All Forum Posts by: Christian Becker

@Evan Smeenge

Not sure what taxes are there, but they seem high. But don’t know your area. May be spot on.

PMI is killing you. Someone else already mentioned that your closing costs are often financed and added to your loan balance rather than cash.

You have budgeted Repairs, Capex and vacancy each month which I think is excessive. Keep vacancy and repairs and get rid of Capex. That will bring you to zero per month. Still not a great deal.

Here are my 2 cents, but I'm still new here as well. 

I bought my first 4-plex at $124k, estimated rehab $26k, total $150k. Rents $2,200 per month after rehab and fully rented, cash flow $530 per month (1.47% looking at the 1% rule). (After all expenses, including taxes, insurance, utilities, lawn care, 10% property manager, 12% total kept aside for vacancies and maintenance ant mortgage of course). Some people have told me that's very low on the cash flow, only about $133 per door. Old building built in 1930. Has had upgrades to windows, electrical, newish roof, etc.

Now, looking at some other metrics I'm interested in: Cap rate is 9.4%, Cash on cash is 16.7%. Applying the complete cash flow I have, (still rehabbing, so will still take a couple months to actually have it) I will have this property paid off in 9.75 years, with only my down payment (10%) and rehab costs up front. I consider this a good deal. Meets my expectations. When all is set and done, I'll have spent $37,500 per door to buy and rehab.  I think I can probably refinance it and get most or all of my down and rehab costs back out. Would increase my monthly payoff, decrease my cash flow and increase my time to payoff to 12.5 years. My actual plan is to accumulate my contingency fund up to about $4,000 or so with the 12% monthly addition, then add any extra onto the mortgage payoff as well.

I think there are a lot of people with more experience who would laugh at these numbers. Many people are buying at $25,000 -$35,000 per door and getting way better cash flow per door. But, they have years and years more experience, many more connections and have done this for a while. Also depends on where you are looking. This deal was hard to find, but is also close to home for me. I don't have any off-market connections yet who are feeding me properties locally at huge discounts. Found this one on the MLS.

Also, I'm learning a ton. Getting your first property is key, I think. I had to fire one property manager already, who completely misjudged the rehab required, didn't rent my unit, so I've lost 5 months of rent while very little rehab was being done, costing me rent and the work was done poorly, so I had to have another handy man redo everything ($3,000 wasted on poor workmanship) and more... Not killing me since I have some reserves, but learning some expensive lessons. But better to learn these on a relatively inexpensive property within close proximity to me - and not sinking my boat. Will still continue to look locally, but I'm interested in rapid growth, which is hard to do locally.

Now looking to buy in the Midwest and almost ready to get into some properties there, getting into the out of state rental business. More potential pitfalls, unknown people, and not in arms length. Too scary for some people, but if you want greater returns in cash flow, look at other cities in the Midwest or elsewhere. Can get better cash flow per door - $250-500 depending on property. But greater risk if out of town.

If you want local, I think the deal you have may work. It's not very pretty by some standards, just like the one I have in town I showed above. But, doing your first deal, you learn a ton. You have to start somewhere. Most people read and never start. You'll get to know what you're doing differently in the future. But don't buy a bad deal just to get your first deal done.

If going out of town scares you and keeps you from ever getting into the game, then you should buy locally and get going. Then learn from it. I now use my first deal as a measuring stick. When I look at other deals, I open the spreadsheet with my first 4-plex. Any new deal I consider, I want to do a lot better than my first deal. Especially when considering out of town.

Most experienced investors passed on my deal. After all, it sat on the MLS for a couple of weeks. But without it, I wouldn't have had the guts to get into the game. I told my wife that we will probably keep it forever, because it was our first deal. Ugly and all. Of course, we're updating it and the units will look fantastic when we're done. Almost gutting them out, new bath, kitchen, flooring and paint. What got me from reading to doing. Now I'm expanding my mind exponentially.

One more thing: Keep it simple. Get going. Don't overthink it. I wouldn't even know how to contact people who may be interested in selling, etc. Seems too complicated to me. Now, I'm learning a lot more about all that, but it's difficult when you are just starting I think.

@Brandon Ingegneri

Sweet post.

Here’s what I’d add.

This is after some self-reflection. So I’m not saying anyone else is like this, of course.

When you’re 20, you think you know everything. Reality is, you know nothing. No life experience.

I know, because when I was 20, I knew everything. Your parents and other older people are just plain stupid. What do they know anyway?

