All Forum Posts by: Dan H.

Your existing property will be large cash flow negative when properly including all expenses.  Are you prepared to supplement renting your existing home possibly for years?

I am not personally adverse to negative cash flow if the property is expected to produce a good return, but negative cash flow can get old fast.   Especially the first time something bad happens (and something bad will happen) such as an eviction, slap leak, collapsed sewer run, new roof, etc it could be challenging to see the positive of having a cash negative rental.

Make sure you are mentally prepared to supplement this property for potentially years through some difficult events.

good luck

 If you can prove that you requested the agent to put in this clause and agent did not, my view is the agent has some responsibility.

However, you signed (or e-signed) the offer.  You had the opportunity to catch the error.   You also have some responsibility.

I personally believe your responsibility is greater than the agent’s.   You should review the offer and confirm everything you want in the offer is present.

I believe the broker should realize that the agent made an error that cost the client money and make an offer to compensate for some of the client’s lost Earnest Deposit (ED).  Hopefully you realize your role in this mistake and recognize it is not fair to expect the broker to make you whole.

I once had 7 refi and one purchase close on the same day. I have used the same escrow on multiple purchases and refinances. On every purchase except this one they look at the OO check box and if not OO ask if there is current tenants and escrow the security deposit. This time they did not do it and we did not catch it. When the issue was pointed out shortly after the close, The escrow company tried to reach out to the seller for the money he rightfully owed but possibly legally did not owe. The seller refused to transfer the deposit. I possibly could have gone after the escrow company for a mistake, but the biggest mistake was mine to not catch the error (and maybe having 8 closings in a single day which I will never do again as I believe it heavily attributed to us not catching the error and 6 hours of signings is too much). We did not go after the escrow company because it was mostly our fault and learned a few lessons (thoroughly go through the documents, always check for security deposit transfer, and do not have 8 closes in a day).

I provide this example to show ownership of my role in the issue and hope you see the similarities.

Good luck

 If your initial plan was a syndication that returned 7%, why not another cash flow syndication?  It should be easy to find a cash flow based syndication that projects a similar or better cash flow.   

I may have a referral for you assuming you are an accredited investor.   Not sure that they are still looking for investors.   It projects good distributions, good exit, and the operator IMO is the best (literally IMO the best operator anywhere).  This month is a funding.  IM me if you are interested.

Good luck

For me cash flow is not king. I am about total return. If I am not producing $1k/month per unit of total return, then I would be disappointed in my RE investment (I have never not produced at least $1k/month of return on an RE purchase)

Cash flow is taxed in the year earned (at least cash flow beyond depreciation). Value adds and appreciation are taxed at sale if not 1031 to another investment. If you die, the RE gets a new baseline and the taxes from appreciation are never paid. Equity paydown is similarly never taxed.

If you need the cash flow to pay the bills, you have less options to returns other than cash flow. If you have the assets that cash flow is unnecessary, you can concentrate on total return without needing to focus on the cash flow.

Cash flow is tough in the current market. Can you produce early return via a value add? At the price point you indicated that market appears to have historical RE at near inflation, but with leverage the appreciation is magnified based on your LTV. In addition, if you choose a long term fixed rate loan, the loan payment (P&i) is not impacted by inflation. This implies if rents go up with inflation, your cash flow does improve because your largest expense will not increase. Using 50% rule (likely fairly accurate at your price point), only 50% of the costs is subject to inflation.

My last purchase had horrendous cash flow.   The worse I ever heard of in anon commercial RE purchase.   The rent was nearly $3k/month below piti.   My underwriting showed $6.5k/month negative cash flow (has anyone ever had a more negative cash flow non commercial RE purchase?).   Today the property is up ~$1m in value above purchase and rehab costs.   It has cash flow of a $3k/month (modest for the equity).  My monthly appreciation over the hold is over $20k/month (value add, below market purchase, market appreciation).  With appreciation over $20k/month, do you think I am very concerned about the cash flow (which is taxed in the year earned)?  this has been a great purchase even though its initial cash flow was pathetic.

