All Forum Posts by: Benjamin Sulka

Haha, househacking was the best thing long term but can be a headache in the short term.  A little bit of pain now for prosperity later - thats the motto with this game haha!  Keep it up!

Sounds like you are doing some great things @Benjamin Sulka! 

Seems like the only thing holding you back from launching forward is the financing part. You should allocate some time to find a potential partner, or someone who would cosign a loan for you in order to get the party started! 

@Benjamin Sulka

Sure thing.

Found: On market, represented by an agent.

-2b, 1.5bd, 1 car garage per unit. Cosmetic rehab needed.

-"Overpaid" for it by most standards. Negative cashflow, but much cheaper then renting after unit 1's rent.

-Rehabbed 1 unit and move in. Rehabbed the other unit and raised rents from $950 to $1500

-Tons of landscaping done. Mostly clean up due to neglect.

-I did most of the work on nights and weekends thanks to youtube.

-I eventually moved out. Used a HELOC to buy and rehab my next one.

-End results after 9 years of holding: 2x+ equity, cash flows after all reserved $700/unit.

Lessons learned:

-If you listen to all the rules you'll never make a move.

-Jump in sooner, buy more. I should have bought everything duplex in the area before prices skyrocketed.

-Rehab sooner to raise rents sooner.

-Don't go with the lowest bid contractors.

Best advice I can give, is to jump in as soon as you can with the long term in mind.

The duplex house hack & BRRRR is my favorite! I am biased, that's how I started and eventually how I escape the corporate world.

I would recommend a place that needs work, take on as much as you feel conformable and have time for. If the place has been mismanaged, all the better, as you can raise rents sooner.

Happy investing!

@Benjamin Sulka

I think there is two questions there.  Yes, the education you gain as a landlord is extremely valuable... but you are going to get that as soon as you jump into the market, regardless of when it is.  Is it necessary to gain that now at the expense of better gains elsewhere?  I don't think so.  I think that is more just the urge to get started... which usually I say is the hardest thing to do. When the market is acting normal my best advice is always: "Just Start!" But the invisible caveat there is "with a good deal".   So you have to weigh the opportunity cost of less income against getting started earlier.  It could be argued either way.  But at the end of the day you are committing maybe $5,000 in hard expenses (financing costs) to get into whatever mortgage you get into, to make a certain amount of money per month.  From there on, you have to hold the property... which is better read as: collect the rent, maintain the property, fix the issues, deal with the tenants, pay the taxes, pay the insurance, the mortgage, etc.  

Pick your favorite unexpected expense... AC compressor goes out: $1,800-2,500; Water Heater goes out: $800; unit is vacant for a month when tenant ghosts you $1,200; or down for a few weeks when you have to fix all the issues a tenant left you with; or the circuit breaker box melts and has to replaced - happened to me twice at the same triplex within 2 months - $1,500 each time.  Or pick some big ones... septic system quits working and needs to be replaced: $8,000; roof needs to be replaced: $8,000-$15,000.  Odds are, you will run into a couple of these - at least the smaller ones across a couple of years renting the property.  Let's pick the AC compressor and water heater... one bigger expense, one medium expense.  You were budgeting $100 for repairs a month... but say the compressor came in month 6... you have $600 in your repairs and maintenance account and you have to front an $1,800 repair.  If you were netting $150/month in 6 months your profit to date will be $900 (hope you didn't think you could actually spend that as 'profit'!!!).  Your $1,800 ac repair will net you -$300  for all your profit and your entire maintenance reserve.  Then say 6 months later the water heater blows up.    So this scenario is sort of the hard core reason why $150/month isn't worth it to me.  It's really easy as a beginner to ignore all the potential risks... but every item listed above I have run across MULTIPLE times in the 5-6 years I've been in real estate.  And you are most vulnerable when just starting out, because you don't have all the other properties helping build your reserves.  So if you were going to jump in now, you need to think about having excess (personal) reserves to makes sure you can take care of your tenant in the event something big goes wrong.  

This week alone I have replaced a $7,900 roof, and an AC compressor blew up and cost me $2,500. (The roof was because insurance said they wouldn't write the policy without it.)  Here in Florida, Citizen's Insurance... the "insurance of last resort" has changed the rules so that you have to have 5 years roof life left on your roof or they won't write the policy.  It was 3 years last year.  So sometimes you get 'attacked' by bureaucracy to the tune of thousands of dollars!     The nice thing about being at 37 doors is that my maintenance reserve account replenishes about $4,000 at the beginning of each month.  So I was able to absorb much of those two repairs, but still had to go into my operating account to cover the last bit of it.  But in another 10 days it will get another $4,000 to work with.  The repairs and maintenance budget isn't really funded to cover capital expenditures... but we often dig into it for them when it has excess money sitting there. 

