All Forum Posts by: Austin Fruechting
Austin Fruechting has started 13 posts and replied 758 times.
Post: When are you too over levaged?

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Originally posted by @Brandon Duff:
@Austin Fruechting @Brie Schmidt
Great info! I'm at the 6 unit part and feel more comfortable but I still have my own job which is my security blanket..
My cash flow is positive on all properties and my cash reserves are empty currently since I just bought a 4 unit..
I guess my next steps are building a cash reserve, then start building a fund for purchases...
Not using all my reserves for a purchase.
I would also look at getting a line of credit somewhere which can act as part of your cash buffer/additional buffer. I ran very cash lean as I was acquiring, but only because I had the safety net of ~$50k in LOCs.
Post: What is your best deal ever???

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Originally posted by @Phil Morris:
@Austin Fruechting your deals are killer.
Love your blog. Are these units that you package up from separate sellers, or from individual sellers that you buy from in bulk?
Thanks man! Each package has been from an individual seller.
Post: Advice on Partnerships and sweat equity

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You can structure it in any way you want and in any way the investors would want.
Lets assume the investor puts up all the cash. On large scale deals (syndication sized) the investors get a preferred return of 5-9% off the top and then 70-80%. The syndicator gets 20-30% plus asset management fees and other fees for closing.
On small deals 50/50 with no preferred and no asset management fees or other fees can be done.
Mid sized deals I would say the investor would get 50-70% for putting up all the cash depending on how you structure it. If you do a preferred return and no asset management fees or other fees, you can go closer to the 50/50. Say you do a 6% preferred to the cash with a 50/50 split after. If it's $100k cash, they get the first $6k and any remainder is split 50/50. If it makes $20k they get $6k plus 50% of the remaining $14k. So they'd get $13k and you'd get $7k. That's the same cash split as 65/35 split.
You could do a higher preferred return, then a matching amount to you, and then split the remainder according to a split. So say it's $100k cash in. They get 10% for $10k, then you get the next $10k, and split the rest 50/50. That gives them a higher guaranteed but ends up 50/50 overall if it's really profitable.
Or you could do 75/25 split on the cash for a straight 50/50 split of the deal.
There are endless options. What's acceptable for the investor and you will be very deal dependent. I think if you target a 15-20%+ IRR for the investor based on a 5-year exit that's a good deal for them. It can be structured in any way to make it happen. On your side you'll have to figure out what makes it worth to you for your time for the deal as well as the time of dealing with investors.
You can split the cash flow and the equity different as well. Say you need 50% of the cash flow with no preferred return for the cash to make it worth your time. But maybe that doesn't satisfy a high enough IRR for the cash investor. You could split the cash flow 50/50 and the equity 75/25 so they have more at the sale. Or if your goals are equity and net worth maybe the cash flow is 75/25 but the equity is 50/50.
Again, there are endless possibilities of how to split it and it's all dependent on the deal and everyones goals.
Post: When are you too over levaged?

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- Kansas City, MO
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Originally posted by @Brie Schmidt:
@Austin Fruechting - nailed it. and I love the doodle.
I have 30 properties / 90 + units and have been doing this for 6 years. If I look at it on a single property basis, I would have a panic attack. I had a duplex with long term tenants for a few years, then one lost his job, both moved out at the same time without paying and the units were trashed. It took us a few months and a few thousand dollars to get it fixed up and rented out again. So if that was my only unit, I would have been paying the mortgage out of my own pocket. But with a portfolio, that one major downturn was a tiny blip in the grand scheme of things and barely registered on my radar in terms of performance and profitability.
Exactly! When I was in the earlier stages I had a time when I was rolling all 1's and 2's for a period of time. I had an additional $35k in big ticket items beyond the average happen in a few months. Now with 156 units it stays very steady and doesn't have those wild fluctuations overall. Individual units will still have the big fluctuations, but the monthly stays pretty close to the average.
Glad you liked the doodle! lol
Post: What is your best deal ever???

