All Forum Posts by: Mike H.

Quote from @Henry Clark:

OP your situation isn’t adding up.  With our three banks I could call them today, tell them the situation you stated,  send them the projected financials.  They would say come in and sign the loan papers on Monday.  Today being Friday.  

That means a couple things.

1.  You have bad credit or have not built a banking relationship.

2.  You have not pulled together a financial plan.

3.  The market you are in, is a C market and can’t support that business model.

With the above said here are the options I would seek out

A.  Seller financing for one year.  Get your rentals going.  Then convert to term loan.

B.  Sounds like you have cash.  Pick a lender.  Deposit that money into a cd or mm with them.   Tell them they can use that as collateral.  Buys credibility for the loan. Do a working line or construction interest only loan for 18 months.  Get occupancy up then convert to a term loan.

C.  As a GC do you already rent or own a building?  That should be leverage for the banker.  Depending on your market the existing building you should get $1 per month per sq ft.  That is better than storage.  See if you can get a subject to lease agreement from one of your friends or associates.   Use that as collateral with the lenders.  

D.  Don’t fund the additional 25 unit add in with your money.  Use OPM.  

I’m expecting inflation to come storming back end of next year.  We plan to lock down any projects for us in the next 6 months or we will get priced out for many years to come.  Good luck in your deal.  

 No we both have excellent credit (760+).  I have over 7 million in net worth with my real estate holdings. And quite a bit of cash.   We just keep running into road blocks on this deal with lenders.  the biggest one is no income from it.  But the other issues we've run into from lenders is 1) We're a Gc to where the company's income comes from selling our new construction builds - the bank *US BANK actually told us they couldn't count that income at all because they view the sale of homes as "inconsistent".  Never heard of that but ultimately its their money and their rules so how do you argue.

I did try pushing them to seller finance but they wanted 100k down and I just don't want the property that bad to where I have to tie up my cash for the down payment plus the rehab to add the additional units and fix the place up.  I countered with 35k down but they wouldn't do it.

And believe me I don't really want to fund the additional units with my money.  But I was trying to show the lenders we would fund it.  

These people did lower their price recently and actually called us again.  But I'm still at my 35k down for seller financing.  I told them we just needed the seller financing for two years.  No go. 

Quote from @Stuart Udis:

@Mike H. I believe its important to clarify the infinite return component of the BRRRR strategy. You have to sell the properties and generate a profit first. Simply achieving a 70-75% LTV appraisal and refinancing out your cash flow doesn't mean a profit will be earned. It seems you selected your markets wisely and have actually been able to realize gains when you sold. This is a stark contrast to most on BiggerPockets who are chasing the BRRRR method to "scale" and achieve infinite returns but instead buy in stagnant low barrier markets.

Perhaps they experience a few years of cash flow. However in many of these lower cost markets, cap ex can't be absorbed and one cap ex event is equal to 2-3 years of cash flow. Next, when they sell their properties they sell at a break even and sometimes at a loss because its difficult to achieve refinance appraisal results when transacting in arms length transactions in these lower barrier stagnant market. I believe this post summarizes this point quite well. Clearly the investor achieved a 70-75% LTV appraisal but he isn't making any money. Buying at 70-75% LTV alone does not mean you purchased the asset correctly or made a good investment decision. Quite possibly the single biggest misconception that gets investors into trouble.

https://www.biggerpockets.com/forums/311/topics/1216224-advi...

I'm not suggesting that buying at 700 to 75% ltv is a guarantee at anything.  But if you're buying in a decent area (i.e. average schools, decent area, consistent appreciation even if its just 3 or 4% on avg), then you're going to do extremely better than 15 to 18%.  

Here in the midwest, you might be a 3/2, 1,500 sq ft house thats worth 200k. If you can get it and be all in for 140k, you can refi and pull all your money out. AT a loan for 140k, you're looking at payments of about 900/mo.  Taxes here in illlinois are pricey so add another 400/mo. Insurance 100/mo.  Rents for that home are going to be 1800 to 2100.
You should net about 200/mo  

Deprreciation would mean your rental income plus a little more of your regular income would be tax free. So your 2500 in income is actually worth about 3400 a year in taxable income (keep in mind that 15 to 18% return from syndication would be taxable income)  Principal paydown would be about 1500 a year. And then appreciation should be 8k or so a year. 

