# Toughts on this...



## invision (Aug 14, 2012)

Ok, I finally got the old man to start selling some stuff... He just placed a sell order on all his mutual funds - something like $400,000..... Isn't touching his stocks yet...

So, CDs are at 2%, gold and silver is up/down depending on the wind...

Also, at 75 and mom at 71 - neither are preppers, neither will become preppers.
I am thinking the following strategy: 
Buy 1 house (3 bed 1.5 bath, 2 car garage) unit to rent - approx $100,000
Buy one unit to sell on 5 year land contract - approx $100,000
Remaining $200,000 split 40% gold, 60% Silver...

The land contract they will be able to make $35,000 over 5 yrs. 
The rental will bring in $700 a month - $42,000 over 5 yrs.
Gold/Silver - the unknown - but it would be "in hand" 

What do you all think... My dad is thinking buy 4 units, two to sell land contract, two to rent... 

Their town is 20,000 residents in rural Ohio.


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## swjohnsey (Jan 21, 2013)

Not much proft in single family dwellings. My mom has a bunch in an exchange trade mutual fund that deals exclusively in Texas municipal bonds. Been doin' a steady 5% year for years NTX.


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## cnsper (Sep 20, 2012)

5 year contract on 100k is going to be tough for most people.

That 35k over 5 years is going to be quite a bit less with insurance and I would carry some to protect yourself.

With rentals you have to worry about insurance and repairs so that 42k can go quickly.

For the land contracts, I would look into doing a 20 or 30 year amortization with a 10 year balloon. Also you do not want to sell for what you purchased for that adds to the cost to the buyer. Buyer is responsible for all repairs. 

So let's look at the numbers
Buy for 100k
Sell for say 120k (right away you have 20k profit)

If there is 0 down then here is what the numbers look like.
Interest rate is 6%

Monthly payments will be $719.46 on a 30 year amortization with a 10 year balloon. For a grand total of $86,335.20. Now you still have the balloon payment that is now $100,422.97

Here you will have 2 outcomes at the end of 10 years...
1. They will get a loan or pay off with cash
2. They can not get the loan or have the cash and you get the house back.

For my money, I would go with 3 land contracts and have 100k as an emergency fund. I would also set up each property as a separate LLC so that if something were to happen, only that property is in jeopardy.

I would also want 3-5k as a down payment.

Being a land lord is a PITA and being that he is in his 70's he may not want to deal with the hassle.

BTW, you can get houses for much much less and have them fixed up and still have money left over after you rehab it. Good bones and good neighborhood are the key things. He might want to look into joining a local Real Estate Investors club. He can learn a lot there.

I would like to see him keep at least 100k on hand for a backup. With 300k I would say that 4-5 properties is not unrealistic. They don't have to be top of the line neighborhoods but they have to not be crime ridden either.


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## cnsper (Sep 20, 2012)

swjohnsey said:


> Not much proft in single family dwellings. My mom has a bunch in an exchange trade mutual fund that deals exclusively in Texas municipal bonds. Been doin' a steady 5% year for years NTX.


You are VERY wrong that there is not much profit. I have seen people make 300% on one property. They got it good and added some paint and carpet then sold it. 10-20% is not unreasonable to expect in real estate.

I have also seen people that were dumping decent properties that only needed paint or yard mowing and a friend bought those and rented them.


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## invision (Aug 14, 2012)

cnsper said:


> 5 year contract on 100k is going to be tough for most people.
> 
> That 35k over 5 years is going to be quite a bit less with insurance and I would carry some to protect yourself.
> 
> ...


You gotta understand, this is a tiny town, 14,000 people - maybe 7,000 homes in the city, with 500 more around in the country farming area... All the banks are locally owned, 5th/3rd tried to come in and closed up within 12 months...

Actually, all his land contracts have been $1000 down, 9% interest for 5 year with remaining (ballon payment) on payment 61 for remaining amount of loan. He hand walks the buyers into the local bank on payment 59, where the majority owner of the bank will get up and meet him when he walks in the door... my dad simply shows them the 5 year payment history and recommends for them on a 30 year fixed, which out of 30+ only one wasn't given a loan. He has only had to file on 1 or 2 of the 30 to gain it back too, then re-flipped it within 30-60 days. And on average, I thought he said its 35,000, but I could be wrong, and I haven't double checked the math cause sometimes, hell typically he down plays what he makes and I don't bust his chops.... His buy price though is typically $85,000 his sell price is between $100,000 and $125,000.

