Waiting Rarely Works

There are some folks out there that are still waiting for a property where the 1% rule works. It is my belief that that rule was sidelined when the government printed up Trillions of Dollars to go help the self- imposed crisis. This isn't a rant about if there was actually a crisis or not. It is an illustration on how using dollar cost averaging in investing while using other investment tools that I have used for decades. These will be examples from the heartland of the country

Back about 2010, I picked up a true junker of an REO. The sales price was cheaper than a new car at the time. But the place needed a new furnace, new roof, and looked like something from the 1960s with all the Knotty pine walls. After $30,000 in repairs, we owned the place for about a dozen years. The initial $57,000 that was put into the place has resulted in more than $90,000 in rent. The place when listed, sold in less than a week for roughly $120,000. Since the initial sales price was about $25,000, we did alright with country home. We didn't push hard on the rents, and the place stayed full.

I believe in dollar cost averaging in real estate purchases. Each and every year, we will buy or sell between seven to 12 places. In years where prices are more elevated, we may do a smaller number of transactions. If the market is more set to grow, we will do more. Currently, we believe a contraction is headed our way. This area tends to lag the national trends, and some areas are getting beat up now.

With the sale that occurred above, by doing a 1031 exchange the profit and depreciation ruled over to the replacement property. I believe in finding a transaction before it becomes public. There is just too much money still out there that makes using the MLS difficult to find a deal. So, this is where real estate is a relationship business comes into play. An estate attorney let me know that there was an estate that had to close quickly and with a set price - so no haggling. He needed someone to perform and do so quickly.

The house is three blocks from the largest spring feed lake in the state. It was a 1970's-time capsule minus the Brady Family. The price was $135,000 from what I recall. It needed windows, flooring, appliances, well pump and paint. About $18,000 was pit into it. The place rents for $1,300. I did just have to replace the boiler on the place three weeks ago, so that was another $7,000. The house across the street from this one- an exact clone, is listed for sale at $232,000.

Over the course of one real estate cycle in the conservative heartland, property values have gone up 10-fold with the use of forced appreciation. The places have paid for itself repeatedly and have tossed off positive cash flow. I wonder if I should peel that one off, but I am not there yet for that place. Do I think the market will go down, absolutely. Will it matter if the initial sales price was about $25,000?

While I do not have a pipeline to feed from for off-market places, I have made a few inquiries.

None of them panned out, but I am still half heartedly looking for more.

Having cash on hand has always worked for me in the past. Unfortunately I have spent the money and now it is all but gone.

I planned to do a cash out refi on a duplex I recently rehabbed. But my tenant in one side cranked the heat up so much that now there are black marks (shadowing) on the walls. She cleans all the time, but they keep coming back because of the heat.

I do have another house I am considering doing a refi on to get some of the money back I spent on it. Maybe I can do that so I will be better prepared for when another deal comes around the bend?

We own our PR free and clear. I like having other people's money work for me but there is just something about not having that debt tied to my house.

A friend of mine refinanced his place recently. He was about 73 years old. Two months after the refinance, he passed away suddenly. He and his wife FAILED to get the insurance along with the loan to pay it off if he passed or became incapacitated. She was left with the entire mortgage and not enough money coming in to pay it. She wound up selling it quickly (against advice) for a big loss.

Those few dollars a month for the insurance, which they could have afforded, would have made things completely different.

Bonanza - at the convention remind about you wanting to be debt free and we can write up a loan ladder plan. Where so many people say they want to live debt free, I prefer living with reduce taxes. A loan ladder plan allows you have some asset protection while getting tax free money, limited hedge on inflation, and positive cash flow.

Zero - Why do you want your primary residence free and clear?

Ray, the plan is to put it in a trust and then hock it to you for a dollar.

The Ray-N-Pa Asset Liquidation Association.

Cute but a better idea - place into a land trust, with a personal property trust as the trustee - if you need a trustee address that will throw a curve ball away from you PO Box 305 Meadville, Pa 16335.

If the property is in one state, you use say an Illinois Land trust and have your trustee in a third state, go ahead and find you to sue.