Why I Posted the 12% Challenge - Posted by Randy S

Posted by Rick V on May 23, 2000 at 10:42:51:

Yes, still doing L/O’s on single family houses. Getting out of apts - too many hassles - not enough time.

Why I Posted the 12% Challenge - Posted by Randy S

Posted by Randy S on May 23, 2000 at 24:19:54:

First I want to thank all of you for your responses to my challenge and apologize for this long post but several of you have asked me ?off the air? what I am up to and perhaps one or two of you might find my circumstances interesting. If you have not already surpassed my modest achievements, I think most of you are working to reach a similar position. I am now at the stage where I am beginning to ask what is the next step after landlording.

Here is my situation. I own 30 low-income apartments. I got them the tried and true way of picking them up in trashed condition and putting a lot of sweat equity into them. I have lived pretty frugally and reinvested the profits. The road to riches is not necessarily a glamorous one. Market value on them is about $600K and I owe about $150K on them giving me an equity of $450K. If I sell them after taxes and commission (a depressing thought) I should have about $375K. I just sold a fixer house and have $100K in cash, soooo all together if I sold out I would have about $475K or so to fix myself up with.

I clear about $55K a year on my apartments. So why would I want to sell? The sun is shining; the vacancy factor is low now, everybody is making lots of money off their properties and there are not many apartments on the market. But I can see how that can easily change. I can see a day when it will be hard to rent my apartments. Also, 20 of them are in a rough area and there is always the risk of something really bad happening and it is hard to put them on autopilot.

So what I am doing is looking for a way of investing my capital that will give me a safe, low hassle $50 ? 60K per year and allow me to enjoy the fruits of my labors.

I like the idea of discounted notes but it seems that it would be a full time job developing the net work necessary to find them. If you disagree with this statement please speak up. I?m getting long in the tooth and there is a lot of none business stuff I would like to do with my time.

The idea I came up with is to buy a houses in the $100K range that I could sell for about $110K carry the paper at about 9.5% and some how get the buyer to sell or refinance in about 5 years. That will give a return of around 12% and give me 5 years when I don?t have to worry about investing my money. Obviously if I get houses at bigger discount, or if I charge more on the note it will do better, but I want my plan to be based on deals that I know I can do. If I do better then this then so much the better.

I am not overly impressed with my idea but it does seem workable. On the down side I see what I am actually doing is trading an asset (the 100K house) for an asset of lesser value (the note ? I wonder what Metropolitan Mortgage would give me for it).

So there it is thanks again for all of your responses, I printed the out and am studying them. If you made it this far and wish to add something please don?t be shy.

Re: Why I Posted the 12% Challenge - Posted by Bud Branstetter

Posted by Bud Branstetter on May 23, 2000 at 18:18:20:


I did not comment on your post before because of the way you worded it. It is still subjective as to what is easy for you or what you know so there can be no right answer without much more involvement.

I have followed The Fabian newsletter since the mid 80’s where there goal was 20% return. I used that goal over the years when using money long term out of my IRA. I did it by buying houses at 50% or below and carrying the mortgage over 30 years. If I could not get the 20% long term then the IRA resold retail. I realize it has been 10 years or less since starting this but few have refi’ed and the payment still come in. A few have had to be foreclosed but here that is not a problem.

It is not just the financial aspect of real estate but the love of the game that keeps most of the full time investors playing. Playing landlord to low income tenants would not be fun to me. Paying someone to manage is an additional cost. A triple net lease is good for assets you already have. L/O are good for creating additional assets. Others ways can be fun too but no one can decide for you. You need to learn about the other ways and make your own decisions.

Metroplitan would limit their investment in those notes you create to 80% to 90%. So you may still have to stay involved in the second. Is that fun? You have to go to the mailbox and put money in the bank. Plus you have to keep track of the first to be sure they get paid. Hire it done and spend your time doing more deals.

Re: Why I Posted the 12% Challenge - Posted by Rick V

Posted by Rick V on May 23, 2000 at 01:29:42:

I was just in your shoes recently. Here’s what I did. I sold my apartments and 1031 exchanged them into triple net leased commercial properties. One with a lease of 18 years remianing and another with 14 1/2 years remaining on their leases, plus options after that.

Advantages: No taxes to pay on sale - so all your equity works for you. No management or hassles (usually). You increase your gross value from $600K to 1 million or more, allowing you to releverage and increase your rate of return, and increase your net worth. All it takes is a 10 - 11% cap rate to get the returns you are looking for after leverage.

Disadvantage: No toilets to fix. Boo hoo.

Just curious Rick… - Posted by BR

Posted by BR on May 23, 2000 at 09:40:10:

are you still doing your thing with the L/O’s on the back end?