As for landlord, he has a management company handle everything - the number of rental units is in the 20s so the management firm, (side note: i thought this number was lower since he sold everything 8 years ago, retired then moved back and started it up, but my Mom let it slip on yearly rental income two weeks ago during a phone call - see what i mean by down playing?) any the management firm is owned by his real estate broker, and son of one of his close friends (who used to be his broker) handles the management for 2.5% of 6 months rent. He gets 50% of first months rent IF he finds a renter before my dad does... His lawyer collects all money due for a grand total of $200 a month fixed cost on all units and deposits it for him, and his CPA handles any payment of bills after his sign off for $100 a month.

When I say $100,000 - that is after a complete remodel - new paint - in/out, carpet, appliances (unless they are less than 3 years old), any roofing or plumbing repairs. This is done on rentals and flips, his typical buy price is $85,000 giving him $15,000 for repairing each unit before renting/selling. Since the apartments and flips are owned by 2 LLC shells - one for apartments, one for rentals - the insurance for each new unit would be minimal since they are all covered under one policy. Typically all repairs cost less than $5,000. So the $10,000 stays in the LLC until next purchase or dividend payment.

As for investment club, he ran one for a few years, and when I say ran one, meaning he was the president of the club in my home town, why because up to 8 years ago, he owned over 200 homes in the town as rentals... Yes around 3% of all the homes were his... The 2nd chair of the club, was my HS girlfriend's dad who owned the most rental farm land surrounding the town - 22 properties with over 18,000 acres rented, the third major contributor to the group owned 80% the buildings downtown as well as the former owner of the strip of land where all the new business went (fast food, walmart, lowes, etc) The rest were coat holders, often times he found himself bidding against these same people at an auction or in competition to buy it. So he stopped, when he stopped, Carl and the other guy did too.

I remember a funny story, the house that backed up to where for many years my dad had a sign business in a 4 car detracted garage that was behind a rental he also owned came up for auction, also on both sides of this house, my dad owned both as rentals. The lady who lived there was my babysitter from age 2-6. I was 16 when this happened... So my girlfriend and I stop by the auction, my dad asked me if I wanted it, I said it would make a good rental look at Dennis' old house and the other one... He smiled, and went to the back of the room, and joined my girlfriend's dad who was thinking about the house. Bidding started at $10,000, next was $11, then 12... When it hit $15,000 my dad stood up on a chair, called out the auctioneer's name (who bought all of his signs from my dad) and says "Mike, shut her down, $35,000". Mike (the auctioneer) goes, "I have a bid from Mr. XYZ, for $35,000, folks he owns the property this one backs into and both on each sides. Anyone want to go against him? No? No? Sold!" Carl, my girlfriend's dad looks at him and goes "Howard, that is the most impressive strategy I have seen, you could have yelled $20,000" my dad goes "I know, but it is worth $55,000 and I wanted part of the backyard to park my crane trucks in, and my son wanted it"

Edit note: I was wondering how much repair work he has one the apts... I just called my mom and out of the 20 some houses, 1 repair request every 2-3 months - usually a stopped up drain... For all of last year.


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## invision (Aug 14, 2012)

cnsper said:


> You are VERY wrong that there is not much profit. I have seen people make 300% on one property. They got it good and added some paint and carpet then sold it. 10-20% is not unreasonable to expect in real estate.
> 
> I have also seen people that were dumping decent properties that only needed paint or yard mowing and a friend bought those and rented them.


Yep, he is wrong again.... My dad became a multimillionaire from rental units... He damn well couldn't do it teaching school or just running a sign business... Which he also did/does.


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## swjohnsey (Jan 21, 2013)

Yep, wrong again! I made some money in rental only a couple were single family. I still have 'em both.