I recognize the example is not where investors start.  I started much smaller in a time where virtually all investor purchases had positive cash flow.   However, even on those properties, the cash flow I have achieved makes up a small percent of the return on those properties. My RE purchases have been mostly brrrr, however Leveraged appreciation without a value add is a very significant source of return.

My point is that cash flow alone does not dictate if a property purchase is a good investment.   Analyze all source of return to determine if an RE is a good purchase.   

Good luck

Good luck

 Never prorate the 1st month rent.  Prorate the 2nd month or have the lease period run monthly from the day of move-in (which gets complicated with more than a couple of units so prorate the 2nd month’s rent).

Add to the PM mistakes, clearly they placed a poor tenant.  Combined with them not abiding by their lease when it comes to evictions and their poor communication, you have a 3 strike PM.

Were you aware of the difficulties in the Memphis market when you invested.   It has one of the highest crime rates in the nation.  It also is on the top 10 or so on eviction rates.   Combine these together and you need a strong PM (which your 3 strikes PM is not).

Direct the pm to immediately start the eviction process.   Evictions take time.   The tenant will have some time to address the issue before the eviction process runs its course.   The longer you wait to start the eviction process, the more lost rent you can experience.   If the tenant does rectify the situation, they will learn to prioritize paying their rent. 

I never do cash for keys. I do not desire to reward tenants for poor behavior.

I explain the consequences of an eviction to the tenant. I explain they will have difficulty Renting a quality unit, that I will ding their credit, that I will attempt to garnish their future income to recover what they owe. They believe I will do what I state because I have always done what I told them I would do.

My market has a low vacancy rate. Poor tenants cannot obtain quality housing. My tenant requirements includes no evictions, ever. No excuses accepted.

So far with a combination of good screening and good luck, I have never needed to evict a tenant.

When the time comes to evict our first tenant, I will hire the best lawyer and let the expert take care of it. I will add the cost of the eviction to what the tenant owes, and if the cost is not recovered I will consider it a cost of doing business.

What I will not do is pay a bad tenant to leave so that another landlord gets stuck with having to deal with a bad tenant that I have rewarded for their poor behavior.

By the way both times I have been asked for cash to get rid of a tenant they indicated that another landlord had paid them to leave.  In addition tenants talk.   If you have a MF, do you think the tenants will not know that you paid a bad tenant to leave.   Do you think they are so stupid that they do not realize that if they are a bad enough tenant that you are likely to offer them cash for keys.  In effect you have taught the tenants to be poor tenants by rewarding them for being a bad tenant.  

In addition if I paid a tenant to $crew me, it may cause me to lose sleep. Sleep is precious. I would rather not pay the tenant, pay a lawyer, lose some rent but not lose one wink of sleep allowing the bad tenant to get money from me.

Do not do cash for keys.

Good luck

I get threatened for lawsuit related to RE a couple/few times a year and have yet to be sued.  I suspect it is extremely unlikely you get sued.  

If you do get sued, it will come down to documentation, lease, and laws.   I suspect that full security deposit forfeiture for lease violation may not be legal.  However, if tenant was required to give 30 days notice and gave less, you are likely entitled to the lesser of the days the notice was short or the days the unit was vacant.  For example in Many jurisdictions, if you place a new tenant in 2 weeks (very challenging and not recommended) you can only charge for the 2 weeks even if tenant broke lease 22 days early. 

My view is with the early tenant lease termination and the damages, you are likely owed more than the deposit and justified keeping the deposit and getting a judgement on additional Money owed.  

Good luck

Quote from @Sonny Dhillon:

Quote from @James Wise:

Quote from @Chris Seveney:

Quote from @James Wise:

Quote from @James Wise:

I've been starting to hear rumors that Brandon Turner's company Open Door Capital has been losing a lot of investor money. I haven't really followed what he's been up to since he left BiggerPockets, but since I started hearing all of these rumors about mismanaged money and poorly performing investments, I started to look a bit into it. 

Below is what Google/AI had to say about the "Heights on Katy" deal in Houston, Texas. Apparently the GP's pocketed $4.4 million while losing $14 million investor dollars on the deal.

