All Forum Posts by: Edward Liu

This does not sound like the right thing to do with your money, at least not very clear of benefit.  

When you sell a property, at close, closing agent will pay off the mortgage as part of the close.  Rest of the proceeds go to 1031 intermediate entity.  (I just sold a building last week and proceeds are in 1031 exchange).  When you purchase other properties and needs distribution, you need to request the money.

If you pay off loan first, then you have much more proceeds locked into 1031.  There is no additional benefit for all these cash to sit there.  You might as well keep your cash in your own bank and do whatever you want with the money. 

You can be sued whether you pay off mortgage or not.  The key is how to best protect your earned assets.  You need to structure it correctly if lots of rentals.

If you hold properties in your own name, then get umbrella liability insurance (worth your net worth) in addition to the normal insurance. If you hold properties in LLC, then get commercial liability insurance for the LLC. If you have lot of value in properties, then divide into many LLCs. Worst case is somebody sue, you lose, and you lose everything in one LLC. Everything else is protected.

Extra bedroom value truly is location dependent. Where I live in CA, extra bedroom adds nearly $300-500k, extra bedroom+bathroom could add $500-$750k to a SFH. About half of people we know who live here, they have added at least 1 bedroom and 1 bathroom over the last 5 years. No formula

If you purchase 5 or more units in a multiplex, then loan must be commercial. You do not have a choice. The credit score is not as important, as commercial loans evaluate the property to see if it can maintain loan payment on its own and be profitable under normal conditions. Usually we purchase these larger multiplex using LLC, not in personal name due to liability. Your credit score will help - Lenders don't want to lend to owners with history of bad debt, etc.

I agree with other comments that do some self learning first.  Plenty of resources around.

Normally we give revised offer to seller with lower price to take into account the additional issues found.  If seller refuse to accept the revised offer or you two can not reach a deal, then you are out of luck.  Simply walk away and move on.  Your inspection cost and time spent is a sunken cost of doing business.  Bright side is you walk away from a bad deal.

You should do some simple deals (use property management to manage for you), get feet wet, and understand what it takes first.  Then consider partner up or even buy larger multi-plex yourself.  I would caution to jump into partnership as somebody could take you on a wild ride.  

One property manager who manage a building for me shared stories about how he got into partnership long time ago (when he first got started) and it was the worst deal he has ever made.  He lost money and could not get out of partnership without huge losses for nearly 10 years.  He told me he would have never got into that deal if he had know more about the business.  

If you have a lot of cash, people will come and pitch can't lose deals to you (happens to lottery winners a lot).  There are no easy and care free deals.

My wife and I have busy schedules, similar to you. We have not done a single BRRR, but our net income from all real estate investments is quite high. BRRR does not seem to be right fit for what you describe. Just buy and hold in B to A- areas with 1% rent rule. Don't be fancy and greedy.

If neighborhood has lots of section 8 tenants, then likely it is not a good neighborhood.  Think twice before you buy into the area - make sure you fully understand what you are getting into and your plan to get out.  

I literally just sold (deal closed today) a 30-unit building (85% of tenants are section 8 or other subsidies).  The building barely had positive cash flow due to issues with collecting tenant portion of the rent (section 8 don't pay 100%), high eviction rate, high maintenance associated with tenants damage units, and high maintenance caused by constant inspection findings.  However, I nearly doubled my investment in 2 years of holding this building.  The key is area surrounding the building is going through major development.  I brought the building in this bad area knowing new developments was planned around it - so I have the way out.  I can hold it on and wait for more appreciation, but building was more trouble than it is worth and decided to let new buyer take the risk.  The new buyer will put addition $500k on top of the purchase price to 'upgrade' the building to attract higher income tenants and hold the building for 5-10 years minimal.  Again, this new buyer has a plan to get out.

Another key to section 8 is the city.  Owner experience is completely different by city.  In the city where I just sold the 30-unit, the inspections were extremely tough - seems they must write down at least 3-5 finds every inspection.  All issues seems to blame the owner and must be fixed within 30 days.    In another city where I have section 8 units, not a single finding in 2+ years.  Before you buy, check city's section 8 reputation by talking with other owners.  It makes a huge difference.

Sounds like you need better accounting software to track them.  We use QuickBooks and use a different 'class' to identify each building we own.  It does take time to entered all the expenses (any payment) correctly associated with each building, but it is necessary for end of year reporting.  You need such detail breakdown to file taxes anyway.  If you don't own too many buildings, then some other financial software could work also.

Never trust what is in the listing unless seller can provide proof of successful short term rental over at least a year period.  This deal does not meet the 1% rule, so stay away as you will likely be cash negative.