All Forum Posts by: Emma Powell

I can say that this podcast has also changed my life, giving me a much wider platform and credibility to grow my business. I've met so many new people, and the biggest deal I did last year was funded by partners I met after my episode was published, so I'm serious when I say the network from connecting guests with listeners is huge! Thank you to Brandon for dedicating so much of your life to helping us build our businesses: it truly is a team sport

It’s called infinite banking. Rabbit hole!

BTW, you only need one. All he rest of my properties have mortgages so I enjoy the predictable cash flow and low fixed interest. We have two just to keep business and personal cash flow highly separated. The HELOC is like a checking account, or a business sweep account. Then we use life insurance as a savings account, but that's another post!

We have a 90% HELOC on our primary home with no mortgage, and an 80% HELOC on one rental home with no mortgage. Love the strategy. We deposit all our income into it to keep the daily balance low, and pay all our bills out of it once a month the days before we deposit more income. Costs nothing if you don't use it, why not get it? Ours are maxed out, we reuse the equity over and over to keep investing in more stuff! Cheapest money you'll ever get other than 0% credit cards. Which is a great way to pay bills and then pay off the card from the HELOC periodically.

Great questions, and a great way to learn more is by looking at and actually planning out how to buy actual assets, even if you end up passing on them.

For your questions:

* I do have a down payment for a property this size, but I'm fuzzy on the exact percentage the bank is going to expect. Is it 20 or 25% down?

It depends on the lender and the property, you'll see in the 65-85% LTV range, with 70-75% being most common. Just start collecting lender quotes, or get one broker who can shop a lot of lenders.

* How many months worth of expenses do I need to tack onto that to make my numbers work?

Plan on 12 months of principal and interest in cash reserves. A Fannie/Freddie loan will actually take this cash and put it in escrow. You won't be able to get a loan like that as a first-timer, you'll need a partner who has done that loan before and then sign on it with them. For bridge/private/bank loans, they'll want to see net worth of at least the amount of the loan and liquidity as 10% of that loan amount. For conservative underwriting, working capital of at least $1,000 per unit unless the complex is really large, is a good starting point. You'll need to pay for your own construction on a Fannie/Freddie loan, or with  a construction/bridge/hard money loan you'll pay up front then get reimbursed for the construction costs

* Is there anything like a pre-qualification phase like there is with a residential mortgage?

You can get a letter from a lender to show to the seller/broker to help your offer. But there's no seasoning of funds on commercial loans. They're private and less regulated, so you'll see more variety in terms, however.

* For the more experienced among you, what is an instant deal breaker even if everything looks good on paper?

If the numbers are good, I'll go through a lot to make a deal work! Deal breaker is if I'm not able to raise capital or find someone who can sign on a loan if I don't have the net worth or cash myself. Another one is if the building inspection throws my numbers with unexpected repairs and seller refuses to retrade after not disclosing those issues up front. I also don't like rigid sellers who will not work with me to get reasonable extensions for lending and capital raising: I want them to be in it with me rather than itching to move onto the next buyer. If the purchase and sale agreement PSA is really seller-sided, that gives me pause. No warranties, low liability limits, rigid timelines, no extensions pre-negotiated, hard EMD up front for an older building I haven't vetted yet that they won't disclose on, stuff like that.

* If I identify a possible deal, is it bad form to reach out to the property manager directly and ask about the property's pain points?

The broker will get all this info for you, or if direct to seller, you just ask first. If the PM doesn't know it's for sale, you could be in hot water with the seller.

* Are there any regulatory burdens I need to be aware of for properties of this size?

All I can think of is fair housing and state tenant laws like evictions, support animals, etc. Know the laws! In Landlord friendly states, it's pretty easy

* What tips do you have for building a team and systematizing stuff.

Systems is just a word that makes a to-do list sound fancier than it really is. Create to-do lists, and you'll start to see patterns. Make those into standard operating procedure SOP lists. You'll be building spreadsheets and lists as you go along. Don't over-systematize before you know what you're doing, you'll likely change it anyway as you learn, and don't get too rigid where you can't be creative in solving problems. If you're disorganized, get some help with an executive assistant VA or intern; if you're a compulsive checklister, remember that things are always changing, so build in some flexibility.

* Where do I go other than LoopNet to shop for apartment buildings?

Crexi, contact all the brokers you find on those sites. Direct to seller for buildings this size by doing skip trace searches to track down LLC owners and contacting them or their attorneys, calling on hand made for rent signs is usually an owner. Larger properties the best source is brokers. For me, what's worked best is hanging out in places where owners hang out like REIA, conferences, so when they're selling I get first look.

Depends on why you can't get the loan. Commercial loans are typically easier to get even for foreign nationals, self employed, or retired people.