Anyone have any more insight into this deal / or others Brandon Turner's got going on? I don't know how reliable what Google/AI says below is, so I'd like to hear from folks that have more 1st hand info.

Is there fire behind all of this smoke?

Shortly after I created this thread, an investor who wishes to remain anonymous, sent me a link to the following article written by a guy named Barry Minkow.

When the SEC Looks for Ways Not to Do Cases, the End Result is: Open Door Capital, Disrupt Equity, and the Heights on Katy $76M Disaster

 Barry Minkow posts videos online about reg d syndications. He went to prison for embezzlement and now tries to expose bad actors. I think some of his stuff has some legs to it but not all of it. Not sure if this one does or does not, but when I was a member of a mastermind group BT was in ,a lot of people had invested with him and there were deals that were going really bad.

Out of curiosity, does anyone know what his investing journey was - when BP started I thought he was investing in rural single family BRRR properties. Curious what his path was to go from SFR's to larger MF properties.

 Well if what the article says is true, it looks like his path was

1. Buy some SFR's.

2. Get on a popular podcast.

3. Use the name recognition from the podcast to get investors to invest enough money with him so that he could use their money to pay himself $4.4M to buy large apartment buildings with their money.

A lot of these guys are just good salespeople and sell unrealsiic proformsas to investors and i'm amazed when investors get lured into their talk and give there hard earned money expecting unrealitic returns. Best thing is to invest in your own deals, or i would rather invet in us stock index funds then any of these big  syndicators. 

 RE syndications that I invested in before 2022 (maybe starting in 2014) and have gone full cycle produced average returns noticeably above 30%/year average.   I do not believe I did exceptional.  I think returns above 30%/year were not uncommon. 

I would be interested to hear from other LPs and their full cycle returns on syndications that they joined prior to a few years ago. 

note how many forum threads have been on syndication Failures or capital calls compared to what were posted prior to a couple years ago.

Of the 3 I have joined in the last couple years (recently committed to a 4th), 2 seem to be struggling. One had a recent capital call for unanticipated expenses. The jurisdiction required water recovery and fire suppression system.  These seemed hard to anticipate.  The other has missed its distributions and had a partnership break up likely the result of a divorce (there was definitely a divorce but was that a reason for the GP breakup?).  Note they may recover in exit, but RE syndication until recently seemed to virtually all produce great returns.  

Certainly the time when virtually every RE syndication produced a good return seems to be past.  

Best wishes

 If you look at long time, high post, non real estate agent posts I see many posts that discuss the current RE market being challenging, RE being a long play, the challenges of low cost OOS markets, etc.  

I suspect nearly half my posts discuss the challenges of the current RE market.   How my current offers would have never been made prior to 2022, how property values are at an all time high compared to rent (per 2 separate recent studies comparing rental costs versus home ownership).

My point is there are many BP posts that mention the challenges or the current RE market.  Granted this is countered by the various RE agents (Ohio RE Agent cronies likely being the worse) touting their market even if it has declining population and appreciation or rent growth has not kept up with inflation.  

If it is unclear: the current RE market has challenges including rates near the highest for this century, property values being near all time high with respect to rent (so all time lowest cash flow for LTR), some jurisdictions enacting laws that are anti RE investor, the competition on flips being all time high and margin on flips being at all time low in many/most markets.  

None of this implies that it is impossible to make money with real estate, but it has challenges.  

Good luck

I have experience with a constrained septic system.  My notice explicits indicates no occupancy upper (no new bedrooms), no new bathrooms, no new kitchen.  Basically they limit anything likely to increase the usage on the septic.

I think I would start by investing the limitations on your current septic system of if there is a nearby sewer that you can tie into.

Depending on the constraint on the septic system, maybe an increased leach field or a ATU can address the limits of your current septic system.

Aerobic Treatment Units (ATUs) are similar to standard septic systems in that they use natural processes to treat wastewater. But unlike conventional systems, ATUs also use oxygen to break down organic matter, much the same as municipal wastewater treatment systems, but in a scaled-down version.