Of course, there are many famous people who dropped out of college. Bill Gates, Mark Zuckerberg, Steve Jobs, among them. Out of 5+ billion people, there are a few. Probably a lot, but the odds are not in your favor.

The adult brain doesn’t reach maturity until about age 26 or so, especially the part that manages risk taking behaviors.

One of my mentors told me this: “Real estate won’t make you rich overnight, but it will make you rich over time.” It’s not a sprint. It’s a marathon.

I’m telling my kids to get an education, get well paying jobs so they can invest in real estate. If I can get my 20 year old kids to house hack their first duplex, then their second and third and then keep going.... they’ll be millionaires before I even got started investing in real estate. Sweet gig. I wish an older wise guy would have sat me down when I was 20.

Get into a well paying career. College helps with that for most people. Could also pursue a trade, so doesn’t require college.

Most real estate agents aren’t the busiest on day one either. Any business takes time to build.

It’s all about building relationships and reputation which takes a lot of time and effort.

If you’re self employed or contractor, 1099 or anything but a W2 job, you’ll have to show 2 years of tax returns to qualify for loans. Working at a low wage job without a degree isn’t very helpful for investing either.

First question most lenders ask is how much you make. Credit score and debt to income to qualify for any loans. There are other ways to get financing but why handicap yourself day one? True, there are lenders that don’t require that or you can get private money, etc. but that’s not very easy.

Having said all that, you can always change careers. I went back to school to do just that when I was age 30.so if you try something and it doesn’t work, you’ll adapt. You’ll figure it out pretty quick.

But, if I knew back when I was 20 what I know now, I would have picked a well paying career and started buying rentals right away with my income. House hacking duplexes (starting with 6% down), working up from there and growing continuously, buying a property or two every year. Would be retired now instead of just getting started.

I also tell everyone to finish school (college) early in life in general. Hard to go back later. Easy when you’re young, have no family and no other commitments. Hard to do while supporting a family, trying to go to school at night while working and balancing relationships and family.

Have found many people who are stuck in a $12-15 per hour job for life who say they wished they had finished school, but now can’t find the time, money or energy. Got sucked into the system and stuck there. Find few people who regret finishing a degree, calling it a waste. Even if they don’t use their degrees they usually used it to get the job, keep the job or get promoted over others who didn’t have one.

@Brandon Sturgill

Looking to buy a few dozen in the near term. Ultimate goal owning several hundred doors.

Alternative would be to maybe set up one LLC that owns all properties. Or set up an LLC for something like every 5 properties. Doesn't isolate them as well obviously. But less hassle.

I'm also intrigued by the serial LLC. Will explore that concept. Seems like and answer to the problem in a simplified way that will provides protection.

A quick look on the web shows they’re not available in my home state of Idaho or in the state of Ohio where I’ll be investing. Utah is next onus and close. Maybe set up there?

@Scott Smith

My plan was to set up individual separate LLCs. Have never heard of the series LLC.

I have a couple money partners and I have set up the following structure. Hoping for some feedback and suggestions on improving this or what other people have done for structuring the deals.

(1) Set up a parent LLC which is owned 50-50 with my money partner.

(2) set up a subsidiary LLC for each property purchased, which is 100% owned by the parent LLC.

(3) purchase properties personally with myself and money partner on title and note.

(4) quitclaim deed the property to the subsidiary LLC

This structure was recommended by an attorney to isolate each property for liability reasons and to keep books, etc separate. If a property needs to be sold, also easy. Anyone using something different? Are there problems I’m not anticipating?

An alternate would be to set up one parent LLC that acquires all properties.

My business plan is to buy and hold rental properties long term and to keep my partner in the deals long term 10-15 years until properties are paid off. Maybe even longer.

@Martin Neal

Maybe I missed something and I’m pretty new at this myself, so please forgive me if I do.

Running through your numbers I don’t see a positive cash flow.

$1066 rent

-836 expenses

-$315 mortgage ($54k, 5.75%, 30 years)

————

-$85 per month (negative)

Did I miss something?

For what I'm buying, I want to see $200-250 per SFR AFTER paying all expenses, including debt service. Assuming my numbers, my rental will pay itself off within 10 years.

I'm looking for a reputable property manager in Cleveland area. I'm out of state (Idaho) and looking to buy properties there. 
Mostly single family to start. Any recommendations for B-C neighborhoods? Also looking for someone who could manage section 8 single family in C-D neighborhoods.