All Forum Posts by: Costin I.

@Beth Phariss While foundation problems might be a sign of an opportunity, foundation repairs are expensive and don't add value to the property. ​And, beware, there is more to foundation repairs than just the foundation. Here is what I collected as "warnings" or lessons (from various sources and some experienced myself) about foundation problems and/or repairs:

1. If you have brick on the exterior, you might have to do tuckpointing. $$$

2. If you have tiles inside, the tiles will crack. And if they have to drill holes for interior piers, you pretty much will have to replace the entire flooring. $$$$

3. You'll have drywall cracks, so you should factor in drywall repairs and repainting. $$$

4. If the doors were adjusted to a crooked foundation, you might need to readjust or even buy new doors. $$$

5. A hydrostatic plumbing test is recommended to be performed by a licensed plumber post Foundation work. Plumbing leaks may void warranty. Old houses have cast iron pipers that will disintegrate (because of age and/or foundation shift). You'll have to replace all plumbing at that point. $$$$

6. Depending on how bad is the foundation state (how many inches you have to correct), is very possible the sewer line will disconnect/break in the horizontal portions. Repairing that requires tunneling, a repair that could be very expensive. $$$$

7. If the driveway- garage differential is big (for example, the driveway slab is sunken and you need to raise the house, you'll end up with an even bigger gap after repair) you might need to replace the driveway. $$$$

8. If you are dealing with an addition built on 12" beams (or if the original foundation is old and not built to current standards), the repair company might not be able to push the piers down to refusal depth or psi due to the beam not taking the load, thus leveling it, but not guaranteeing it will not continue to move in the future, thus not providing warranty.

9. The owner may be required to provide a structural engineers evaluation prior to warranty work.

10. Read the fine print in the foundation repair contract: Damages to the property, interior and exterior as a result of the foundation movement are not covered, during and after works completion. This usually includes but is not limited to PLUMBING, flooring, landscape, utility lines and masonry. The foundation repair does not cover any repairs that may be needed to the home during and after works completion. And you'll have new cracks in unexpected places, old cracks that will not close, but instead enlarge. My suggestion is to add at least 25% to the cost of the foundation repair as mitigation to the problems that will come from the foundation repair.

11. The foundation repair company salespeople (and even owners, in some case) of structure companies are not engineers and though they may be right most of the time, there will be gaps in their assumptions. Unless it's a small job with an obvious solution, get an engineer ($250) to look at it and sketch up a scope of work for a contractor to do.

12. Many foundation problems have water as a root cause - be that infiltration in a crawl space, drainage around the site, cracked sewer line or water line. Before solving the foundation you might want to get to the root cause of the foundation issue and resolve it, otherwise you might repair the foundation for nothing.

13. If you repair the foundation on only select places, don't be surprised if the other sides will suddenly start "working". If the house is stabilized on one side, you might get cracks in the other side soon after. In other words, if you do a foundation repair, it's better to get the whole house stabilized and the warranty for the whole house.

If anyone has more experience with any of these, please correct me if mistaken.

A rule of thumb for a "quick and dirty" foundation estimate without engaging a foundation contractor...yet.

Take the floor area and divide by 49. Generally piers need to be set 7' apart, so 7x7= 49sf.
Let's say the house is one story @ 1,400sf. 1400/49 = 28.6 or total of 29 Piers.
Now multiply the number if piers by $250. 29x250 = $7,250.
Now add $200 for permit & $400 for Engineer's letter (yes, both of these are required by the City). 200+400 = $600
Total foundation price = $7,850.

In the above scenario, this assumes all piers need to be replaced (this is usually not the case). It does not account for new beams. I do not have a rule of thumb for beam replacement cost, but it's usually another line item on the foundation bid. It should also be noted price per pier cost can vary different from contractor to contractor, from around $200/pier on the low end, to $600/pier on the Retail end.

@Frank S. - if asset protection is the main drive of this, my suggestion is to separate the asset holding entities from the active management entity. And if you also do flipping, you should separate the active income from passive income. 

Which means you should have LLC's (or, since you are in Texas and have the excellent option of, Series LLC) that only hold the assets. Then you have a Property Management LLC that is the public facing, property managing, lease signing, contractor hiring, etc. entity - this entity holds no assets, has only minimal operational capital and a property management contractor with the holding entity. If you want a layer of anonymity, hold the properties in a land trust with the child series LLCs as the beneficiaries.

Separately, if you do flipping, have a Series LLC for that, with each flip in a child Series-LLC and left dormant after sell.