Because ATUs decompose organic solids quickly, the wastewater leaving the system is cleaner. ATUs are useful in environmentally sensitive areas or locations that are less suitable for conventional or gravity flow septic systems, such as inappropriate soil conditions where the water table is too high to allow the drain field to operate effectively.

It seems likely your property has appreciated more than inflation and selling costs.   Your worse case scenario likely is you sell at a profit.   You could decide to purchase a property that is not as constrained by a septic system but interest rates will likely be near double your current rates.  Or you can evaluated different investment options other than RE.  Not a bad worse case scenario.  

Good luck

Quote from @Austin Fowler:

Quote from @Dan H.:

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Quote from @Dan H.:

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Quote from @Dan H.:

Quote from @Austin Fowler:

Is there anyone that both manages their own properties, and has managed to acquire many properties? What systems do you use to achieve scale? Anyone still buying long term rentals at the moment? If so, where and how and can you achieve positive cash flow?

My view is if you hire out virtually al, the work and have systems to automate the routine, the number can be real high.

we have mid 20s but the 4 STRs have either a PM or a co-host which puts us ~20 units self managed.   I chose to train handy people and show them the path of RE which takes time and some of them never choose RE.   However my most successful protege (he was also likely my best handyman) is a rockstar investor.   He once indicated he was going to catch me in terms of re assets but I believe no longer has that as a goal.  He recently did a repurpose of a property that had a value of $1m under its acquisition purpose but he sold for $1.5m to a developer leveraging a local law that was recently over turned in large part because of this case.

if I hired all work out without doing any training or mentoring, I suspect I could do it on less than a half hour a unit with our processes.   If we used a VA, I suspect we could get it down to less than 0.25 hours/unit.   To get there we would need to document more of our processes.  We have many of our process documentation nearly complete, but not hand off with no guidance complete.

BTW I allocate what most would consider too high maintenance/cap ex but I believe is fairly accurate (ask people how they derived their maintenance/cap ex allocation and you will hear some crazy responses from I used the default percent in my rental calculator, I use actuals but have only had rentals some timespan that is far short of large cap ex item lifespans, to I did not allocate anything because I have reserves (how do they project a cash flow?) and we have good enough cash flow to pretty much do what we desire.  What I desire is making more money using my intelligence.   I also like mentoring select people.  Travel, fishing, hiking/backpacking, snorkel/Scuba.  What I really like is to be able to choose what I want to do most days (I am typing this from a remote location in the sierras).

wishing great success to all

Would love to hear more about your training and mentoring. Are you still expanding your portfolio? Particularly interested in your short-term rentals. Are you still acquiring those? Have not met really any people that are systematically expanding that aspect of their portfolio. What kinds of real estate do you try to teach people to get into?

We are still attempting to buy STRs.

We recently placed an offer at appraised value, but the sellers want over appraised value. I think they are getting some bad advice and will not be selling any time soon. $475k with projected total rent of $120k with an outstanding co-host. Seems good, but my underwriting shows it to be cash negative until Revenue increases in the future.

I used to advocate BRRRR or house hacking small MF. Now I fear the extract via refi will be cash negative and have the costs associated with the refi. It makes it harder/slower to scale without an extract of the value add, but who wants to scale a bunch of cash flow negative properties? My last purchase as a brrrr never had the cash out refi because rates rose significantly.

I also advocate sophisticated value adds. My most successful protege leveraged a law (since over turned) to sell a property for ~$500k over its existing use. Best part is the grief went to the developer; virtually no one can blame someone for selling a property for as much as they can get. 

I caught 19” brown tonight. On this trip I have caught a plump 17”, plump 19”, skinny 20”, and plump 21” brown. Also caught 14” & 15” rainbows.  released all but the 14” rainbow which will be dinner (fits nicely in a pan)

Best wishes

Congrats on the fish! This comment stumped me:

"I also advocate sophisticated value adds. My most successful protege leveraged a law (since over turned) to sell a property for ~$500k over its existing use. Best part is the grief went to the developer; virtually no one can blame someone for selling a property for as much as they can get."

Can you elaborate?

San Diego bonus density law was over turned a couple months ago. It had allowed one additional ADU for each income restricted ADU.

