All Forum Posts by: Steve L.

In my opinion it is much smarter to get your first loans personally.  

You need less down, 95% of lenders can accommodate you.  

After you have 10 mortgages look for a commercial lender.  You can see if the lender will do a loan to your trust if you don't want it in your personal name.  Conventional lenders will not loan to businesses.  

After you own 10+ rental properties, look at commercial lenders.  They will loan to your business.  The rules and language is completely different.  Typically commercial loans are more expensive, more down, more experience required, shorter terms (5 to 10 year balloon) but maybe more flexible.  

This questions comes up all the time.  

A small hands-on owner operator who owns houses can destroy the 50% rule.  Especially in a higher rent market (say above $1,200/month per house).  Whereas; if you own a 10-unit apartment with each unit getting $400 per month you are going to struggle to get under 50%.  

Expenses also come in waves: you will have a property occupied for 6 years.  0 vacancy, minimal repairs, and no capital expenses.  When the tenant moves out you will have 1-3 months vacancy and probably 2-3k in repairs minimum.  Over 6 years that is great, but in year 6 you have 20% repair expense and 8-24% vacancy expense.  

Management generally counts for 10% of the 50% rule. So to start off if you are willing to self-manage I think you should use 40% (depending on your market and the property).

After you own a handful you should have a good feeling of what the expenses really are and what amount of profit makes it worth it for you.  

@Ben Bakhshi we have the same setup.  Four LLCs that hold long-term properties and a Corp that holds flips.  We switched to Quickbooks Online.

It has a feature that allows you to classify transactions to a business and class.  So we set each llc up as a business and each property up as a class.  It works pretty good.

You could also look at AppFolio.  They support way more accounting versus Buildium.  Good luck.

@Ben Bakhshi Buildium does not have anything closed to a usable full fledged accounting system.  Maybe if you are a property manager and want to track minor per property expenses, but nothing beyond that.

I am a long-time Buildium customer.  I think it is okay.  I have a couple similar complains to Julie.  I just wish they would integrate with QuickBooks Online.  That would save us so much time.

Appfolio I think is worth looking at and seems better than PropertyWare to me.  

If you plan to really grow past 10 properties, you will have to eventually go with commercial bank financing.  They all calculate what is called a Debt Service Coverage Ratio on your portfolio and right now most banks want to see at least 1.25.  If you have lots of properties financed over 15 years you will probably not meet the debt service requirement. 

You are better off to finance over 30 years and make additional principal payments if you would like.  The higher rate and actual interest cost is not that much more.

What about if you buy a great deal and can borrow 100% of the money, but need to pay 18% interest and in 6 months you can refinance to 5% interest making it a cash cow.  

What if it is a property that currently gets $1,000/month in rent, but you can get $5,000/month in rent.  

What if you have tons of positive cash flow and amortizing a property over 12 months versus 30 years.  I have a friend who pays his newly acquired properties down at $10,000/month until they are free and clear.  

What if it is a single family house that comes with 10-acres in the path of progress?

I can think of a lot of exceptions on why you would buy a property that doesn't cash flow.  Just like I can think of a lot of properties that I wouldn't accept if someone gave them to me for free.  

Never say never!

The great thing about Southern California is there is tons and tons of properties and that makes for lots of Sellers to structure deals with.  

I just bought an 8-unit for 180k in Inland Empire rents should be $4,500-$5,000.  The previous owner was collecting $800/month from ALL the units.  

At the same time, I am buying a decent single family house for $190,000 to rent.  Only get $1,500/month in rent but the owner is financing the whole purchase at 3.5%.  

To make Southern California work you have to know what is a deal and how to look for them.  It has changed a couple times during my time in the business and will change again but money is to be made.  

This answer makes no sense to me.

• A "good flipper" has to pay the highest tax bracket every year.
• A "good flipper" cannot sustain the market cycles the same way a more balanced business can.
• If the goal is passive income to retire, why not start with that goal in mind in year 1-2 and benefit from inflation, fixed interest rate debt, tax benefits and what you really like versus waiting 20 or 30 years for that.  

From my perspective, the best way to create wealth in real estate is a mixed model.  Flip/wholesale some properties to generate cash and hold some properties/notes for the long-term.  Banks like landlords way better than flippers.  

My rental business has become way bigger than my flipping business (on purpose), but it took 5 years for the profits of it to rival the profits from my flipping business.  In 2014, we are on track to collect over 2 million in gross rents.  The great thing is both businesses together allow you to afford infrastructure and systems for landlording to be more passive.  

Do any appraisers know if you can use the subject as a comparable?  My father-in-law is refinancing a property he purchased in April.  The appraiser used his purchase and purchase price as the number one comp.  I have never seen this done before?  Do any appraisers know if you can do this?