All Forum Posts by: Daniel Krueger

A credit score is a lagging indicator. My credit score remained depressed LONG after my days of over-using credit cards in college. I put most of my focus on the income (make sure it's verifiable). I also like to see a stable job. For example, if an applicant has decent income, but just started their job a couple months ago, I would want to make sure they had a stable employment history before that. If they have sufficient income and a clean rental history, I can ignore a less than ideal credit score. 

It really depends on the economics of the deal. Personally, I always do a 20% down commercial loan on my apartments. But, that's because they will cash flow with that amount of debt service. A lot of lenders may require a larger amount down these days. Also, my bank will use a 1.3 debt coverage ratio in their underwriting. So, they will only loan an amount that keeps the DCR (Debt Service/NOI=DCR) at 1.3 or above.

First off, I love apartments. So, I will skip the usual comment that suggests you should focus on multi-family, even though that's how I feel. :) With that said, it's a tight market since we've been in a strong up market for many years. I typically need to underwrite about 50 deals before I find one that is worth making an offer on. Real estate is hot, and everyone wants in. That means, the competition is willing to take a lower return. Other investors make be putting more down, lowering their debt service, and making cash flow that way. Finding those really good deals takes work. But, it's a numbers game. I would recommend spending your time networking with more brokers, as well as hitting the pavement to contact sellers directly. If you fill up your pipeline with potential deal leads, it's only a matter of time before you find solid deals. Stay consistent and you'll be successful. 

I just joined the MREE (Minnesota Real Estate Exchangers). It's a good group with people who are very active. I have 34 units and feel like I am one of the smaller investors in the room. They meet twice per month in Bloomington. 

Most people calculate ROI just like the Internal Rate of Return (IRR). You calculate your total cash outflows and inflows over the hold period. ROI is a more comprehensive calculation for the total return of an investment.

Hope that helps.

Typically they want some kind of deposit up front. I would recommend vetting your contractors well, or get referred to contractors from your network. It's not uncommon for contractors to take off with your initial payment for a bigger and better job. It's unfortunate, but in this market they can usually get away with this since there is more work to be done than there are contractors. 

The first system you need to nail down is tenant screening. If you screen for quality tenants that should solve your late rent problem. I recommend taking longer to lease a unit so that you can properly vet applicants. When you are new, you are very motivated to just shove the first applicant you get in the unit so you can say it's leased. In reality, it's much cheaper to let a unit sit vacant for a few weeks while you find a good applicant than it is to shove an unqualified tenant in. The process of getting bad people out is long and expensive. So, take your time and perform full background checks, verify employment, check references, and make sure they don't have previous evictions. 

After you get good tenants in place, get a 2nd phone (cheap pre-paid) or a google voice phone number to handle your maintenance requests. That will keep the property management from taking over your personal life. 

I personally vertically integrated by business by starting my own property management company to manage all my apartment buildings. Once you have enough units, you can do this too. Hire a professional property manager as an employee, or use a 3rd party company if you prefer. That will provide a good experience for the tenants, and give you your life back.

I think this all depends on the individual. If you are extremely confident in your skill sets I think it can be a good idea. Personally, I did this and it definitely worked out well. It worked out well for me for a few reasons: 

1. I come from a finance background and was able to thoroughly analyze the risk reward of all my options (including retaining my 401K)

2. In addition to having a finance background, I spent about 1 year studying real estate specific content.

3. I spent the better part of a year networking and developing a rock star team to help me achieve my goals. 

4. The numbers made sense. Meaning, the profits produced by the deal I was underwriting compensated for the taxes and fees associated with liquidating the 401k. 

If you are not 100% confident in yourself, or your deal. Wait and do more due diligence. When in doubt, a CPA will be a great person to discuss this decision with. Especially if you lack the finance acumen to properly analyze the situation. 

@Chris Marte

If you’ve never done a deal before most brokers won’t want to waste their time working with you. There’s a ton of newbies out there that like the idea of investing but won’t pull the trigger and close.

So, you’ve got to convince them that you’re a closer and not just a tire kicker. After you’ve got a deal under your belt that won’t be an issue.

I always create a separate LLC for each deal I do. So, nothing is in my personal name.