The below was the highest value use of this particular property.   Note my protege was not the developer, he sold the lot to the developer for ~$500k over current use valuation.

https://www.cbs8.com/article/news/local/working-for-you/new-...

As indicated the law was changed a few months ago in large part due to this developer.. Developer took some grief as neighbors were not happy.  My protege who sold land to developer got no complaints even though he knew developer was going to place a lot of units on the lot (but likely was not expecting this many units).

most jurisdictions have laws that can be leveraged for value add.   Rehabs are obvious value adds, not sophisticated as they do not leverage a knowledge that not everyone may have.   

In ca they just raised the height limit near transit centers.   Current use and comps on these properties can be significantly less than the value associated with a repurpose.   Note you may not need to be the developer if you find a real good opportunity property.   Buy it based on current value and comps, sell it based on highest value opportunity.   CA is full of these type of laws. 

I am a partner on a project where the bulk of the value add is leveraging a law that allows ADUs to be added out of legal existing space (believe local jurisdiction law).   9 new small units from garage space.   We also are rehabbing the units to drive rents up on the existing units. It seems like a good investment and it has worked numerous times previously, but this one is having some issues and will not create the return I was hoping.  Does not mean that it is not a good sophisticated value add, but there have been other issues.

Unfortunately many of these sophisticated value adds are jurisdictional specific or at least not national wide.

Good luck

Sorry, "9 new small units from garage space"? That's way outside my knowledge. Can you elaborate? I had no idea something like that was possible. Would also love to understand more about your current deal that your partnering on that is having issues. Is this your primary focus at the moment? Or do you do multiple deals like this simultaneously?

A local law allows you to add as many ADUs as you desire out of legal permitted space. Bought a small MF that had a lot of legal garage space. Best NOI is achieved by maximizing the unit count so all units will be small (studio or 1 BR).

Note this is a jurisdiction specific value add (as are many sophisticated value adds).

No I am actively looking for (some of these are for my son)

- a beginner fkip in San Diego area: we recently placed an offer on a flood damaged condo that was down to studs rehab.  Our initial offer was $90k over initial asking price.   We were told that there were 5 higher offers.   I think selling agent was lying to get a significantly higher offer from us but my son dropped the ball and did not stay on top of it.   It sold for $2.5k more than our initial offer.   Needless to say we could have beat that offer.

- a mf value add in San Diego for son to house hack. Bonus if it has below market financing. Note because he will OO, he can assume FHA, VA, etc.

- select market STRs.   I am not identifying some of these markets but will say I have placed offers at emerald coast condos (specifying that market because it is not below the radar).  This is not the market of my last couple of offers.

Thanks for the extra detail, would it be fair to say you are deal flow limited not capital limited when it comes to expansion? Do you ever need/want to find capital partners?

 I guess I am deal flow limited because I am not finding properties I purchase.   But I get a lot of emails from wholesalers, realtors (including off market listings) p, a couple bird dogs, etc.   the reality is most off market offers are not great.   The interest rate increase couple with property values increasing significantly more than rents have made the current RE market challenging.  

the underwriting on every offer I have made in the last couple of years would not have produced an offer from me prior to 2022.   RE market is not what it was a few years ago.   In my market RE prices are up substantially more than rents.  I saw 2 fairly recent studies comparing renting to owner homes in the various large cities.  The two studies both indicated in virtually every large city it is initially cheaper to rent than own a home on average.  Both studies indicated this was the all time worst time for home ownership compared to renting.    I do realize they are not projecting 10 years down the road when possibly there has been rent growth but p&i is still fixed.   Or potentially 30 years down the road when the mortgage could be paid off. 

In emerald coast my underwriting shows cash negative, but my head tells me private beaches are rare.  Rare desirable items seem to consistently appreciate faster than inflation and less rare items.   If I purchase a condo with a private beach in emerald cost will it appreciate like other rare desirable items?

I do not know how many states allow private beaches, but this is not an Alaska private beach, but an emerald coast private beach.   Who would not want to own a private beach at emerald coast?   Finite supply.

Good luck