All Forum Posts by: James Wenzel

House hacking is a solid way to invest and partner with someone that has money.  I would start by getting educated and taking a course on house hacking, property management, and deal analytics.  Plenty of conferences (live and virtual) and local meetup groups that you can attend.  Download the meetup app and type in your location.  Also google RE conferences in most major cities.  

Now my personal advise to them is if they want to be passive and have more than 100k and are busy, I think their best option would be passively investing in syndications.  There are a ton of ways to get educated at multifamily/RE conferences as well as local multifamily meetups.  

Bottom line is get educated, make a plan, and take action.  

You will run into maintenance CAPEX issues for sure. I have been in vesting for 10+ years and that will cut into your profits unless you fix everything up front. 2.5% is way too low of a COC return. Things to consider when investing in Real Estate: 1) Think about investing in areas that have a low supply of doors for rent, grown jobs, growing, population, and is landlord friendly (I like Texas, Florida, Georgia, Carolinas, Arizona, etc...), 2) have a standard for your investments (mine is 7% COC, and a 2x your investment at 3-6 years (100k in 200k out). You can do this through single family investing (with a management co) as well as passively investing in CRE syndication.

WHAT SHOULD WE BE LOOKING FOR?  I look for already cash flowing assets (put 80% of capital) in locations that have limited supply, landlord friendly, growing population, growing jobs, can't keep up with housing or unit demands, low cost of living, etc...  Texas, Arizona, Florida, Carolinas.  I also am more critical in my analytics.  I like syndicators to devalue the cap rate factoring in a slight downturn and interest rate hikes.  If the deal still pencils out and cash flows through the leads value add proposals, Im in. 

What WOULD signal the end of the road for you?  Unless the world is coming to an end, I will never stop looking to put my money in hard assets that cash flow.  I will adapt and move to markets that work, different MSAs, states, and even countries.  I really focus on local market and MSAs that have have limited supply, landlord friendly, growing population, growing jobs, can't keep up with housing or unit demands, low cost of living, etc... Texas, Arizona, Florida, Georgia, Carolinas.  I will invest in another market if deals don't pencil out anymore or any of the above changes.  I pulled out of multiple markets last couple of years due to analytics not making sense anymore.  For example in Texas, certain cities like Austin are getting a little tight due to yield, so I moved my money to Houston and Dallas.  

What will be the warning signs we should be watching out for?  Once again, I look at specific markets for warning signs.  Move my money to areas with positive metrics.  

What, in the end, will signal the next collapse? I don't have a crystal ball.  However, throughout history, all the wars, collapses, crisis, there are always people that find a way to help others and succeed financially.  Adapt, be flexible, invest in cash flowing assets versus speculative.  

As far as the single family expenses.  I was taught to fix up everything day 1 (AC, flooring, paint etc...) when you first buy it.  Then about 5yrs down the road you're supposed to sell and roll into another like property (fix up/like new day 1) or cash out refinance to obtain capital for future repairs on the older house.  I prefer the cash out refi and have pulled a ton of money out of my rentals to cover repairs and get additional capital to buy more properties.  Regarding tenants moving out and you having to repair stuff due to them.  Take a bigger deposit and bill them for anything over the deposit.  Lawyers for that.  

If you are going to start buying more doors, you might want to start thinking about switching to multifamily (over 100 units). I recently switched to multifamily as a passive investor, and also started buying some on my own.  When you buy the larger multifamily properties, repairs and expenses are part of the underwriting model.  So if 10 ACs break, that is usually factored in the analytics.  Plus you typically have a maintenance team that is onsite that are salaried to fix stuff.   Typical projected returns as a passive investor in my experience are doubling your money every 3-6yrs and usually getting a cash flow return during the project of 6-10% (norm now is 7%). So 100k in, 200k at exit which includes your cash flow payouts (7%). Most have a target hold of approx 5yrs.  

