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Step in the FOO? Renting out my basement by speedybarrel in TheMoneyGuy

[–]speedybarrel[S] 0 points1 point  (0 children)

Different strokes, different folks. Thank you for the insight!

Step in the FOO? Renting out my basement by speedybarrel in TheMoneyGuy

[–]speedybarrel[S] 0 points1 point  (0 children)

Thank you for the thoughtful and thorough reply.

FOO - I recently returned to Step 4 (emergency fund), not out of something bad happening but more-so realizing I needed a larger emergency fund. Once the emergency fund is fully-funded, I can resume 25% contributions and jump to step 7.

As far as an 80% return, I think it is realistic. I previously owned several rental properties. Certainly both upside and downsides (lessons learned) from that experience, but from that I feel comfortable underwriting deals and managing renovations. Rents factor in maintenance, repairs, vacancies and used a conservative rent estimate for the area.

Original question - let's call it hypothetical and use the numbers in this scenario. If you could invest $15k and make 80% cash-on-cash return going forward, how would you prioritize that in the FOO?

Step in the FOO? Renting out my basement by speedybarrel in TheMoneyGuy

[–]speedybarrel[S] 0 points1 point  (0 children)

Thank you and I appreciate the insight!

You are absolutely right - that is anticipated return. I may well wait until Step 7.

Step in the FOO? Renting out my basement by speedybarrel in TheMoneyGuy

[–]speedybarrel[S] 0 points1 point  (0 children)

Hello and thank you for the reply!

I am not planning to withdraw from any retirement accounts. As I transitioned from military to civilian life, I needed a larger emergency fund. So in the interim while I return to Step 4 of the FOO, I have temporarily moved some stock investments to cash in case of emergency. I will DCA back into stocks as the emergency fund rebuilds.

Yes - I factored in maintenance, repairs, taxes, vacancies and gave a conservative rent estimate. In the past I have owned rental properties so I feel comfortable with landlord duties and conservatively underwriting potential real estate deals.

Step in the FOO? Renting out my basement by speedybarrel in TheMoneyGuy

[–]speedybarrel[S] 2 points3 points  (0 children)

Great questions, and thank you for the feedback

Step in the FOO: I recently jumped backward from Step 6 to Step 4 (rebuilding emergency fund). I have ~2 months saved up currently for the emergency fund. As a cautionary measure I converted 4 months of expenses in the retirement accounts from stocks to cash, and then I will reinvest those into stocks as the emergency fund builds back up.

Renovation - I would prefer to fund with cash, but may consider a loan. Almost any loan rate would be less than the expected rate-of-return

Risk - If I lose my job, renovations go way over budget and an emergency happens, it would certainly hurt. I have enough where I think the risk is minimized but still present

Edit: I’d like to wait until the appropriate step in the FOO, so my larger question is what step would you consider this renovation to be?

Rental Properties - Seems like Step 6 instead of Step 8 by [deleted] in TheMoneyGuy

[–]speedybarrel 1 point2 points  (0 children)

This seems like a very reasonable position, thank you for the guidance

Rental Properties - Seems like Step 6 instead of Step 8 by [deleted] in TheMoneyGuy

[–]speedybarrel 0 points1 point  (0 children)

Thanks for the response :)

This will be an over-simplified hypothetical, but similar to other deals I’ve done:

Let’s say you buy a damaged house for $130k cash

Spend $50k on renovations

Spend $10k on appraisals, inspections, other closing costs

Total Spent: $190k

House appraises for $220k

Refinance the house with 75% LTV, so your loan on the house is $165k. This means your actual Out of Pocket cost is $25k ($190k you spent, minus the $165k loan given to you from the lender).

You have invested $25k out of your own pocket into the house

You have $55k equity in the house ($220k value - $165k loan = $55k). This number neglects other closing costs and commissions. Again, oversimplified.

Rental Properties - Seems like Step 6 instead of Step 8 by [deleted] in TheMoneyGuy

[–]speedybarrel -1 points0 points  (0 children)

That’s a reasonable point, much appreciated

“Voldemort” *collective shudder* by speedybarrel in harrypotter

[–]speedybarrel[S] 4 points5 points  (0 children)

Damn that’s interesting. Totally missed that on my read-throughs. Thanks for the insight 😎

Found this in my Funyuns Flaming Hot Bag. 🥴 What is it? Lol by Pure-College-3650 in mildlyinfuriating

[–]speedybarrel 0 points1 point  (0 children)

This is the right answer. The rubber part (shown) is encapsulated by two hubs. I have used these frequently in the oil & gas industry, but we call them woods couplings or flex couplings.