Here is a diagram to help you on your quest: asspro-cya-diagram-v6a-solo-401k

@Brett Lee - do you need an LLC, have you passed your risk threshold? Have you implemented and exhausted all the other ways of risk mitigation before complicating yourself with the expense and requirements of an LLC?

There is a lot more to the LLC question - when to do it, how to do it, current mortgage, proper transfer to preserve title insurance chain, DOS, future financing, management, distribution of properties per entity, insurance, partners, etc. - stuff barely touched in current thread.

Here is a diagram to help you on your quest: asspro-cya-diagram

@Krystle Stephens - if you have or can generate self income, look into Solo 401K - it beats all the other SDIRA alternatives by far. The only negative I know is that you can't roll Roth IRA into the Solo Roth 401K component.

@Kitty Lee @William Gordon - here are some of the questions you might want to ask when selecting an Asset Protection Attorney:
- how many RE investors have you worked with?
- how many were sued and what were the outcomes?
- are you a RE Investor?
- are you working with a preferred CPA?
- how many asset protection structures did you setup?
- how many did you litigated for defense?
- how many successful?
- Ever litigated for plaintiffs (against an asset protection structure)?
- how you ensure my proposed structure is accurate, flexible and relevant, so that aren’t any things that will come down the road and increase my taxation, or possibly hurt overall ability to further engage in business planning?

As for the cost, that depends on too many factors for an easy answer - but I can tell you my opinion: apply the "Asspro rule of 2%" (© Costin 2018) - the cost of setting up and maintaining your asset protection should be less than 2% of equity(!) you are trying to protect. Let's say, it costs you 1.5K to get your structures in place (holding LLC or Series-LLC, with or without land trusts, with or without separate operations LLC) and 0.5K per year (for maintaining the LLC properly, bookkeeping, lawyer and CPA, etc.) for a total of 2K. You should have 100K or more in equity to protect before it makes sense to spend that money - compare that with how much you spend in annual insurance for the same property/equity (on the same FEAR principles, just in case your property might burn down).

@Chaz Moore - "How much time does it take to manage tenants once their in place?" That is inverse proportional with the time you put in screening/placing well qualified tenants, executing and reviewing with them proper lease documents and maintaining properties.

@David Nacco - first make sure to account for the following expenses in your calculations:

1) Mortgage
2) Mortgage insurance (PMI or MIP) or FHA Risk base
3) Property Taxes
4) City Taxes
5) HOA (Home Owner's Association) Dues and Fees and Assessments
6) Insurance
a) Property Hazard Insurance (0.3-0.45%)
b) Flood Insurance
c) Earthquake Insurance
d) Umbrella Insurance
7) Vacancy Rate (usually 8% - the equivalent to one month a year, or 5-6% if multifamily and/or if experienced, if not use 8%)
8) Utilities (you’ll have these if your tenant is not covering them and/or during vacancy)
a) Water § Sewer § Garbage
b) Electricity
c) Natural Gas
d) Propane
9) General Maintenance (usually 5%)
a) Upkeep § Landscaping
b) Snow removal
c) Repairs
d) New Appliances
e) Make ready
10) Capital Expenditures (usually 5%, higher is the property is old and obsolete, less if fully rehabbed and all mechanicals and roof are new)
11) Property Management (8%, even if you self manage, your time still has value and there might be a time when you'll want to be completely hands off or you'll not be able to do it, vacation, retirement, etc.), including...
a) Office Supplies (e.g. stamps, envelopes)
b) Software
c) Gas/Mileage
d) Advertising + Payroll
e) Concessions
f) Lease loss
g) Lease renewal fees
12) Lawyer/Law office/Legal fees
13) Accounting/Bookkeeping/CPA/Tax preparer/Tax advisor

Second, like you said it depends on the property, if older you'll need larger reserves. Therefore maintain a spreadsheet with the lifetime expectancy and incoming likely replacements and make sure you have that covered. You don't need to replace working mechanicals at their expected lifetime term, but you better have the reserves placed aside after as they can fail at any moment after.

The "set minimum" depends on the state of the property and expected repairs. A cheap Class C or D property might still require expensive repairs (like replacing the roof or water heater might cost as much as on a B property) so using a percentage of rent for it it might not be wise and reflect reality. 

You can keep the reserves all in same place if you don't want to complicate yourself with different bank accounts - just use software to track the expenses and reserves per each property so that you know at any time with ease how much you have incoming and outgoing and reserves for each one.

