pyriel]

Re: Show-Me

"Exactly! Nothing like a nice piece of tangible assets!"

RAOTFLMAO!

Maybe I'm the ONLY one who saw the humor in this. Everybody else was asleep at the wheel.

Usually, Milk Man wouldn't let one like this slip by him.

GA

Hmmm... I don't know how to put this without being categorized on the same wavelength. But, i'll give it a try...;-)

Ggal is definitely nice and with tangible assets to die for... I am bowing my head over this classy lady;-)

Pyriel

 

[GGal]

Well, when you put it like that.....

Thanks!

I was just picking on Mo. It was too good to resist!

GA

 

[pyriel]

Financial Advisors are dime in a dozen. At least this is what I am finding out. I've recently went to see my Financial Advisor which happens to be the one that sells me my insurance too. I told him that I want to pull out my ROTH IRA and invest them somewhere where I could take full control of it, get better return for my investment, and to invest it in something that I am good at which is RE. He talked to me about not pulling them out and that I may be exposing my risk by putting my investment in one basket.

Robert Kiyosaki wrote an article in Yahoo a couple of days ago about FEAR. He mentioned that Wall Street paid out billions of dollars to account managers and CEOs etc... because of FEAR. Fear is what these people try to convey to us so that we continue to become an average investor. I'm sure you've heard the saying invest for the long run; diversify; dollar cost average. I have to admit that this is good for passive investor who wants to be average. Robert had made me realize that we/I don't have to be.

There might be some people that frowns on my action since this is about retirement account and it is for the long haul. I also know that 9 out of 10 businesses fail. However, I only have to be right once to be successfull. And I believe that with my determination and action, I can reach my goal alot faster than for me to conform by being a passive investor.

I no longer fear opening a business and I look forward to finally having one and having my RE as my back up plan due to its passive income it will be providing me.

P

 

[GGal]

As long as you continue to at least get the matching on TSP, I can't fault you.

In fact, in today's economy, I think owning rental real estate is a good idea.

I don't want to go into debt at this point in my life, so I'm not on the same page as you, but still applaud you.

I fancy myself somewhat of a real estate investor even so. I bought my property at a lake resort and built a nice home in 2000. I bought the property before it became as scarce and at a good price per foot for the water frontage. Available lots in this area are now extinct. My neighbor, whose house was 400 sq ft smaller than mine and built about the same time just sold her's at a $300,000 profit. A builder is building on the lot on the other side of me, says he is going to live in it for 2 years, then sell it for not a penny under $700,000 profit. I believe that when I retire in a few years, my profit will exceed the $500,000 excludable gain on residence rule on sale of residence. I'm thinking by then I'll be getting a little too old for the boating scene.

So I do fancy myself having a good nest egg in real estate. And maybe when I sell, I'll be able to invest in some modest amount of rental real estate. This was all really just a matter of luck. I did think I was making a good investment at the time, but I didn't imagine just how good.

I think you will make a good Donald Trumph.

GA

 

[pyriel]

I'm thinking by then I'll be getting a little too old for the boating scene.
GA

Hmmm... I don't know how to take this? I really hope not... Alot of guys will be shortchanged if you don't go to the beach;-) I don't know how many of these people here have seen you but as for me, I am bowing my head up and down lol...

On another note, you are sitting on an egg nest there. I wish i have a house by the lake;-(

Update: My contractor finished renovating the house and my GHURA tenant already moved in. They will not be paying rent yet until GHURA approves it. If I haven't said it earlier, I bought this rental property because on of my tenant asked me if I have a 3br2bt house for her cousin who happens to have a voucher from GHURA or section 8. Her voucher will expire on the 13h of this month and I didn't learn about this until the 23rd of Dec when we were getting ready for our vacation. To make this story short, I made an offer and closed this house in two weeks timeframe. It took another 4 days to do a complete renovation.

For those who wants to get into real estate investing, please ensure that your credit score is good. Also have good management with all of your paperwork. It makes it really easy for the bank to approve you when all the documentations they are asking are all in the packet that you are turning in. What works for me is that I scanned my 3 years worth of tax return, I also scanned all of my lease agreements, business licenses, article of incorporation and bylaw for my corporation account. Lastly, I also have a ready made FINANCIAL STATEMENT. Having a ready made financial statement with all of your income, expense, assets and liabilities to be turned in really impresses these lenders. It showed them in one snapshot what kind of investor are they dealing with. This is the reason we were able to close really fast...

P

 

[Gilligan]

.

I think you will make a good Donald Trumph.

I second that!

 

[fabijo]

Lastly, I also have a ready made FINANCIAL STATEMENT. Having a ready made financial statement with all of your income, expense, assets and liabilities to be turned in really impresses these lenders. It showed them in one snapshot what kind of investor are they dealing with.

