All Forum Posts by: Arn Cenedella

@Kyle Gagnon

As @Joe Villeneuve says it’s both. 

That being said, I think it depends on where each investor is. One side does not fit all. 

I’m more on the build long term net worth side of the equation until one gets to 60 or 70 years old. 

Here’s my thought process:

If one has cash to invest in RE, by definition that means the investor’s income is greater than his or her monthly expenses. The investor current income is more than enough to expresses creating a delta which is then saved and invested in RE. This investor really doesn’t need current income so in my opinion the focus especially for younger people at or entering their peak income years is to invest for the future. They don’t really need current income they have enough. 

Now I want to be clear properties need to cash flow but the cash flow in my mind isn’t to put spendable dollars in an investor’s pocket but rather to ensure the property is self-supporting. 

Once an investor reaches a certain net worth, they don’t worry about cash flow or income. They can have as much income and cash flow as they want. 

And let’s also be clear someone isn’t going to replace a $200,000 a year W2 income by investing $250,000 in real estate. Not happening. 

My advice in one’s 20s 30s 40s 50s while one is presumably making a good income from their “day job” invest for the future build that net worth. 

I generally consider $2M in net worth outside one’s personal residence as the net worth goal where financial freedom stats to occur. 

$2M at 6% is $120K a year $10K a month. 
Easy enough to get 6% return. 

Once one stops the day job then perhaps the portfolio can be moved more towards cash flow but don’t forget we are living longer. A healthy 50 year today is expected to live to 90. By the time a 30 year old gets to that age 100 may very well be an average life expectancy. 

The point being it’s a long road and so for me even at the age of 71 I still look to grow my net worth - the cash flow takes care of itself. 

@Jonathan Krauser

While location is one factor, the biggest factor is the size of the drain line you connect the washer to. 

Check with local contractors but I suspect a 2” to 3” pipe is required. 

The other issue is venting the dryer to the outside. 

If you are going to do this, my suggestion is do it right and to building code. If not you will have problems. 

@Darron Chadwick

This is a nice problem to have. 😀

We pay taxes on every dollar we make. And this $2M profit is, I suspect, the easiest money you ever made. I’m all for minimizing taxes paid but I have also seen lots of people get themselves all “balled up” in complicated structures that can cause problems down the road.

I can tell you as a single man I sold my house in San Carlos CA back in 2014 so I only got $250,000 tax exempt. Total gain was say $1.2M. 

I considered turning my house into a rental for 2 or 3 years so I could 1031 out.

At the end of the day, I decided to keep it simple. I sold and took the cash. If I remember I wrote a check for $198,000 to the IRS and maybe like $89,000 to the State of CA. The cash after taxes paid was ALL MINE. I did not have to be concerned with any future tax liability down the road - this money was mine “free and clear”.

By all means investigate options, but there is value in simplicity and freedom with having cash in the bank.

One potential option would be after paying for your new house, invest the rest of the cash in commerical RE, do a cost seq, and take the 100% bonus depreciation. That’s simple. And you continue to have full control of your equity. Of course, investment considerations should always take precedence over tax considerations. - ie don’t buy a dog property to save taxes.

While BP is excellent in many ways, I would caution you against accepting free advice from people you don’t know on BP when hundreds of thousands of dollars are involved.

In my mind, better to spend $10,000 to get advice from someone who really knows this stuff. Not sure how old you are but perhaps estate and trust considerations may enter into the solution.

Arn

@Patience Echem

Cap ex costs get added to your basis in the property. 

Investors or their tax professionals should keep a chart updated annually with current basis for each property. 

Purchase price plus non recurring closings costs is original basis.  

Each year basis is adjusted. 

Original basis less depreciation plus cap ex items equals new basis. 

@Alex Kreeger

The answer is:

It depends in large part on the age, quality and condition of the property. 

Spark Multifamily Investment Group is a syndicator and sponsor of over 1000 units primarily in Greenville South Carolina. 

We are OLD SCHOOL and strongly believe in the benefits of having ample cash reserves. 

We like to have $5,000 a door minimum for reserves. We park this cash in a MMA account to earn interest in this cash for our investors. 

After 48 years in the industry, one of the major factors in investing safely thru all kinds of markets and economic cycles is having cash in the bank to weather the inevitable downturn or when Murphy’s Law strikes. 

Many may find our approach “excessive” and while it may reduce returns 1% or 2% we believe the significant decrease is investment risk is worth it. 

Hope this helps. 

Arn

@Brent Fowler

In order to scale, I believe you will need to find capital partners and share the profits with them. 

@Chris Howell

Excellent being able to bring down a $2M with your own capital and perhaps up to $5M with partners. 

Two thoughts:

1. Whatever capital you think you can raise cut it in half. 

In my experience helping new operators get into syndications, the first capital raise often falls so short of expectations. 

2. Based on your capital etc I’d suggest look for $2M to $5M deals. 

If you find a great $2M buy it for yourself. 

If you find a larger great deal, bring in lrtners. 

Gives you options. 

@Chris Howell

First let me say I think you have the necessary practical hands on experience in real estate to make the jump. 

Far too often I see folks with pretty much no investing experience want to scale and buy a 150 unit apartment building. it’s crazy in my mind. 

You have put in the time and paid your dues. 👍

If you don’t want to give up control, then you need to start small. It’s unlikely an experienced investor with $500K to invest will give a relative newbie MF person control. Not trying to offend just level set expectations. 

Here’s how I would go about it. 

1. Reach out to your personal and professional sphere - reach out to people you know and who know you. Reach out and let people know you are going to start buying MF properties. NO hard sell. Don’t ask for money. Just let them know. Interested parties will self identify themselves. “Hey I’d love to own some RE or MF but I don’t know how or have the time to find and operate them”. They will say “let me know if you find something good.” Just plant the seed. 

2. Look for property you can actually buy. That’s realistic given your financial situation. Doubtful you can buy a $20M deal right out of the gate so don’t waste time looking at stuff you can’t buy. 

I’d work backwards and calculate as follows:

How much capital can I personally invest?

Is it $50,000? $100,000? $250,000?

I’d go after properties where you could come up with a 1/4 to 1/2 the cash required AND then you’d only need 3 or 5 investors to make up the difference.

So it your amount was $250,000 then I would go after properties that you would need $1M cash to buy. This would mean maybe a $2M to $2.5M property.
If not $250,000 adjust accordingly.

Keep talking to people as you look. 
Identify investor partners. 

Get that first deal closed, run it well and deal number 2 will soon follow. 

Good luck?

@Josh Smith

Why not do both?

Owning your own home is the lowest cost long term option to provide shelter for your family. Plus the lowest rates and down payments are available for owner occupied homes. 
Given the strength of the Greenville market, owning a home will prove to be a good investment decision too. 

Then start building your rental portfolio. 

And understand it’s a 10 year process to create passive income and build your net worth. 

Hope this helps. 

I’m in Greenville now for close to 11 years and love it. 

I do multifamily syndication deals in Greenville County but am still a believer in the value of owning one’s home. 

Brian Walsh Progressive Properties of Greenville for Greenville

Mike Epps CEF and O for Spartanburg.