Once you have several properties, you can relax a bit the reserve contributions. For example, for the first 3-5 properties you set aside the "full" reserves amount. For the next 3-5 properties you can set only 75%-85% of the full amount required. And from 10 and up, you can set only 50%-60% - all predicated on the idea that hopefully will not all break loose at the same time. Again, if you maintain that spreadsheet, you should be able to forecast the reserves flow against the expected repairs/replacements flow and prepare accordingly. Again, you don't need to replace working mechanicals at their expected lifetime term, but you better have the reserves placed aside after as they can fail at any moment after. You can have several "good" years when nothing happens, followed by a year with 3 HVAC failures requiring replacement, 2 long vacancies + 2 serious make ready that will suck all the reserves and cashflow and push you into trouble if not careful.

And last, I suggest you run regularly a "stress test" on your portfolio - what happens if you have X amount of vacancy at the same time, accumulated with Y of roofs replacements or HVACs in the same period? Will you have enough reserves to weather Z months of no rent incoming, covering debt payments and other expenses? What will be the breaking point in different scenarios?

@Jacob Sugar - do you know how you cross a desert? One step at a time.

You are asking too many loaded questions in one post. 

1. Here is the answer to your first one:

• LLC Distribution
  
  You should look into Series-LLC and see if that's an option for you - then you don't need to worry about this question, as you can place a property in its own children Series-LLC that you can form when needed.
  
  As for distribution, you can have one or more per LLC, and that depends on multiple factors:
  
  - property class - you might not want to mix A class property with a D class property in the same LLC, due to different tenant level
  
  - cash flow - you might want to keep your cash flow cow separate from the ones that barely produce
  
  - equity - you might want to keep the one with large equity in its own LLC while you can group the ones with little equity in another LLC (let's say you have one with 50K equity in its own LLC and 3 other each with only 10K in another LLC, till their equity grows to your risk threshold when you move them out in their own LLC).
  
  - number of units (in the case of MF)
  
  - location of real estate
  
  The investor has to decide what mix is optimal for their situation.
  
  

You should also look into these threads:

how-many-properties-do-you-have-in-your-llc


separate-llc-vs-one-llc

break-portfolio-into-mltiple-llcs

llc-for-each-individual-rental-property

But before answering the "per LLC distribution" question you should ask yourself "do you need an LLC?" - in most cases, as a new investor you should concentrate on accumulating the wealth worth protecting first and answer that question later.

2. Here is a short answer to your 2nd question: Get a line of credit, not a home equity loan. Read David Green BRRRR book.

3. General advice for taking the leap?

My favorite: "Ignorance is bliss. Knowledge is power, but also a burden, leading to analysis paralysis. The cure for both: action, progress(ion), not perfection."


Want more general advice to answer a general question?

MOTIVATION

Know why you're doing everything you're doing.. AKA Know your WHY..

Good things may come to those who wait, but only the things left by those who hustle.. -Abraham Lincoln (?)

Some people want it to happen.. Some wish it would happen.. Others make it happen.- Michael Jordan

"Things don't happen to you, they happen because of you."- Grant Cardone.

The only way things will change for you is if YOU change !

"Fortune Favors The Bold."

YOUR NETWORTH IS YOUR NETWORK

The richest people in the world look for and build networks.. Everyone else looks for a job.

You are the average of the 5 people you spend the most time with.. If you want to elevate your life, improve on who you spend most of your time with.

"If you are the smartest one in the room, you are in the wrong room."

"People don't care what you think until they know how much you care."

"50 percent of a deal is better than 100 percent of no deal."

ACTION, PROGRESS, NOT PERFECTION

"The best time to start was yesterday.. The next best time is now."

"You should have started many years earlier."

To Avoid Criticism: Say Nothing, Do Nothing, Be Nothing + You miss 100% of the shots you never take.

"Learn to forgive yourself for the things you didn't know before you knew them."

Don’t wish it was easier .... wish you were better! + "If it was easy, everyone would do it."

"On paper every strategy is easy, in the real world every strategy is hard"

"What you know is your greatest wealth... What you don't know is your greatest risk... There is always risk, so learn to manage risk instead of avoiding it"

“Action beats preparation, and over preparation is the Achilles heel to success”.. + Luck is what happens when preparation meets opportunity... + The harder you work the luckier you get!

LONG TERM VISION & DELAYED GRATIFICATION

I skate to where the puck is going to be, not where it has been.. - Wayne Gretzky

The day you plant the seed is not the day you get the fruit.

Discipline is choosing between what you want now, and what you want most.. - Abraham Lincoln

Discipline equals freedom - Jocko Willink

BUYING and SELLING

When’s the best time to plant a tree? 25 years ago... When’s the second best time? Today!