Thanks for that piece of advice. I'll take that to heart. I really need to start doing this kind of paperwork now.

 

[Gilligan]

Financial Advisors are dime in a dozen. At least this is what I am finding out. I've recently went to see my Financial Advisor which happens to be the one that sells me my insurance too. I told him that I want to pull out my ROTH IRA and invest them somewhere where I could take full control of it, get better return for my investment, and to invest it in something that I am good at which is RE. He talked to me about not pulling them out and that I may be exposing my risk by putting my investment in one basket.

Robert Kiyosaki wrote an article in Yahoo a couple of days ago about FEAR. He mentioned that Wall Street paid out billions of dollars to account managers and CEOs etc... because of FEAR. Fear is what these people try to convey to us so that we continue to become an average investor. I'm sure you've heard the saying invest for the long run; diversify; dollar cost average. I have to admit that this is good for passive investor who wants to be average. Robert had made me realize that we/I don't have to be.

There might be some people that frowns on my action since this is about retirement account and it is for the long haul. I also know that 9 out of 10 businesses fail. However, I only have to be right once to be successfull. And I believe that with my determination and action, I can reach my goal alot faster than for me to conform by being a passive investor.

I no longer fear opening a business and I look forward to finally having one and having my RE as my back up plan due to its passive income it will be providing me.

P

I think it was Kiyosaki who pointed out that it takes less training to be a Financial Advisor than a Massage Therapist. (Don’t take me wrong, I’m not putting down Massage Therapist.) I think that Financial advisors need to have several years of education PLUS several years of investing experience with successful results. Who would want a medical doctor operating on them if the Doc just read a couple of books and took a little test before he started practicing? Financial Advisors should have some sort of disclosure of their net worth, areas they have invested in and the loss or gains that they have sustained. Otherwise it could end up being the blind leading the blind.

 

[pyriel]

I'm tired... RE is paperwork intensive, especially once you start accumulating 2 or more properties. I am doing something different this year. I am going to get hired help. Someone who will go do errands like pick up rent, sign contracts, manage fixing the toilets, picking up mails, etc. etc. etc. This way, I can concentrate more on how to expand my RE investments.

Just an update, I signed a one year contract with Section 8 for a family to be renting the rental house i recently bought. Section 8's approved rent is for $1200. However, I am paying $1050 every month. This is due to the 11.5% that the lender gave me when I closed the loan with them (WELLS FARGO; NO WONDER). It's not really bad since I only had to put a 5% down with very minimal closing cost and a no prepaid penalty clause. During lunch,I met with the other bank and brought my closing documents with them. I told the loan officer that I will put a 20% down payment to refinance my existing home loan (of course no prepaid penalty clause is included as well). By the time, im done refinancing this house, I will be putting 25% down on a $120k house that is earning $1200 a month amortized for 30 years with 6.5%. Monthly will be about $576 + 130 for insurance and property tax = $706. This will give me 496 passive income per month or $5952 per year. And this is only for passive income. If i just have 20 of these? I think my retirement outlook will be cozy... BTW, i don't have to wait till i turn 59 1/2;-)
P

 

[fabijo]

I'm tired... RE is paperwork intensive, especially once you start accumulating 2 or more properties. I am doing something different this year. I am going to get hired help. Someone who will go do errands like pick up rent, sign contracts, manage fixing the toilets, picking up mails, etc. etc. etc. This way, I can concentrate more on how to expand my RE investments.

Now if I could just hire someone for free to finish my school for me so I can focus on programming what I want to program and not what the school wants me to do!

 

[ebbnflow]

I'm tired... RE is paperwork intensive, especially once you start accumulating 2 or more properties. I am doing something different this year. I am going to get hired help. Someone who will go do errands like pick up rent, sign contracts, manage fixing the toilets, picking up mails, etc. etc. etc. This way, I can concentrate more on how to expand my RE investments...

Now you know why Donald Trump keeps making them babies -- to delegate responsibilities for the good of the empire! :nuts:

 

[fabijo]

Maybe we can start a TSP Talk reality show. A bunch of us will compete to be Pyriel's Apprentice.

 

[pyriel]

You guys are funny!!!

I'm closing in on another purchase and this should happen within the next 2-3 weeks. This is for a 3bd/2bt with and 1bdrm extension in the back. The place is R1 residential and the zoning really doesn't allow that. So, we will be punching a hole to get to the 1bd place in the back and will turn this house into a 5bdrm with 4 baths. Section 8 will pay up to $1500-1600 monthly for this. Purchase price is $110,500 with 100% financing, APR of 6.75% amortized for 30 years. closing cost will probably about 7k with renovation being 13k. So total investment is about $20-25k. Monthly is about $717 + $130 for insurance and property tax = $847. If rent is $1500 that will be a passive income of $653 per month or $7836 per year. That is a return of 39% per year not including the rest of phantom income associated with it.