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## BillS (May 30, 2011)

I like the idea of rentals but I don't like land contracts. I'd prefer to buy condos and rent them, if it was me. There was a 2 1/2 bedroom townhouse condo I saw that was only $39,900. You could rent that out for $700 a month or $8400 a year. You could gross over 20% on your money.


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## CulexPipiens (Nov 17, 2010)

Not to approach what might be a delicate or perhaps insensitive topic, but given their ages, if they pass in the near future, what would you want? If he is structuring such that it would pass to you, would you split it up this way if it was your money? Would this create an issue in terms of inheritence tax? Perhaps create a holding corp with you and him as the sole share holders and then get the rentals and such through the corp thus providing for a way to pass to you with out the tax liability? Of course, usual disclaimers here, I'm not an investment advisor or tax attorney or... 

How about buying a farm and renting/leasing it back to the farmer? We're always gonna need food.


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## swjohnsey (Jan 21, 2013)

BillS said:


> I like the idea of rentals but I don't like land contracts. I'd prefer to buy condos and rent them, if it was me. There was a 2 1/2 bedroom townhouse condo I saw that was only $39,900. You could rent that out for $700 a month or $8400 a year. You could gross over 20% on your money.


Contract is for suckers. It has been used for years to prey on the poor and gullable. Read "The Jungle." After putting $8-10K down you might clear $200 month if nothin' breaks.


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## invision (Aug 14, 2012)

CulexPipiens said:


> Not to approach what might be a delicate or perhaps insensitive topic, but given their ages, if they pass in the near future, what would you want? If he is structuring such that it would pass to you, would you split it up this way if it was your money? Would this create an issue in terms of inheritence tax? Perhaps create a holding corp with you and him as the sole share holders and then get the rentals and such through the corp thus providing for a way to pass to you with out the tax liability? Of course, usual disclaimers here, I'm not an investment advisor or tax attorney or...
> 
> How about buying a farm and renting/leasing it back to the farmer? We're always gonna need food.


Nice questions, that I am totally ok with... Everything is 100% in trust to me... Payable on their deaths. That is also why he is asking my input too... Personally, I think they have more than enough - between the houses, stocks, CDs, antiques, PMs, etc..., but dad wants his money to always make more... With the way the trust is setup, the inheritance tax will be minimal. I don't really care for the idea of rentals for only one reason - I am out of state and never plan to move back to Ohio... So Dustin (broker) and I have talked along with my parents a few times and he knows they will all be listed for land contract through him when this unfortunately becomes time...


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## invision (Aug 14, 2012)

BillS said:


> I like the idea of rentals but I don't like land contracts. I'd prefer to buy condos and rent them, if it was me. There was a 2 1/2 bedroom townhouse condo I saw that was only $39,900. You could rent that out for $700 a month or $8400 a year. You could gross over 20% on your money.


Condos wouldn't be a bad thing, but there are none in my home town... They go to FL every winter, dad stays for two weeks, flys home for two weeks, back and forth for 3 months... They spend $9000 just one the condo, not counting airfare and such... I said it would be wiser to buy a place there...but he doesn't want it not earning income when they aren't there... Duh.


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## cqp33 (Apr 2, 2012)

my $.02 here! I think real estate is in for another crash soon. My wife and I own some land in east TN, but my wife and kids live in a small house near there that we own but pay our mother in law because we let her rent it out for a little bit of cash to help raise our 2 nieces who she adopted. 
We are actually considering moving to the mountains of West Virginia but are hesitant for the following reasons:
1. I am retiring in August and want to make sure I have a job first.
2. Is this market sustainable? Are we doing the same thing as we were before the 2007 real estate bubble? I think we are and here is why!

