All Forum Posts by: Erik Hitzelberger

No.  It does not matter.  Anyone sophisticated enough to lend you money, partner in joint ventures, etc is doing so based on 1) your personal reputation and 2) the deal.  I buy properties in multiple different LLCs and Land Trusts.  When I call a lender, the conversation is "Hi this is Erik.  I need $xxx for zzz Property.  Here are the details...are you interested?"  The name of the purchasing entity only comes up if I need a pre-approval letter.

@Joshua Morales I'm going to restate your goals in a different order to be clear that I understand.  Please correct me wherever I go wrong.

1. 1) The primary goal is to own some number of SFRs.  These would provide you with enough cash flow that you no longer need to work.  
2. 2) In order to purchase these properties, you are going to Fix and Flip some number of homes. (Also SFR??)
3. 3) In order to understand your market better, you are going to get your RE license.  
4. 4) In order to get your RE license, you are going to save up 6 months of income and quit your job.  (I am a little unclear as to the order here).

Regardless, I love steps 1 and 2, am a little concerned with 3 and hate 4.  Here's why....

First, achieving passive income via SFRs is a very legitimate goal.  It's even better if you can figure out exactly how much income you want and how many houses it will take to get you there.  Second, generating cash to buy SFRs via flipping is my personal favorite strategy so, I'm obviously on board with that.

Now, it gets a little more touchy...  Obtaining your real estate license is a good thing to do eventually, but if you do it when you are starting out, it will be a distraction.  You will be much better off saving this for a time when your flipping business is up and running and you want to take it up a notch.  RE agents exist.  Find a good one and leverage his/her time and expertise to move you to the flipping phase faster.  

Finally, don't quit your job.  Even with 6 months of income.  It's one thing to leave a job and start your own company in a similar field or in an area you have expertise.  It is another thing entirely to try to learn all of the things a new career requires under the pressure of being broke in 6 months.  Nothing about your top 2 goals require it.  More importantly, having a job will help you get loans which will accelerate your ability to achieve your goals.  Quitting is counterproductive.

Please let me know if you have any questions.  I wish you the best of luck!

@Gabriel Ortiz Start at the end.  @Michael Quarles asks some good questions.  The most important is the first one "What does success look like?"  Without knowing what you are trying to accomplish and what resources you have, no one can give you any meaningful advice on how to get there.  The only good thing about having no goals is that it is spectacularly easy to accomplish nothing.

Personally, I have a certain number of SF homes that I want to own. These homes will generate a given amount of passive income each month. The amount corresponds to what it will cost me to live the lifestyle I want to live, cover my children's education, and have a 'rainy day' fund. When I started out, I didn't have the cash to buy that number of homes, so I had to consider a REI strategy that would generate cash. I considered wholesaling, but the time commitment was too high since I had a FT job. Plus, I just like rehabbing better. So, I spent time and money learning everything I could about being a great rehabber. I developed/bought great systems and learned to leverage experts.

Forget the CC.  Lay out your goals.  Figure out which RE strategies you need to achieve them and focus on learning them.  Save your money for classes / mentors who can teach you the ropes in the specific strategies you need.

Good Luck!

@Brittany Cole - Welcome to BP and to REI!

I really like your strategy of using fix and flip properties to ultimately fund your buy and hold portfolio.  I'm sure part of the reason is because it is my strategy as well :).  

I encourage you to learn as much as you can about flipping homes well.  Don't just try to be good at it.  Strive to be excellent!  Be cognizant that your husband's background is both a tremendous asset and a potentially huge liability.  The desire to do the work himself will be incredible and the temptation to over-improve via custom work will also be present.  Both will end up costing you money in the long run (potentially the short run as well).  Always remember, you are trying to make hundreds if not thousand of dollars an hour.  This is challenging when doing tasks that someone else could do for $10-$50 / hour.

Good Luck and let me know if I can be of any assistance!

@Denise Stanford - Welcome to BP and to REI!

Having experience as a broker working for investors should certainly give you an advantage as you get started.  I would encourage to spend a few minutes and think about your overall goals and strategy.  SF is different from MF and Buy and Hold is much different from Fix and Flip.  Focus on becoming great at 1 thing and then moving on to the next.  