So jumping in with low cash flow is risky, might be the best way to say it.  If you can absorb the risk, you can go for it... but my personal opinion is that it isn't worth it in the bigger picture unless it is a good deal.  For me that means sitting idle on new purchases.  Is it fun?  Nope!  Is it smart?  Yes!  Is it even less fun when you don't have your first property?  Yep!  Is it still smart to wait for the market if the deal isn't great?  Yep!

Keep in mind, my $300 is MY number.  That may not be YOUR number.  But I bet if you asked almost any seasoned landlord here, their minimum number isn't much lower than that.  Sure... there are plenty of deals out there that will cash flow less out there.  Maybe you decide that you can be good with $200/month.  But the difference is 33% less profit per year.  You'll have to decide what you can live with.  Given the risks at play, I'm good with my number.

All the best!

Randy

@Justin Rush

12 properties, then 9 properties the next year.  We started off buying multi-door properties… duplexes, double duplexes, etc.   our first 5 properties had 14 doors between them.  

When we first started out, we were worried about vacancy causing us out of pocket cash issues. After the first year, we figured out that wasn’t really as much of a concern as we thought. We were able to fill the units very easily that came open. So at that point, we switched to single-family houses because they were more plentiful an easier to find at a reasonable price.  Multi-unit properties seemed to cost more per door at the time.  

 Everything we did in the first few years were residential / Fannie Mae loans through the same mortgage broker.  We eventually did a commercial consolidation loan merging 5 smaller loans into one bigger commercial loan with a much lower interest rate (went from 5.25% on average down to 4.1%)… but commercial loans only stay locked for 5 years and then reset to the current interest rate based on prime plus some percentage.  This had the side benefit of freeing up more Fannie Mae loan slots for us, as the commercial lender was a portfolio lender - meaning they hold their loans in house and don’t sell them to Fannie Mae. 

By year 3 we were at 40 doors and with the market red hot we were getting into flips.  In the past 4 years we have flipped 3 properties (bought to flip), and sold 3 other properties we liked the least where we had done some renovations.  Might not call them flips per se, but we sold them for relatively huge gains (2-3 times what we paid for them 2-3 years prior).  We used those proceeds to buy the next flip sometimes, but also to pay down the notes on our highest interest rate properties which were in the high 5‘s at the time.  

Our goal was to buy properties about 25% below market average prices.  Everything we bought was local to us in central Florida.  At the time most B class real estate was selling for about $125/sf.  We were buying C class homes for right around $80/sf.  Today you can just about double all those numbers.  So with prices and interest rates doubled, the numbers really just don’t work well right now.  

So I can’t really say if the $300 figure is reasonable in most places right now.  Maybe those Ohio areas still, yes?  But it is really meant as a caution.  It’s not worth investing $40,000 in a $200,000 house to make $150/month. 

Think of it this way- with high yield savings accounts regularly paying 5%, and those rates set to go up 2 more times this year, that $40,000 can earn you over $2,000 risk and expense free sitting in the bank (versus $1,800 in real estate at $150/month).  If you can’t beat the bank’s interest rate return in real estate, you shouldn’t be investing in real estate at the moment in my opinion.  Yes, there will be some appreciation gains you might miss out on.  But you also have all the other risks… repairs, maintenance, turnover vacancy, capital improvements, etc.  

In short - make the best use of your money.  Real estate is cyclical… and truthfully it is telling the majority of investors to sit put for the short term.  The $300 /month number means you would be out-performing your money just sitting in the bank earning interest.   If you don’t do that, what will happen is that rates will drop - probably starting next year, and you will be going “Man I need to refi all these 7% loans I’m only making $100/month on!   But each refi will cost you $3,000-$5,000.  How many months profit is that going to cost you when you could have been making more just sitting on your money in the first place?  

Just for comparison purposes - through rent appreciation, and mortgage pay downs from the sales of the properties mentioned above, along with some good luck and good timing, our average dollars per door is over $650/door.  So while $300 seems like ‘pie in the sky” in today’s market - just know that it can get way better as time goes by when the market is on your side! 

My wife and I have a saying… “You do what the market tells you to do.”  I think it was Robert Kiyosaki that described your money like little foot soldiers that go out and work for you each day.  I embrace that notion.  Send them out to do their highest level work… that’s the general theory.   Right now, with high prices, and high interest rates, for most areas that isn’t real estate.  It  will be again someday when rates subside, but right now the Fed is basically dictating with their high rates that they want to pull money out of the economy to cool it off… thus why savings rates are outpacing new real estate investment returns for most investors. (Again… “Do what the market says” - unless you can find deals that say otherwise.)

All the best!

Randy