Don't wait to buy real estate, buy real estate and wait.

"Buy at the funeral, sell at the wedding" + When investing, pessimism is your friend, euphoria the enemy... - Warren Buffett

"Fearful when others are greedy and greedy when others are fearful" - Warren Buffet

The Best time to buy real estate is NOW... The Best Time to sell real estate is NEVER.

"Never ever sell real estate.. Ever.. [but never say never, so...] Unless it's to buy better real estate"

You make your money when you buy a deal.

Know when to walk away - the numbers don't lie! + If it’s not a Heck Yeah, then it’s a No! (keeps me from jumping in on so-so deals/properties/etc)

This holds especially true when starting out: The best deal you can do is the one you decide to walk away from.

First three rules of real estate investing: location, location, location.. + Location: the only thing about a house you can't change.

If your offer has a bunch of zeroes in it, it will be shot down like the balloon it appears to be.. Make it at least appear like you did a detailed analysis.

It’s not the quantity that matters it’s the quality! And due diligence for the latest deal is more important than the deal itself!

FAILURES / MISTAKES

Over-improving rentals and replacing things too soon (I like nice things – but my rentals don’t need them!).

Failure to properly vet contractors.

Failure to conduct proper background checks on tenants.

Two quickest ways to lose money in real estate:

- Overpay for a crappy property

- Overpay for an awesome property

"A rising tide lifts all boats... You can't tell who's lucky and who's good, unless you watch what happens when the tide is receding."

BUSINESS

Being an entrepreneur and starting up a business is like diving off a cliff and building an airplane on the way down.

"Look at dollars, not dimes" --- in reference to spending money/paying fees to grow

Identify what you do best, and hire the rest.. [Do your best, forget the rest]

"Learn to work on your business, not in your business"

Don’t do business with people you can’t sue” ..... different way of saying “don’t do business with friends and family”.

"Sophisticated investors get 12% at least... Average range of stable returns are 12-20%...once you fall below that, you reposition/sell/refi."

"ABC...... Always Be Closing"

“Speak softly, and carry a big portfolio!”

After Years of Real Estate Investing, THIS is What I Regret or Would Do Differently

0.. I Regret Not Starting My Real Estate Business Earlier

0.. I Regret Not Delegating Tasks Sooner

0.. I Regret Not Using Leverage in a Bigger Way

1.. Seek OPK (Other People’s Knowledge) sooner.

2.. Get serious about investing in real estate sooner.

3.. Let go of wrong assumptions.

4.. Learn more about the possibilities.

5.. Be wary of the naysayers.

6.. Surround myself with positive people, doing positive things with their lives, for the right reasons.

7.. Trust in God, trust in yourself, and trust in your partner more (your life and business partner).

8.. Create a strong team and delegate more.

9.. Review and reflect more often.

Nothing is impossible, the word itself says "I'm possible"

"Stop talking and just go make some offers... There's saying and then there's doing.. Luck takes action!"

• The next REACH Mastermind session will be Saturday August 17th 10am-12pm at Amplify Credit Union | Esperanza Crossing (next ones 9/21, 10/19, 11/16).
  
  
Please come prepared to share the following:

• Introductions — Each member will introduce themselves to the group and share their goals for the immediate and long term future. The purpose here is not to go into too much detail or probe, but simply have that accountability of vocalizing out loud what you are committing to. [Going forward, this section will be replaced with a “Recap”]. Also, if you desire:
  • Something that is working well for them.
    
• Something that they would like help with.
• A resource (website, app, service, blog post) to share with the group.
• Hot Seat — A chosen member will share details about their situation, and any problems or questions that they have can arise during this time. The other members of the group then have the opportunity to provide specific help and advice to this individual.
• Goal Setting — each member will go around and briefly state their goals for the next meeting.
  
Hot Seat Selection — The next person to become the “hot seat” is selected, so they can come prepared with questions or concerns to bring before the group.

 
• PS. Please remember to park at TopGolf parking area and leave Amplify parking available for their customers.

Topic for August: "How to ask for Money" - a borrower topic.

One of the hardest parts of being a private borrower is asking for money. For many of us, we have never learned how to ask. It is embarrassing. What if they say no? What if they steal my deal? What if they tell me my deal is no good? Is my deal good? Am I good enough? The best way past all these doubts is to be prepared, and to know what to say. Bill Crider has asked for money dozens of times, and been asked for money many dozens of times. He will share with you how to prepare, what to say, and how to get the money you need for your deals!