As an example, if you want to own 10 properties free and clear, you are going to need to learn how to do Buy and Hold (again SF is different from MF) or how to invest in Turnkey Properties.  BUT, if you don't have the money to buy 10 properties, you need to focus on a cash-generating strategy such as flipping or wholesaling and IGNORE Buy and Hold for now.  

Good luck!!

Welcome @Grace Mason !

First, I'd definitely take @Robert Leonard up on his invitations. Learning on BP is great, but nothing beats being able to sit down with another investor. I would caution you to learn one strategy at a time. Wholesaling and Buy and Hold are both excellent REI techniques, but require VERY different skills, systems, etc. Figure out which one supports your most immediate needs for achieving your long-term goals and become EXCELLENT at it. Then, learn the other.

Good Luck!!

Welcome @Kyle Tweed !

Good luck getting started in wholesaling!  I'm glad to see you are fairly focused.  You will have a lot more success as a real estate investor by becoming GREAT at one thing than be being GOOD at several.  There is plenty of time to learn other strategies later.  In the mean time, learn everything you can about wholesaling. Read a lot and find a mentor sooner rather than later. Nothing else will have a greater impact on your success.

I am also neither and accountant nor an attorney. I would encourage you to think about this from the perspective of where you want to be and not of where you are now. If your goal is to never do more than 1 property at a time, 1 LLC is probably great. If your goal is to do 10 at a time, things will be more complicated. If you have a rehab manager, how is his time split? Are you going to make a separate trip to Lowes for each house? Do you have the time and skills to track every dime so that each partner get his/her appropriate share? What if one of your partners is only comfortable doing 1-2 at a time and the other 2 of you want to do 10-20? What happens if you have 10 props going and someone wants out?

I don't know whether there are right or wrong answers, but I assure you that starting out without thinking through as many scenarios as possible is setting yourself up for a disaster.  Even when everyone is on the same page, partnerships can be tough.  Spend time aligning your goals and expectations now.  

What you have in the house is completely irrelevant to this discussion.  The investment to date is a sunk cost and has no bearing on future returns.  Let's look at the 2 scenarios you propose.

a) Invest $5,000 to be able to sell the house for $450.  Assume that Curtis is correct and the net is $415 (seems a few thousand low to me).  You will walk away with $415-$325-$5 = $85,000 in cash.  

b) Continue to rent the home.  Like the other posters, I'll assume the mortgage number you cited includes taxes and insurance as well.  If you continue renting, you will be getting $800 per month of cash flow MINUS your expenses for vacancy and repairs.  IMO you have either been very lucky to only have $1000 per year in expenses or everything was new after the rehab.  Regardless, I'd plan on seeing this number rise.  In fact, let's assume that repairs/vacancy will be 15% of your monthly rents over the next 10 years.  Using $3000 (the average of what you are getting and what you hope to get), that's $450 per month and leaves you with $350 per month in 'real' cash flow.  

Ignoring equity build up via appreciation and mortgage pay down, you have have to earn 5% on the $85,000 to be better off with option A.  Not impossible, but it's not going to happen in a bank account.  There are lots of reasons to ignore appreciation (see 2007) in your analysis and EQUITY only becomes real when you sell.  That being said, these both combine with tax benefits as reasons that you would really need Option A to return much more than 5% to break-even.  If the house simply stays at $450, you gain an extra $350 / month and Option A would need to return 10%.

Thus, the question becomes one of risk tolerance.  Are you willing to accept the market risk of owning the property and all of the associated issues with managing it in exchange for a better return based on the assumption that the property will not lose value over the time you own it?  (Note that I ignored management costs in this discussion).  

Craig - I have had some contractors that I know worked 7 days and others who I wonder whether they even got in 4. Since the contractors are independent contractors, we cannot set their work hours. However, we can agree to contracts that have penalties for finishing late and/or bonuses for finishing early. Doing so, provides financial incentives for them to work as much as is required to complete the project on the schedules we want.