All Forum Posts by: Evan Polaski

@Charles Granroth

I would first define what you are trying to achieve, and then take a hard look at your current situation (both time and financial) and personal strengths.

While I agree with Nicholas's list, the networking you do if you want to be buying industrial buildings is different than learning how to flip a house.  

@David Greenberg

To phrase part of Brian's comment another way: investing in most syndications is like getting a standard mortgage on your primary residence.  You can have anyone you want read the mortgage, but at the end of the day, if you want the Fannie/Freddie's money, you have to sign as is.

So, while a securities attorney can be valuable, it is not the only person I would lean on.  If you have anyone in your network that is familiar with private placement investing, they may be able to offer some insights on items you may not realize you are signing.  

Additional Capital Calls is a fairly common occurrence for many 2021/2022 multifamily deals these days.  Understanding what happens to your initial investment should an additional capital call come is pretty topical today.  Some have onerous terms, like failure to fund is a default on the entire investment.  Others simply dilute your initial investment.

There is a topic in the Review forums that one syndicator had conversion rights on their offering, which, per the comments many people didn't know was a term.

The list goes on and on, depending on your current level of understanding and the things you are seeking help on. And, as Brian notes, this can get very expensive, very quickly.

@Sean Anderson

Your two options are make more money: second job, find a new higher paying job, consulting work, contract work, etc.  Cut personal expenses: move into a tiny apartment to save money while renting your property, stop eating out, eat ramen, cut the gym membership and netflix, etc.  Save as much as possible for next down payment and build income to qualify for more.

Or, find a partner. You do work, they bring money. For this, network are meetups, REIA groups, etc. It isn't easy, but not impossible. Build that network, keep hunting for deals and as you see some share them with people in those networks that might be interested in partnering with you. You need to bring something of value to them in this deal.

Or, if you have created a lot of equity in your current property, sell it and "Scale" by getting a bigger property. These are all investments, so the goal is the maximize your return. If the current property is only creating a 7% annualized return, from its current state forward based on rents and the modest appreciation that may happen, and you can sell to redeploy into a deal that needs some work but you can get a 20% ROI on a rehab, then it could be worth it to sell and chase the higher return. (Caveat: I did not discuss tax implications, which are real and need to be factored in).

@Khursten Cornwall

Personally, I agree with your thoughts on buy with HELOC and refi, but there are several factors at play.

Like you said, I like to keep my HELOC capacity for short term investments given its variable rate, or worst case a major unexpected capital need for me or my family (not to be confused with keeping in savings).

The major factor I would look at is: are you actually increasing the value of the new property with your work. For instance, buy property for $200k. Spend $30k improving it. All paid for with HELOC. Second home/vacation home loans are typically 75% LTV. So your $30k of work needs to add over $70k of value (appraised value should be north of $310k), in my example, for the new loan to pay off your entire HELOC.

Second, with mortgage rates today around 7%, assuming an amortizing loan, your rents will need to be fairly large to actually cover the new mortgage payment. The one upside of a HELOC: even though it is variable rate, it is interest only, keeping your monthly payments lower. And, it may also be a lower rate (today, at least) than a long-term fixed rate mortgage.

What you are ultimately looking at doing is a BRRRR model. There is an entire sub-forum on Bigger Pockets about this. https://www.biggerpockets.com/forums/853

@Jason DiDonato

I would call a few real estate agents, preferably those that focus on commercial properties in your area, to give you a stabilized ARV. While I think you know this, these are clearly just estimates based on each persons general opinions, given today's market conditions.

Hop on LoopNet, find a few agents that are listing properties in the area, and give them a call.  I would expect to pay for their services, but it will at least get you a decent idea, and I would imagine a BOP won't cost you much.

@Jason DiDonato, are you trying to figure out your cap rate or a market cap rate?  

As noted, you paid a price for the property (value). You have an in-place NOI. NOI/Value=Cap Rate.

If you are looking for a market cap rate, that can be trickier to determine without many market transactions available, and even then you likely don't know the true NOI unless you saw the seller's financials.

Why are you wanting the cap rate now?  If you already own the property, it is done.  And the market cap rate changes.  In 2021, cap rates were super low because financing rates were low and there was a ton of demand for all sorts of real estate.  Today, cap rates are much higher because of fears of recession, uncertainty with just about every aspect of life, and interest rates being higher the recent memory.  

