All Forum Posts by: Axel Ragnarsson

@David Harriman @Marcus Johnson @Javier D.  

I appreciate your input and certainly see the risk of being highly leveraged and scaling quickly... I was not in the business in 2008 when the market crashed and realize that I've only been investing with the market at my back. I've asked many local investors I know how their portfolios were affected when prices dropped ten years ago and most say that rent prices did not fluctuate significantly but vacancy rates increased. The vacancy rate in my market right now is 4.5% and I underwrite at 9% (and actually put that money aside each month). In addition, I also actually put aside money each month for capex and maintenance/repairs. When I say my cash flow might be $50/door on a property, it's 50$/door after I've put aside nearly 40% (maintenance, capex, vacancy, and PM) of the gross rents into a separate checking account. Sure, I certainly have a significantly higher risk profile than many investors and many of the people using BP. I very may well have a tough couple of years if the market takes a steep dive - but I'm consciously preparing myself the for the scenario. Thank you for the thoughtful replies!

@Cody L. Thank you for the reply, it means a lot. I've seen you posting on the forums for years now and would like to end up doing the kinds of deals that you're doing!

@Joseph Back That's awesome, you're certainly moving quickly as well. I met a few lenders through local REIA meetings and have met a couple here on BP. When I started, I asked everyone around me if they knew of anyone who worked in real estate (in any capacity) and then asked those people if they knew any investors or lenders who did private money lending. After a while, that turned up some good leads. Best of luck hitting your goals!

@Alex Kamunyo Also, I bought my first property in February 2016 - so in just under 3 years. 

@Scott Fromowtiz That's what I'm being told by those I know who live out there!

@David Smith This deal is actually at a much lower price point than most of the multis in the Manchester, NH area. In my market and specifically the zip codes I invest in, multis typically trade at $75k-100k/unit. I have a local property manager who looks after all my properties. 

@Alex Kamunyo Congratulations on getting that first deal done, it's always the hardest! As for where I've found my deals, I've bought a couple properties direct from the seller off of Craigslist ads, one off the MLS, two from direct mail (I sent a couple mailings to non-corporate owned 3+ unit multis in a couple of zip codes), and a couple off of referrals from the guy that does my junk hauling! I've found that referrals from service providers (junk haulers, electricians, plumbers, property managers) are a great source of deals.

@Ron Beebe If you want to scale at any reasonable rate, you certainly need to utilize leverage when purchasing properties. I have a goal of achieving $12,500/mo in passive income by my 28th birthday (5 years after I graduated college). As for units, it would be 100 - considering I average $125/mo in cash flow across my portfolio right now. If I maintain this pace and the market agrees with me, I should be able to reach that number.

@Mark M. My market (Manchester, New Hampshire) is certainly very different than the bay area and the cost of living is less expensive... I would not even be able to touch this level of growth if I was investing in a major market. My friends that live in the bay area are exploring the idea of investing back in my market for the reasons you mentioned. It looks like you are running a great business, I wish you the best!

@Peter Cochran I work with local, small credit unions and generally refinance with commercial loans (since don't really qualify for traditional residential mortgages right now). I get terms similar to 75%-80% LTV, 10 year fixed rates between 5.5%-6%, and 25 year amortization periods. I have to personally guarantee all of my loans and I doubt there are many (if any) lenders that won't require a personal guarantee on loans of the size I'm getting, I've only heard of non-recourse debt being used on large multis (75+ units).

@Peter Tverdov I completely understand this viewpoint. This is certainly a concern and I've been sure to get commercial notes with 10 year fixed rates, which gives me some peace of mind. I do keep reserves of $2,500/unit right now, what do you see as appropriate? I'm also very conservative with my numbers (8% vacancy, 10% maintenance, 10% capex, 9% property management, when I analyze). 

@Ryan Robbins Exactly, it's important to focus on equity just as much (if not more so) than cash flow!

@David Whitaker When I started, I asked almost everyone in my circle if they knew of someone who worked in real estate, as a mortgage broker, or was an investor in the area. I then asked all of these people if they could introduce me to someone who was a private lender. This gave me a number of leads and lenders to work with. Bring them all sample deals and pitch them (ask them if they would be interested in funding a deal that meets this criteria). When I had no track record, I brought bids from reputable contractors in the area, detailed repair estimates, and talked about how the team around me had a lot of experience. The sample deal usually gets you soft commitments from investors, that way when you find one you can feel comfortable acting on it.

@Ehsan Rishat Thank you!

@Brian Garrett that does help, although my market is very competitive right now and its extremely difficult finding below market deals on the MLS.. most everything I have bought is off market (direct mail, Craigslist, relationships). I'm sure if rentals didn't pencil out here I'd be looking in other markets, changing strategies, etc.

Last week, I closed on a triplex and my portfolio hit 25 units, and I wanted to share what I've learned in the hope that it may help some investors who are starting out (both young and old). This deal:

Purchase Price: $162,500

Rehab required: $10,000

ARV: 220,000

Monthly rents: $2,800

My monthly cash flow will likely total ~$350, depending on what I ultimately get for rents. I'll probably leave about $10,000 in the building after I refinance, which is more than I'd like but still makes it a good deal (for my criteria). 

Anyways, what I've learned:

- Start networking with private money lenders immediately. Even if you plan to use conventional financing for your first deal or two, you'll never be able to effectively scale and consistently close on great deals if you don't use private financing. In today's market, you just can't consistently compete (if you are looking to do a number of deals in a short amount of time) using traditional financing. When meeting with private lenders, bring sample deals that would be an example of what you'd pitch them so you can truly evaluate what caliber of deals you will need to find to secure financing.

- Start focusing on equity, not cash flow. Of course, it is essential to analyze cash flow when evaluating a potential buy and hold investment, however, I've found that the best investors are the ones who focus on leaving minimal cash in deals (and buying with equity on the front end). Stop focusing on dollars a month in cash flow, and start worrying about how much below market you are buying the property at and what your cash on cash return will be (as a %). I own properties where I make $50/door in cash flow, some people may laugh at that, but I have no money in the deal (infinite return).

- Despite the goal of not leaving cash in deals, you'll have a hard time responsibly closing on deals if you don't have cash in the bank (closing costs, inspections during due diligence, paying contractors after you close, dealing with unforeseen problems). With that being said, if you truly don't have money in the bank, focus on increasing your income before trying to figure out how to buy real estate with truly no money down.

- Always buy with your exit in mind (even if you plan to hold long term). I recently had difficulty selling the first property I bought because it had an undersized septic tank and a dug well servicing the building (not a drilled well). As a result, it didn't qualify for FHA/VA/conventional financing and my buyer pool shrunk significantly. While I ended up finding a buyer, my selling price took a serious hit (learning experience!).

- Focus on getting in the game. Don't feel the need to hit a home run on your first deal.. a single or double is better than sitting on the sidelines. If you're young and can't get conventional financing, use commercial financing. Most of my 2-4 unit properties are financed with commercial loans because I won't qualify for a traditional 30 year, fixed-rate mortgages.. sure the terms are worse but it's better than not owning property.

Best of luck to everyone!