I still have 3 Short term rentals and 7 long term rentals. But the rest of my capital is going into the MF space to avoid the hassles you spoke of. Was in 20+ CRE deal last year and 5 went full cycle, all over 30% ARR. I usually put about 80% of my capital in cash flowing MF, and the other 20% in developments, deep value adds, etc...

You always want some cash flow. A couple of options that I would consider if I was in your situation. 1) Sell and roll into multiple properties down the street in San Antonio or into some passive commercial real estate deals. 2). Turn it into a short term rental if allowed by HOA. Usually STR cashflow 4-7x what a conventional rental does. I turned a $400/month LTR into a STR and the profit increased to $3000+/month. 3). Check the rents, Austin rents are ridiculous and to me $2.3k/month seems a little low. I would run the numbers and list it to see if someone would rent it for the amount that would cash flow at least a couple hundred a month. Then you could benefit from all the growth in Austin (Tesla etc...). Values should continue to rise and you could make a killing on the home in the next 5ish years.

For that particular deal, thinking the BRRR will be 3-5yrs down the road. Based on the numbers you provided:

If you can get a 80% loan, your target all in will be 80% of the 200k = $160.  Anything above the $160k will be out of pocket, anything below the $160k you will be able to pocket.  100k purchase, 50k rehab, private money/refi loan fees of 5-12k (unless your doing cash upfront).  All in is approx $160k.  When complete, you have a 200k property (loan of $160k), 40k equity, should be cash flowing, and you got it for almost nothing or very little out of pocket.  I always add an additional 10% to my budget for stuff I might have missed.  Looks like a solid deal.

As far as BRRR with real money being pulled out, that is down the road 3-5yrs after some principle pay down and appreciation.

Education is the key.  I typically go to 3-5 RE conferences/meetups a year in PHX/Scottsdale area.  Was just there for the REWBCON conf https://rewbcon.com/ which provides education on long term rentals, short term rentals, land, apartments, storage etc...  There are also a lot of meetups you can go to to get educated.  Download the meetup app and type in Real Estate investing in PHX/Scottsdale.  Limitless Expo 2022 is also going to be held in Scottsdale June 9-11.  Bottom line, get plugged into a local RE group and that will help.  Ill PM you with my contact info.  

You really have to dive into the analytics a little more than that.  A 25% bump on a 150k home in Texas is way different than a 25% bump in a 900k home in California.  Real estate is regional and different when you look individual metro areas.  If you live in an area that has limited supply of housing/doors, growing jobs, growing population, lower cost of living compared to the the national average, you most likely will have limited impact due to those factors.  For example, I live in San Antonio Texas and during the 2007-2010 crisis the lending market froze for a couple of months and values went flat (maybe a 3-5% decrease) for about 6 months.  After 6 months, the values rebounded rapidly and values started to go up again due to demand, low supply of housing/doors, job growth, population growth, low cost of living etc...  I sold 2 SF properties in 2008 for above asking price and got multiple offers during the crash.  Bottom line, don't go off the national numbers since real estate is based on local markets.  To lower your risk, invest based on location, supply and demand, job growth, affordability, population growth, etc...  Another way to lower risk is to invest in properties that have equity and are cash flowing so you can hold the property and still make returns during a potential slow down.  

It's all about the cash flow.  If it still cash flows, absolutely pull the dead equity out and reallocate to another property.  Your cash flow might even go up overall since you have 2 cash flowing properties.  I typically cash out refinance my properties every 5ish years and leverage it out into other investments properties.  It really accelerates your net worth and equity.  

I have invested in the single family market short term and long term rentals in Texas. You can still pick up properties for under $250k that yield for $400-800/month after PITI/bills for long term rentals and short term rentals for $1500 - $4000/month after PITI/bills, of course if you pick the right areas. If you have large chunks of money and are busy with work can't travel, you can also invest in passive commercial real estate syndications anywhere in the US. I typically focus on growing metros and landlord friendly states like AZ, FL, SC, NC, GA, and my favorite TX. I have had really great success in the passive CRE investing world, last year 5 deals went full cycle and all returned over 30% ARR.