A friend of mine and his boss were talking the other day, his boss was having problems making his payment since he has 2 houses and he lives in one while his wife and kids live in another where he wants to retire in a couple years. The bank offered him a modified loan in order for him to afford the payments which made the bank take about a $40,000 loss over the life of the loan. My buddy uses the same bank, he has a house at a previous duty station and is renting a house where he is now. He hasn't missed a payment because they have lived within their means, so he asked the bank if they would modify his loan and the answer was no, he hasn't missed any payments so there was nothing they would do.
Banks are rewarding failure, I understand that for the bank taking the $40,000 hit might be a better move than dealing with a foreclosure, having to resell the property and plus any repairs that might need to be done, hiring someone to manage it/sell it, etc... But the principle of what they are doing is going to get us right back into the situation as 2007 and much quicker with unemployment and tax increases coming!

just my $.02


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## invision (Aug 14, 2012)

cqp33 said:


> my $.02 here! I think real estate is in for another crash soon. My wife and I own some land in east TN, but my wife and kids live in a small house near there that we own but pay our mother in law because we let her rent it out for a little bit of cash to help raise our 2 nieces who she adopted.
> We are actually considering moving to the mountains of West Virginia but are hesitant for the following reasons:
> 1. I am retiring in August and want to make sure I have a job first.
> 2. Is this market sustainable? Are we doing the same thing as we were before the 2007 real estate bubble? I think we are and here is why!
> ...


Actually the modified home loan loss by the bank is supplemented by the fed reserve under a executive order or Bill (can't remember which) that Obama put in place... It allows struggling home owners a way out true, but the banks aren't losing money, we the tax payers are. Part of the reason for that is there is an estimated 2 years of surplus homes in shadow inventory from foreclosures. Shadow inventory is houses that are sitting empty but have not been put on the market yet. If the banks hadn't kept it off the books, it would have just over flooded the market, this way keeps supply and demand flowing somewhat... The houses in question are all foreclosures - bank owned inventory.


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## cnsper (Sep 20, 2012)

invision said:


> You gotta understand, this is a tiny town, 14,000 people - maybe 7,000 homes in the city, with 500 more around in the country farming area... All the banks are locally owned, 5th/3rd tried to come in and closed up within 12 months...
> 
> Actually, all his land contracts have been $1000 down, 9% interest for 5 year with remaining (ballon payment) on payment 61 for remaining amount of loan. He hand walks the buyers into the local bank on payment 59, where the majority owner of the bank will get up and meet him when he walks in the door... my dad simply shows them the 5 year payment history and recommends for them on a 30 year fixed, which out of 30+ only one wasn't given a loan. He has only had to file on 1 or 2 of the 30 to gain it back too, then re-flipped it within 30-60 days. And on average, I thought he said its 35,000, but I could be wrong, and I haven't double checked the math cause sometimes, hell typically he down plays what he makes and I don't bust his chops.... His buy price though is typically $85,000 his sell price is between $100,000 and $125,000.
> 
> ...


Then why the hell are you not following his advice if he has done so well? Why ask a bunch of people on the internet for advice?


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## invision (Aug 14, 2012)

Because, I am truly unsure for once on how to advice him on this one... Personally I would say 100% PMs... But that would be sick to have it sitting in a safe right??? I do like the buy 4 model too... Looking for multiple options to give him... You can do this, this, this, and that... I am also a believer that more than one set of eyes are better than 1 set... Yes, he has made a ton of money, but he doesn't even really know what to do to make more right now, he never thought a jumbo 5 yr CD would only bring 1.8% interest either (which pisses him off)... He is a die hard conservative, and doesn't see how we can survive (USD) much longer with all the debt... So would rather have it in something tangible - land, PMs, etc.


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## Lake Windsong (Nov 27, 2009)

My two cents, a healthy mix of undeveloped land in a good location with good timber, PM's and cash, whatever mix of national currency you choose would be wise. But wealth and investment are defined, in part, by personal priorities, so hopefully you all reach a compromise that is beneficial to your goals.


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## invision (Aug 14, 2012)

Lake Windsong said:


> My two cents, a healthy mix of undeveloped land in a good location with good timber, PM's and cash, whatever mix of national currency you choose would be wise. But wealth and investment are defined, in part, by personal priorities, so hopefully you all reach a compromise that is beneficial to your goals.


Why the undeveloped land? You talking for Bug Out? Or as an investment.


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## Lake Windsong (Nov 27, 2009)

Investment. Leave it undeveloped as long as you choose, it's sitting 'money', just like PM's in a safe. My opinion.


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## Lake Windsong (Nov 27, 2009)

Realistically, you could leave it alone, decide to lease hunting land, clear cut for timber, develop however you see fit. More options in the future for developing, depending on location, either commercial or residential.


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