I have two more properties I am researching. They are more expensive ($200k+). This is to get ready for the military buildup. I'll give more update on this later on. These properties are to be built. One is supposed to be done within 4 months and the other is within 9-11 months. We are doing creative financing on this with hope in selling one and do a 1031 exchange fro the second one. We'll see how it goes...

P

 

[James48843]

Ok Pyriel:

Here are some questions for you. You state that "section 8" pays up to $1500-1600 for 5 bdr/4 bath. First, what makes you certain you can keep it rented under "section 8" housing; second, what do you plan to set aside for repairs to this property. Section 8 renters in my experience sometimes have a hard time keeping the place in one piece. My parents ran about 5 properties while I was growing up, and one or two were always "between renters" on the section 8 side. When someone moved out, it sometimes took two or three months to get the place back liveable again, and then rented again.

Next question- what do you pay for insurnace there, and what kind of unusual risks do you carry- I.e. is typhoon insurance available, etc?

Real estate can be very beneficial if you are the one actually operating, taking the tax writeoff for depreciation, etc, but there are risks associted with it, including the risk of having a renter burn the place down. (We had two of those over the years, insurance eventually covered it but it took a court fight- one was arson by a section 8 renters ex-boyfriend in a tri-plex, and the other two families also had to relocate, the property was a total loss, and we were lucky nobody got killed)

 

[James48843]

And I don't think the IRS classes it as "passive income" if you are actively managing it yourself, do they? Or has the law changed?

 

[pyriel]

James,
Knowing your market is one of the most important requirement for RE. many people here (and elsewhere) have asked me why don't i invest somewhere else. My answer is because I don't know the market somewhere else. Rent here used to be so high and what i found out during the latest crash and the military started leaving us, section 8 program stayed on island. Why? Because its a federal program and unless Uncle Sam folded, then they will continue to be here. Military here is beginning build up again. So i see many investors getting ready for their arrival.

Another thing is that all of our houses here are made of cement bricks that can withstand supertyphoons. So section 8 tenants really can't destroy them except for minor touches and repair. Our GHURA office is also very strict. All I had to do is send them a letter that they are not paying their co-payment or they are trashing the place and they would deal with them.

As for my tenants, I am a proactive landlord. I visit my properties often and inspects (superficially) when i pick up the monthly rent. I also ensure that their place is clean before I provide them the unit and required that I get the unit back in the same condition. BTW, if they don't give it back to me in the same condition, GHURA will automatically kick them out of the program as well. When my tenants have problems with their place, I always send someone to fix whatever is broken. This way, they have no excuses that I am not taking care of them.

My rental house is usually insured for about $1200 per year. And I know that they like single house residential better than apartment. I also know that many of their parents are products of Section 8 program. So history repeats itself and there would always be section 8 tenants here on Guam.

As for preparing taxes, I use 1040, 1120, schedule E, 4562, 8582, 8825, schedule K1s and other forms that IRS requires to do my taxes. The passive income that you are asking is explained in form 8582.;-)

P

 

[pyriel]

It's been a month since i updated this place of mine. Been busy with work mobilizing a 250 man team to Djibouti and a 16 man team in Afghanistan. I'm supposed to be on the cue for the next team for Afghanistan next year. The five bedroom purchase that i'm supposed to do sat for about a month. Lending company and I had a disagreement on some paperwork. In the end, they relented and we are moving on with closing it. I have 15k set aside to do the closing and repair with this unit. Purchase price of 110k amortized for 30 yrs, 6.75% apr. I will be contacting some contractors to do the repair and renovation then off to the market I go to look for tenants. We should close within a week or two and renovation will most likely take another 2-3 weeks. By the time i'm done, that ugly duckling will turn into a beautiful swan. I'm shooting for $1600 rent but will also settle for $1500.

I also signed a contract to purchase a 4 bedroom house that is being built in a good subdivision (phase II). Cost is $260k. I put down 5k deposit and it should be finish within 9-12 months. My friend bought a unit in the same subdivision (phase I) for $200k and immediately after it was done, it was appraised for $275k. The place is closed to where the Marines will be stationed so I think that it is possible for these type of properties to go up as high as $400-450k within the next 3-5 years. Although the growth projection here is about 6-8 years, im more conservative and will only hold the property with max of five years.

After these transactions, I am hunkering down for the long haul and start raising cash. One thing i've learned during the crass in 2000, cash is king and people with good credit were able to pick the best properties;-)

Goodluck to all and please dont do what i'm doing unless you have proper training.

P