All Forum Posts by: Brian Burke

If you got multiple offers on the first one, that is a signal that the market for that type of home in that area is very active.

If it we're me, I'd tell the backup buyer's agent that you will notify them the day before the house is listed to give them a head start. That's all I'd do.

This approach forces them to put their best foot forward because they will be competing with other buyers, and maybe you'll get multiple offers again (and higher than theirs or stronger buyers).

It also prevents you from becoming their personal home designer/contractor. This business is tough enough without injecting buyers into the rehab decisions.

For many, the wealth building strategy is to accumulate four houses, and when they go up in value, exchange them for an apartment building. Just like the game Monopoly: four small green houses = one red hotel.

Apartments come in all sizes: duplex, triplex, fourplex, and just about any unit count from there. Multi unit properties generate more cash flow. Houses are easier to sell, so there are always trade offs. In some markets, houses will go up in value faster or higher than Multifamily. This is especially true after a huge price drop, like we have just experienced in your area and mine.

If you have good credit, the down payment, and extra income, which it sounds like you do, you shouldn't have trouble financing your acquisitions of single family or apartments up to 4 units. Apartment buildings larger than 4 units have one additional lending requirement: experience. The larger the loan, the more important that element becomes. If you use the Monopoly strategy, you'll have the experience by the time you go to make the exchange.

Smart principle to not buy things that you can't afford, but I look at it this way...you aren't borrowing because you can't afford the house. You can afford it because you have the required down payment, and can afford to cover the loan payment for a month or so if you have a vacancy. Instead, you are using leverage to boost your return on investment. If you pay cash for the house, and it doubles in value, you doubled your money. If you put 25% down and it doubles in value, you quadrupled your money. Do the math on that times 12 houses! That's where you get the money to buy those 70 unit complexes.

Welcome to BP, Michael!

Sounds like you have a great plan. If it were me, I'd make a couple of slight modifications. It is no secret thar real estate has fallen dramatically in price, and it is very likely that prices will rise. Rather than buying into a rising market over a period of 24 years, whereby the later properties will cost significantly more, I'd front-load the strategy and allow the price appreciation to work for me rather than against me.

If you can buy one house outright every two years, you should be able to buy one house every six months instead by putting 25% down and financing the rest. You would then have 12 houses in six years.

If you finance them on loans amortized over 20 years, they will be paid off by the time you retire. Caveats: make sure that you are buying houses that will rent for enough money to give you a wide margin above the loan payment, and use a generous vacancy factor so you don't get caught up in negative cash flow.

From your post, I get the impression that you are somewhat risk-averse and conservative, so if the debt bothers you, you can use your excess employment income to pay down the loans more rapidly. My main point is that you can use debt to your advantage to advance your strategy.

Finally...getting a little more advanced here...by accumulating your properties quicker you can employ an asset building strategy later by doing tax-deferred exchanges out of the houses after they go up in value and "trade" them for apartment buildings, etc to boost your income further.

Jilliene H., I don't have statistics for you, just my jubjective viewpoint as to what I've seen over my years of being a borrower, investor, flipper, and owner of a private money loan servicing company (not Praxis).

I've seen most private money loans go according to plan with successful payoffs. Only a few go bad. Late payments aren't uncommon, but that just means late fees to add to the income stream.

Different story in 2005 to 2009 however. During that period when the market was dropping like a rock (in CA), it seemed that more loans went bad than good. Conditions are different now, prices are level or rising in most areas, which significantly reduces the risk.

Even when these loans foreclosed, the investors got SOME of their money back, unless they loaned on seconds...those people were mostly wiped out.

I agree with Dale, and add that even though things can go wrong with A and payments might get missed as Luis suggests, in a flat or escalating market or low LTV you are pretty assured of getting your principal back (not the case at the top of a market bubble however).

That said, the risk variable is most dependent on the operating partner. Good syndicate deals can be royally screwed up by a bad operator, and inexperienced flippers can demo a house and run out of money, leaving you holding the bag.

Assuming that you are dealing with an experienced (and well capitalized) operator, with high integrity, your list is in risk order just as Dale indicated.

Yes, you can get it, but not from the conventional market. It took me four years to find this type of insurance, so for a long time I was just buying without insurance. My policy does cover the former occupant trashing the house. I've actually had this happen twice, and both times I got paid. The claim didn't pay 100% of the cost, but I didn't care because I was going to rehab the house anyway.

I don't know if this type of policy is available on a one-off basis, however. I think it's designed for higher volume operators.

I still question the value of this insurance though. I'm paying them over $100,000 per year in premiums, and at that rate I'd have to have one house burn to the ground every two years just to break even. Self insuring doesn't sound so bad when I really think about the numbers, because in 20+ years I've had zero houses burn down. Two measly claims for ten or twenty grand doesn't make me feel better when I write those checks for the premiums. That said, I really don't want to go without the liability coverage.

Check with a larger independent insurance brokerage in your area. If they can't find this type of policy for you, try another broker. I went through a lot of them before finding one that could find the coverage.

Good luck Monica! Let us know how the attorney/accountant meeting goes, and try not to think about their combined billable rate while you are in the meeting! :)

I agree with the above that it depends on your situation, but add that in the beginning the best entity might be no entity at all. I did everything in my own name when I started. Then again, I didn't have much to lose. Good liability insurance is usually sufficient. Once you are really rolling, you'll have your business and strategy better defined and your entity decisions will be more clear.

20+ years and hundreds of deals later I have several entities, of all types, each for a different reason. When I was starting, I didn't need all of the complexity and added expense.

Will she be full time or part time? How many acquisitions will you do each month? Is she licensed? Are you a broker?

Try estimating what is a fair wage in your area for this type of work then back your structure into that. Example: let's say $60,000 is the target, you might pay a salary of $30,000 plus a bonus per house that you calculate by dividing the remaining $30,000 by the number of estimated annual acquisitions. If you get more houses, her bonuses will allow her to exceed the salary target. Less houses, well...more motivation to do better.

If she is licensed and you are a broker, you might have her list the property when you resell it and give her some portion of the commission, such as 30-50% in addition to the salary but in lieu of the bonus.

You have a lot of options, but it all comes down to fair pay for the services. If you get a lot of deals, would you want to pay $2K + 25% of profits over the threshold and wind up paying $400K? Well, maybe you would, but I'm sure you'd be overpaying as there is a long line of capable people willing to do it for less.

Influence or no influence, this community has influence, and we don't need a score to tell us that! Good move.