Thanks. Agreed that you dig deeper to confirm the numbers when buying. The 50% rule is really the 45-50% rule and is staggering as to how accurate it is. It's a baseline to protect cash flow in the event that the portfolio hits a bump. It is designed to give you breathing room if you are allocating your cash flow properly. I have managed thousands of properties both of my own and third party. The owners that lose their portfolios are usually the 10-40 unit owners with high leverage . When they hit a bump in the road, they can't survive because the cash flow isn't enough and their day job doesn't pay well enough to cover the expenses. The ones that make it have low leverage and are smart about putting the money aside for rainy days. Even at the 100 unit+ building level the best a top operator gets to is about 38%.
Originally posted by @Anton Ivanov :
If you read through my comments in this thread, there are many more details than in the original post...
As far as lending, you are correct - you'll start maxing out on conventional loans at around 10 or if your debt to income ratio gets higher than 45%-50%. I used conventional loans as much as I could on my first few properties, which were mostly SFRs. In the last 2 years that I've been buying multi-family, I've been using only commercial financing, which works very differently and doesn't have a limit on the number of properties you can finance.
As far building your network out of state - it takes a lot of time (many months). I've visited the cities I invest in many times, met with all of the people I work there on each visit, on top of regular phone conversations with them, especially property managers. You can't expect people to "do the work for you" without putting in the work and processes in yourself.
50% rule is too general. If you're serious about buying a property, there is no reason why you can't look up what the property tax bill actually is, what the insurance is going to cost, estimate maintenance and cap ex based on the actual property condition, etc. I just see to many people use these rules and think that's all it takes to analyze a property, which is not the case.
If you're saying you've spent $25k just to "learn" and "set things up", without actually buying a property, I'm a little shocked. There are so many free resources, especially on this site, that I don't think you need expensive courses or seminars to start investing.
Frankly, you also don't need an LLC, especially if you're buying SFRs with conventional financing and without partners. You won't get any benefit out of it.
I think @Jay Hinrichs was speaking from the point of asset protection and risk mitigation. Once you get a few dozen properties, I would agree with him that you don't want to over-leverage your portfolio. But at the same time, refinancing to pull cash out is definitely a viable strategy to keep growing.
@Anton Ivanov Thank you for your service and for sharing. This was a great read and I really enjoyed how you broke up your article with bullet points and titles. I hope to develop or learn of some good equations to better pin point my area of focus with Multifamily and Single family rentals.
You inspire me!
@Anton Ivanov can u give a few details on your criteria for a PM?
This is a really inspiring story! Thank so much for putting it all together and sharing it here Anton. Keep crushing it!
For the criteria, I only work with property managers that were referred to me by other investors. The more the better. That by itself will eliminate the majority of bad companies. Other than that, I have a pretty detailed list of questions that I ask them to make sure they offer the services that I'm interested in, they will manage the types of properties I have and their fees are reasonable. Pm me and I can send you the list of questions.
As far as keeping property managers accountable, you need to create checklists, guidelines, etc. for how you want things done, go over them with your managers and make sure you agree on everything. Then follow up and make sure they're doing thing according to how you wanted them done. I like to talk to each property managers over the phone at least one a month and obviously check all statements, maintenance receipts, etc.
To answer your question about weather - I don't buy in markets that have extreme weather conditions, like severe snowfall, heat, hurricanes, flooding, etc. This eliminates a lot of the markets around the US by itself. I don't think regular snow classifies as "an extreme weather" condition. Yes, it will affect things like roof longevity and could add things like snow removal in the winter, so you need to account for that.
I've written about this in several places in this thread.
If you're referring to the direct mail campaign write-up, it's here on BP: https://www.biggerpockets.com/forums/223/topics/56...
Great write-up, spot-on on everything and I agree.
Look in my signature.
Market selection is a complex question - I've written about it in a few places in this thread already. I tend to favor markets that have strong economic/population/job growth projections, have relatively low prices and strong cash flow.
I financed the 4 turnkey properties I bought in 2014-2015 with conventional loans, 20% down payment, most through Flagstar Bank (no specific reason, they just had good rates at the time). The properties were around $50k in price, so the down payment requirements were not that high and since both me and my wife had good jobs, we didn't have any problems qualifying or saving the down payment money ourselves.
As far as the first commercial loan, not sure what type of answer you're looking for. I started building relationships with commercial lenders way ahead of time, I found a good lender that I liked, found a property that met their requirements, formed an LLC, put down 30% of the money I saved up over the years prior.
Sure, send me a pm.
Curios - why not just retire? 120 doors, no financing, I'm assuming your cash flow is at least $300-500 per door. That's about $500k a year, maybe more. I would be very happy with that.
Thank you for sharing your amazing success story. It's been truly inspiring as an investor to keep at it and continue to build my portfolio. I currently have a SFR in KCMO and I'd like to know if you can recommend any PM in the area. I also plan on visiting KCMO in September to meet up with some local investors there too.
This is a great success story, inspirational.
Originally posted by @Anton Ivanov :
Average purchase prices on the multi-family I've been buying have been around $50k-55k per door in KC. Rent is around $700 at market for units in good condition.
Thanks Anton, great post, but I'm having a hard time seeing how the numbers work out. You say you are buying 4-plexes for ~$200k ($50k/door as you mention), that rent for $700/unit, and making ~$300/m/door profit. Most of my buildings are identical to this, but make apx $160/m/door profit, so I'm having difficulty seeing how you are getting ~2x the profit from effectively the same buildings.
Can you please help me understand this:
- +$2800/m income for the building ($700/m/unit)
- -$280 in management (10%)
- -$1200 for profit ($300/m/door on average)
- =$1320 leftover to cover all your operating expenses
I just don't see how $1320 can cover all your expenses: mortgage, taxes, insurance, maintenance, ground-keeping, CapEx, vacancy, placement fees, etc. Do you own these properties without any debt (mortgage) - I assume not since you stated a 15%CCR? Maybe I'm missing something, can you please shed some light on this, I'd really like to understand how your 4-plexes are that profitable (and what I'm doing wrong with mine)!
Thanks in advance Anton, and thanks for your service!
Great story, thank you for sharing!
That's awesome keep the great work and advice flowing, I am over here with my notepad soaking it in. Thank you for sharing your story.
That is awesome! Congratultions and thank you so much for sharing!
I was wondering how much time do you spend managing your real estate portfolio per week.
@Anton Ivanov undefined, great story and thanks for sharing! I live in your neck of the woods and have interest in the KC market. I've got a bit less experience but would love to grab a coffee or a beer at the next meetup in San Diego.
@Anton Ivanov , congratulations, great success story!
This is amazing. Thank you for the inspiration!
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