All Forum Posts by: Austin Fruechting

@MJ S. - I'm sending you message.  Put me on the list!

Assuming there's no monster expenses such as foundational, needing all new electrical, etc that should do quite well for you!  Maybe that commercial space becomes your property management office!  

What rents are you getting per unit?  It sound like a good deal and you should go for it. 

Those rates seem reasonable for a loan under $50k.  

I would pick this one up and since you have the experience do some fix ups over the following year as units become vacant and add some value.  You'll also learn first hand about property management over that time.  Once the value is added refinance it and pull on your money plus some out and go on to the next.  You could be a mogul by 30 if you do things well! 

If it has the same size living space and finishes; yes I would say an attached 1-car garage could add up to $100 per month in value. 

- I just copied/pasted this from another thread a while back...

(1A) If they are happy with just getting a certain return over time that's closer to a hard money loan and structure it like that with a promissory note. They wouldn't be an actual partner in property, but just a lender for a certain return and you'd make payments back to them at the agreed upon interest rate and timeline.

(1B) Let's say we're looking at a true partner in the LLC and the cash investor gets a certain percentage ownership. You can structure this in any way you want to make it beneficial for all parties. Often, but not always, the cash investor gets a preferred return of 3-8% on their investment off the top, and then the rest is split according to the equity stakes. EXAMPLE: In one of my partnerships, the cash needed was $120,000. The annual cash flow should average to about $34,600 per year. My investors get 7% preferred return on the $120k per year so $8,400. That comes off the top leaving $26,200 to be split according to ownership percentages, which we have set at 50/50. I get 50% of the 26,200, so $13,100 and they get $13,100 + their preferred return for a total of $21,500. They get a great return and I'm happy to make $13k a year for putting the deal together and doing monthly bookkeeping and oversight. We hire property managers so I don't have to do any of that work. If I did I would either charge a property management fee to the LLC or take a larger equity stake for doing that.

(2A) If we sell (still using my partnership example) the way it works is mortgage gets paid back first, their investment second, and then whatever is left would be split 50/50. If we refinance it's the same thing. If we refinance and still hold the properties, they maintain their ownership percentage, but if they have all of their cash back there will no longer be the preferred return.

(2B) If they want bought out, but it's not majority to sell the properties, they can sell their ownership stake along with all benefits to any one at any time. I have right of refusal though so if they do get a qualified offer from someone for their share, I can choose to match the terms. If I don't their ownership and all interest will transfer to the new person. I have it in the operating agreement though that if that happens, the new person does not have voting rights. I didn't choose to go into business with the new person, so they have say in what happens.

(3) Get a VERY solid operating agreement that clearly spells everything out. The LLC will get the loan, although many banks will still underwrite the members and want personal guarantees from all members that own a substantial percentage (with my bank any partner that has more than 25% has to do this).

(4) Include everything you can possibly think of! It's better to have everything lined out before than to have any questions or disputes later.

There are endless ways to set up splits. It's all about finding the scenario that works for all parties given the investment you are looking at. The preferred return is not always necessary and not only included. Equity stakes can be whatever you want too... 50/50, 60/40. etc.

On another partnership, I injected cash into as well. The structure was similar. The cash represented 50% ownership and my expertise represented 50%.... I injected 40% of the cash needed, so I ended up with 70% ownership: my 50% plus 20% of the cash equity (0.5*0.4). The investor only gets the preferred return on the difference invested. So if it was 200k, I put in 80k, he put in 120k, he only gets the 7% on the 40k additional.  

 The fact that you've even started this thread makes me think you shouldn't do this. If you were confident enough in your numbers you wouldn't need validation from an online community. So I would say for you at this point in time: don't do it. 

I have used a LOC and credit cards when BRRRR-ing a property at a time I didn't cash.

Do I recommend other do this? Not at all.

Would I do it again? Absolutely. 

I didn't think it was risky for me. I am a numbers nerd and did it at a time that I was experienced enough and I knew how far I could push things and still have enough of a safety net. But I think it would be way too risky for most and you could easily lose everything. 

If you have the time, it's usually cheapest to hire by the job.  But it will require much more of your time coordinating and overseeing multiple crews so figure your cost of time.  

The other advantage of parceled out work is if you are trying to build a list of who to use, you have your painter when a unit just needs that and you have your flooring guy when you just need that, etc. 

Is that on all work or just major work?  Clarify it with them.  If it's major work that's not unreasonable. 

When I had my company I had that clause for work over a certain amount.  It was there for if I were going to be acting GC/project manager for a big remodel/renovation I could charge 10% of the total costs.  That's a reasonable fee for someone managing a large remodel/reconstruct/rebuild.  GC fees are typically in the 10-20% range. 

If it's on every repair that's ridiculous.  

These may look like keys to a duplex... but they're really keys to a baller custom humidor at no effective cost to me... and several boxes of Cubans!!