I would argue that cap rate, in most real world transactions, is one step short of meaningless.  

@Justin Springborn

1. Are you crazy?  No.  But you may not be able to force your tenant to pay a certain way, so you should confirm what is legal before pushing too hard in any one direction.  In my experience, if you are in a pretty decent area, this is not an issue.  Only ever had one tenant, ever, skip last month's rent telling me to apply security deposit.

2. I am down to a single rental unit now, but used to have about 10.  I am a big fan of Zillow for leasing and rent payment.  I can't force it, but when I had only market rate tenants with professional jobs, it made everything easier.  I would do an open house for showings, email application link right then, if they were interested, and then could setup lease and payments all through the same system.  

You get your full rent each month.  Tenant has ACH or Credit card payment options.  If they choose credit card, they pay the fees, so you still get full rent. Only downside is while you get a notice that rent was paid in full on first (assuming it was, and notified if there was an issue), if they use ACH rents don't show in your bank account until 6-7th of each month.

@Sahil Tadwalkar, as others noted, it is very hard to assess flips/rehabs in a percentage base.

I.e. my wife and I bought a house for $150k and sold for $495k. So, that would be 1/3 of ARV. But to get to that ARV, we spent something like $240k in renovations. Current flip, paid $200k, anticipate selling for about $450-500k. But renovation cost is looking to be about $150k.

I think you are confusing the rule of thumb that many use to at least ballpark flips, and filter out the really bad ones: Purchase Price + Renovation Cost = X% of ARV

A couple items of note: for simple math, subtract 10% from your sale price for cost to sell, as others noted. Also, I personally, regardless of percentages, don't want to work for less than $50k profit. Given your price points in San Jose, this likely isn't an issue, given $50k is only 5% of $1,000,000. But I would be sure to think of it both ways: actual dollar amount profit potential, to make sure you are valuing your time and energy, and ROI, assuming you have multiple opportunities to pursue at any given time.

@Brian Smith, I would look beyond just the taxes.  Without diving into too many scenarios, ultimately, it comes down to reinvestment opportunities.  Simple math: if you sell for $320k and have two more of effectively the same flip available the next day, I would say you are better eating the taxes to effectively double your money again in 3 more months.  

A couple notes on holding: yes being owner occupant for 2 years can save on capital gains, but assuming you have a roughly $2k monthly PITI commitment, that is $48k of outflow. And if your market doesn't see much appreciation, you are nearly netting out the same thing.

Holding and renting is an option, but depends on what the market rents are for your property and your monthly outflow.  Also, tenants are notoriously hard on properties.  So assuming you will have an additional major paint touch up and deep cleaning between each tenant.  In my experience, it costs about $1500-2000 each turnover.

So back to my point, you need to weigh a lot of options here, beyond just "i don't want to pay $60k in taxes".

@Tom T., like many others:

House hacking would be my first choice.  It gets you an asset, helps covers the cost, etc.  Of course, there are downsides, like having roommates (not a position I want to be in for my stage of life).  You may learn that ownership is not for you.  But, there is a good chance, it could reduce your monthly cash outflow (of course depending on current rent and what property you buy).  Hopefully, you find an asset that appreciates.  And, as you note, you start to get an idea of what things typically cost to repair/replace, which is an integral part of being successful in most real estate strategies.

Syndication is great when you are making (in my opinion) $300k+ per year, are maxing out your 401ks and IRA each year, and still have $50k+ per year to invest. So like Nicholas said, it is more of a diversification play, or an opportunity cost play. The latter meaning, you are making more money in your active career, and you need some more investment vehicles to put money into, but even if it all goes bust, your lifestyle and other savings plans are not affected.

Long Distance Rental: Personally, I am not a fan of this because it inserts many, many more risks into the equation.  As Becca noted, most of the "team" you will need is incentivized by selling you on their market.  But, beyond that, if you own a few houses in a distant market.  You put $50k down on each (so $150k invested) , and you are "cash flowing" about 10% per year.  You are making $15k per year.  But, at least for me, I would want to be in the market at least twice per year to check on things.  That trip, between flight, a night in a hotel, a rental car, a few meals out, will be another $2k per trip.  So in reality you are making about $11k/yr, once you have 3 properties, assuming each is truly generating 10% after all reserves.  The moral being, if you can afford to house hack in your local market, I, for one, don't see the reason to take on all the risks of OOS rentals.