And oh by the way, you're sitting on 60k in equity right off the bat. 

I don't trust giving my money to anybody and hoping they hit their numbers.  They all are required to tell you that nothing is guaranteed.  So while they take their management fees, their incentive to produce is nowhere near what I would like. 

If you're buying at 70% ltv you're going to be hard pressed not build some real wealth.  Again, war zone type areas or even areas with poor schools and dwindling populations would not fit the model.  But you don't need to be in expensive areas either. 



 

I have an opportunity to buy a property in tennessee that has 25 self storage units AND allows for 25 more to be built. It also has a 6,000 sq ft metal building on it as well. 

But here's the catch.  There is zero income on the property right now because the current owners were using it for personal use and/or letting friends and relatives use the storage units and the metal building (for an auto dealership).  

Now because of this, nobody else has been able to get this property because they can't get a loan for it either.  I tried but the lack of income on the property is a no go. 

I actually have two options for this property: 1) Rent out the existing 25 storage units AND rent out the building plus add the 25 additional units out of pocket.
OR 2) Rent out the existing 25 storage units and added the 25 additional units out of pocket to rent them out BUT keep the metal building for my GC business to where we have offices and storage for building materials. We also have our main subcontractor and our driveway guy that would like to rent some space for their vehicles and materials as well. 

So we could do this loan strictly as a value add play on the self storage units and renting out the metal building. OR we could do it as an owner occupant for the GC business to where the self storage units would pay for our mortgage. 

Just a matter of whether we can find anybody that will do this loan.  I've tried some local lenders but they wanted to see income from the self storage units.  And they wouldn't do it for us as owner occupants because our revenue comes from selling houses (hell - we're a general contractor - thats how we make our money) which was strange but its their rules.  I've tried some hard money lenders too but they don't seem to have a product for self storage where there is no current income coming in.

The kicker is we've been able to negotiate the price down from 400k to 300k because we know they're trying to get their cash out and they told us they couldn't get a loan either.  And no other buyers can get a loan on this thing either because there's no income to show.

Anybody have any lending sources that might do this as a value add project?   The land (3 acres) and the metal building alone are worth well over 300k in this area.  I know because we have a 5 acre piece that is worth 200k and if we added a 6k square foot metal building, we could sell it for 450k all day long. 

Great start to life.  Great nest egg.  But day trading is a job at best and a nightmare at worst.  At the end of the day, there are more day traders that end up broken than not. 

Investing in real estate is a long term way to build wealth. But I don't know that I would jump into real estate just yet either. Not at 16 anyway.  Give it a few years and keep learning so when you can answer all the questions that real estate investors ask on here, you'll know you're ready.

You mentioned your family.  That might be one suggestion to get your feet wet - invest with a family member who has more experience. But don't risk your entire nest egg.  Thats your bonafides to being able to do future deals.

As mentioned above, keep your credit perfect. Keep saving money.  But be careful with day trading. I've heard more than a few horror stories about people who lost everything doing just that.  Stock picking is gambling pure and simple. 

Go wherever you can find deals.  But the closer to where you live is always better so you can self manage and save money.  Also much easier to manage contractors to rehab.

The key is finding discounts. If you're paying retail here, the property taxes make it really tough to cash flow. You need to be all in (purchase plus rehab) at 70% ARV or better - maybe 75%.

The other thing I would look at is appreciation and cash flow.  You typically get one better than the other.  So do you want more appreciation, then you won't have as much cash flow. Or vice versa.

The lesser areas can typically cash flow better and have more opportunities for bigger discounts.  But they're more difficult to manage because of a lesser renter pool and the appreciation tends not to be as great. 

To me, I always stayed away from those areas even if the discounts and cash flow were greater.  But I stayed out of the super expensive areas too.  I liked the smaller towns with nicer schools. Rented great. Had to work to find the discounts - but now those are much much harder to come by. And the numbers that I had hoped for when I started ended up being every bit as good if not way better to be honest.

I'd say do one or two and then see if you like it. If you do, set a goal for how many you want to do every year and you'll force yourself to find a way to hit that goal.  In 10 years, you'll be kicking yourself for not buying double the number of homes you bought.  

I'm not as familiar with IRR and syndication returns. I'm assuming that if you're saying their return is 15 to 18%, then if you put in 100k, you'll end up getting 75k back in 5 years when they sell and all their payouts and the sale is returned?