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- Kansas City, MO
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I made nearly 1/2 Million in equity the day I closed on a 22 unit deal I just bought (12 homes& 5 duplexes). Purchased at $790k appraised for $1,264,725, and I am going to add value too (~200k work). Rents should be about $18,600 when complete and ~$1.55mil value. I'll refinance it at 70% LTV for $1,085,000
My 32 unit deal I did in June was a really solid deal too. Purchased at $1,062,000, appraised for $1,390,000. After we finish adding value (~$180k) it will bring in about $24k a month in gross rents and be worth around 1.75-1.8mil.
Post: When are you too over levaged?

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- Kansas City, MO
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As @Justin Fox stated, the real risk is cash reserves. Cash reserve needs change with the number of units you have. Someone with 20 units should have a larger cash reserve than someone with 1. But the funny thing is someone with 200 units probably needs less reserves than someone with 20 units IMO.
I attached a little doodle I just to illustrate this. Assuming every unit averages to the same long term cash flow. With 1 unit it's binary; you either have expenses or you don't. With 20 you can have a lot of issues all at once. With 200 the odds of it deviating from the average by a lot are very unlikely. When you have a ton of units, you reach some economies of scale as expenses are concerned and your monthly cash flow remains much more stable. It doesn't fluctuate as much off of the long term average.
Think of every property as a dice you roll every month. 3.5 is the average roll possible... 1, 2, & 3 are varying amounts of lower than average cash flow. 4, 5, & 6 are higher than average cash flow. (the difference is 1 can be VERY negative when capex, or unit turnover happens)
- With 1 property it's pretty explanatory.
- With 20 rolls of the dice, every once in a while you may roll 1's & 2's on 17 of the die. This could send you extremely negative for a while. Other times you'll roll a lot of 5's & 6's and be much higher than average cash flow....
- With 200 rolls of the dice, you won't deviate too far from the 3.5 average.
BTW: that was a quick doodle to illustrate a point. I'm sure it's not fully accurate, but the concept of standard deviation holds true.
Post: Numbers - Do they matter when the deal is overwhelmingly good?

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Ok, now we're getting somewhere. My guess is your clients didn't think they'd be able to afford that amount of repairs.
What would rents be after you put in the $40-75k?
What would the value be after the repairs?
Post: Numbers - Do they matter when the deal is overwhelmingly good?

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- Kansas City, MO
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Originally posted by @Paul Steward:
@Austin Fruechting I know this because I’m a realtor in the area. When the rents on the 6 units bring in 4K and it has low taxes, no water or sewer bill because it’s on a well(3 total) and 2 brand new self cleaning septic fields. Fully occupied with long term tenants. Yes they need repairs but the seller was offering seller financing ( land contract) with only 15 k down and 1500 a month payment with a 5 year ballon. You’re not making 2500 after payments.
They’re more concerned about repairs to add value (for refinancing purposes)
I get it you want to be able to refinance but wouldn’t you rather gain 6 income or producing units?
I think that’s a good deal.
Not sure what you mean by "you're not making 2500 after payments". They aren't either.
What's the purchase price? How is the $1500 a month structured? Interest only? Principle only? Normal loan structure amortized over time?
How much in repairs need done to add value? What would rents be after the work is done? What would the value be after?
I'm just pointing out that it's all numbers. That's all that matters. Numbers determine if a deal is overwhelmingly good or not. I'm not saying this deal is or isn't good, great, ok, bad. I'm just saying it's all about the numbers. You may be right and this is a home run. If it's a home run and overwhelmingly good why don't you just take it down for only $15k since your clients are walking?
Post: Numbers - Do they matter when the deal is overwhelmingly good?

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How do you know a deal is overwhelmingly good without numbers? Isn't it the numbers that determine if a deal is good or not?
Post: Any investors have massive success WITHOUT direct mail?

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