One option is to go bigger and bring in a partner to sign on loans: this is called a Key Partner (KP), or sometimes a deal/loan sponsor. You can both sign on the loan to get more experience and credibility with lenders. We did this  on our first commercial property by bringing in a KP and signing together for the resume builder.

You'll be able to scale faster with leverage, and enjoy the benefits of commercial real estate while spreading out the workload to the team. As the capital partner, it's usually a lot less work.

You can also just come in as a joint venture partner or general partner in a syndication for a deal that already has everything it needs except the cash. You'll have voting and control, but may not have to do much or any work other than making major decisions. It's like a "pay to play" model. I have several deals like this for high and mid net worth individuals, and it's my preferred way to buy large properties.

Look into refinancing your residential property portfolio with a commercial lender who lends directly to your LLC w/o looking at personal finances. One we've used for this is RCN Capital. This will free up capital and get commercial lender experience.

Commercial loans don't care about your W2 income, debt to income ratio, etc. They will typically ask for:

1. Personal Financial Statement (PFS). Lists all income, assets including personal and business, liabilities, investment values, and real estate owned (REO). They are looking for your NET WORTH and LIQUIDITY to see if you qualify. I keep mine up every time I apply for a loan, dated, and try to add new assets etc as I buy or sell

2. Experience resume/bio: includes REO, background, basically your chance to show why you think you deserve the loan

3. Credit score and history: maintain good credit

4. Bank Statements to verify liquidity, tax returns to show income

5. If you need a co-sponsor for any reason, they will need all of this from everyone signing on the loan

Commercial loans are easier to get than residential, and are a big reason we decided to go commercial fast because we want to retire early

Mel, each state will have a state construction registry if you search for preliminary notice lien it should show up. I’d call in to find someone to help you, then you can likely find it online thereafter. Also ask the contractor to inform you or provide if they have it  Don’t push, it’s better for you if they don’t file, but I prefer working with professionals who file and understand this stuff. They tend to be more responsible. The SCR can give you guidance as a customer as well to understand your rights 

Also look up construction management, a term and job that is more owner than contractor friendly, and research best practices

I did episode 408 last October. We didn’t talk much about this topic, but it did come up on the Deep Dive with a painter that messed with me, and again with a contractor I fired and hired a future tenant to complete. Last ditch solution but it got done. Another instance I’ve not talked about in interviews was an electrician who scammed us on our Texas remodel house that started this journey. We didn’t pay him until work was completed, so not out any cash, just cost us time until we figured out what was going on

it happens. Learn from others, learn from mistakes, carry on. We’ve profited wildly even on the projects where we had shoddy subs. We’ve GC’ed a few smaller jobs to learn as well, invaluable 

Even with a contractor shortage, I'm quite firm that I never pay anyone for work not completed. They start w/o a deposit even, and those who refuse I don't hire. If we have a relationship, we can negotiate a deposit on future jobs. I pay for the demo/prep when complete so they can pay their guys, and if it's not enough to also cover materials I buy those myself.

Scope of work is never very detailed, so I have them take photos of work to be done to include: that goes over better than written descriptions. Each stage has an amount and date tied to it where they get paid. They are always asking to get paid early or up front or more deposits etc. Be firm, stick to the written and signed scope!

If I fire them, they're only paid for what's been done, so moving on is easy. I have them sign a release of lien before handing them a check, so I get my paper, they get their paper. You must protect yourself from a mechanic's lien on the property, so find out if he filed notice before construction started. Otherwise, in most areas, he can't lien it afterward, but double check. I've had contractors threaten to put a lien on a property only to find out they never filed notification in the first place.

For the permit to be changed, that's totally dependent on the city.

To save this one, if you're happy with the work he does eventually do, you need to reset the ground rules, express your dissatisfaction and ask his suggestions on how to fix it. You'll likely get a lot of excuses and details on why this or that went wrong. Focus on the bigger picture, focus on the pattern.

Work with your city to be able to get someone new on permits, and do not pay him out until work is completed and release signed. Contractors often get burned and don't get paid, so I make sure I pay them a little along the way so they don't feel they'll be on the hook either.

Hope you find some resolution on this! It'll be tough to get out of due to the permits and paying up front, but the lessons you've learned will save you thousands in the future!

I have NEVER had someone refuse a background check! I have had someone yell at me that his tiny dog didn't need a pet fee or deposit: if someone shows me that side of himself on the screening call, I am done. If they refused background check, I would be done. I am always polite, respectful, follow the law, and follow industry norms. When people disrespect me or refuse to follow simple industry standards, I move on. I have six kids, I don't need more by tenants who act like kids! I only buy rentals in place with competition for units, so I feel fine moving on to the next applicant.