But here's the thing. If you buy a sfh rental right (70 to 75 percent LTV), you should be all in at next to nothing after you refi. If thats the case, how can you possibly compare the returns on rental property to anything? Nothing comes close to being infinity does it?

Here's what I can tell you.  I started with 43k heloc back in 08/09.  I kept buying, rehabbing and holding the homes until just about when covid hit when I started selling. I was up to 83 homes.  Never flipped/sold a one until covid.  Now I did refi a few to pull money out to help my growth along the way.

But essentially I turned a 43k heloc into a portfolio that, had I not sold any properties would have been worth well over 16million dollars with loans of close to 7million.  So that 43k turned into 9 million dollars in net worth.  Granted. thats net worth and not actual cash.  And it required a lot of time and effort on my part whereas the syndication stuff is purely passive.

But there's no way anybody can tell me that sfh rentals - if they are bought right at 70% ltv or better - are not going to return way more than anything else on the planet when you factor in how little money you actually have to put into them to begin with and then you let appreciation and principal paydown and rental profits pile up. 

Oh by the way, up until i started selling, i hadn't paid income taxes on any of the rental profits for almost 14 years and even after I started selling, my carry forward losses covered everything up until last year when they finall ran out.

If you buy right, sfh rentals are the best long term investment you will ever make. Period. Its not even close.

Quote from @Sean Graham:

Quote from @Nicole Cotrino:

My spouse and I purchased a cabin in November 2023 as a STR and started renting it out in March of this year. I've been hearing a lot about cost segregation studies and have a few questions…

- What are some of the key factors that determine whether a cost segregation study makes sense? (I’m still trying to understand the basics!)

- We are going to start searching for a CPA with a lot of experience in STRs, but haven't found one yet. Would the best first step be to find a good STR CPA or to first focus on finding a good cost segregation firm?

- Will we substantially diminish the benefits of a cost segregation study if we don’t get it done before the end of the year?

- Any recommendations on how to vet CPAs and cost segregation firms? Or, any suggestions on specific companies to use? 

Thank you!

Benefits of cost segregation really come down to personal tax positions… they can definitely help you lower taxable income but it’s situationally dependent. 

The STR loophole can help you offset other active income. Even without that, it can help you offset capital gains from the sale of real estate or passive real estate income. 

 What is the str "loophole" exactly? Is it because people that operate and manage their own str can hit the 100 hour participation rule?

To me, I don't see why anyone wouldn't do cost segregation even if it ends up being held as a carry forward loss.  The reality is you're going to use it sooner than if you spread everything out over 27.5 years.  And the sooner you can offset the income, the more value you get - period (because the money is always worth more today than it will be in the future).

Knoxville is great.  Much Better weather which helps limit some of the wear and tear on homes. Its close to gatlingurg/sevierville which is another great str investment area.  UofT brings people and growth.  Tennessee has no state income tax and the property taxes are beyond amazing. 

I don't know what the Price/rent ratios are between the two areas.  But if they are even remotely close, its an absolute no brainer - go with knoxville.  The airport is amazingly easy to get in and out of too. 

If you want to win over investors, you should first be sure you want them as clients.  If so, then you're going to want to commit to providing 24/7 service and being unbelievably responsive.  And then advertising that to them as such.

Tell them you don't mind putting in 20 lowball offers to help them get the one steal of a deal property.  Tell them you have a great title company they can use that will help them close deals.  And tell them you have other resources too (i.e. surveyors, contractors, etc).

Thats what will help you land investors.  Bring stuff like that to the table and you'll have more clients than you can shake a stick at.  But you have to be ready to work really hard to keep their business. 

Why does arizona have a climate risk? Lack of water?   If anything that might restrict building but I don't see them running out of water for existing homes so wouldn't that mean home values going up because supply would be restricted.

What kind of climate risk could occur there? Flooding no. hurricane obviously not. Tornadoes not really.  Heating temp increasing? Is that really a climate risk for the homes themselves? Are they going to catch on fire?

I just don't see that at all.  And how is texas fourth worst? Houston could be hit by a hurricane but they have a lot of population in other areas that would not be in danger.  Unlike florida, where the entire state can pretty much be clobbered. 

And how is california not higher with the increasing number of forest fires?