All Forum Posts by: John Morgan

@Kent Ford

I've got 18 SFR in the DFW area. Property taxes and insurance have gone up on average of $100 year after year. Some of my properties insurance and taxes go up over $200 every year. And I'm in the affordable/cheaper C+ class hoods with rent in the 1800-$2200 range. I try to pass that onto my tenants, but most are struggling with their rent as is since inflation/cost of living over the past few years have wiped them out. Just factor that in your numbers. And expect insurance to keep sky rocketing due to all these storms.

@Miguelli Fernandez

I’ve done this two times and it worked out great. I gave them both a free month lease back for furniture or a low price for the homes.

Quote from @Dana Yobst:

Quote from @John Morgan:

@Daisy Hawkins

Any attorney can show you're behind your LLC if you ever get sued. It's simple for them to do. Just ask them. I would just keep it in your personal name and get extra liability. I switched the deeds from 6 of mine that were in my personal name over to my LLC and wish I didn't.

 Curious why you wish you had not switched them.  I am looking at this this now. 

It was a waste of time and money to deed 5 or 6 of my properties over to my LLC. My mortgages were in my personal name. Plus I’ve had attorneys tell me they can easily pierce LLCs showing individuals are behind them. They tell me to get extra liability and keep them in my personal name. Plus if you ever have to evict, you have to have an attorney represent you in court. I’ve only evicted 4 times before, but I’d rather do it myself and not have to pay anyone since it’s so easy to do. 

Quote from @Solomon Nguyen:

Quote from @John Morgan:

@Solomon Nguyen

I'd invest that cash out of state and get some good cash flow going. I'd buy a few SFR with 20% down. I bought 10 SFR out of state in the last 10 months and they're easy to self manage from a far.

 Hello John! 

Thank you for the idea. May I ask which markets you are looking into and the average price of the homes that you are picking up? Are you also sourcing them from MLS or are they mostly off market deals? Looking forward to hearing from you!

Best,

Solomon Nguyen

I’ve been buying some properties off the MLS in Arkansas. 

People told me to hold off around Covid four years ago and wait for stability. I ended up buying 17 buy n hold houses since Covid and glad I didn't listen to the experts claiming the sky is falling and RE prices will crash. I'd rather dollar cost average and buy every year in good times a bad times. There will be bad times but I'm not going to "time" the market. I'd rather have "time in the market" evenly over the years. So I'd say yes, now is a good time to buy. I bought two buy n hold SFR in September. I'm not scared. I'm still bullish on housing due to a massive shortage. And now is a good time to buy because I have less competition. It's more of a buyers market so I'm getting some great deals on pricing.

Quote from @V.G Jason:

Quote from @John Morgan:

@V.G Jason

It's still doable today. I bought 11 houses in the last year that cash flow well. I got creative with coming up with money (401k up to 50k, 0% interest for a year credit card loans and lines of credit loans from banks). I just closed on one last week for 70k with 20% down. And another one three weeks ago off the MLS for 75k with 20% down. Both of these had tenants in place and cash flow well. People have told me it can't be done for the last 5 years, but I refuse to listen to them and keep finding deals. I'm ok leveraging and borrowing money to get them. I pay off these loans asap with the cash flow. I don't pay myself with the cash flow. It all goes into paying off my short term loans so I'm ready to repeat when I find more cash flowing deals. I'm in Texas and Arkansas. Not all markets are dead right now. I have a few other investor friends who are finding deals too. One just completed a BRRRR in only 5 weeks and did his cash out refi on Friday. He was all in for 100k with purchase plus rehab. He got 124k back from the bank and his house cash flows $600/month. So he basically got a house for free, plus 24k profit to keep for himself. And a nice rehabbed cash flowing house with a new roof, hvac, driveway, LVP floors and updated kitchen and bathrooms. Just because the numbers don't work in some areas, doesn't mean you can't leverage up and borrow to invest in good deals in other areas.

5 years ago and today are very different. I'm talking 2023-fwd, you may have done 11 in the last year but you're rates are high and you're vulnerable to any vacancy or capex. Your cash flow is not strong, I guarantee that. 

True cash flow needs to be 50% net of your PITI, but we can use banking measures of 75%. You're not CF positive on 50% net if you have 20% down + market-bearing interest rates. Just a simple fact check says thing are off.

20%(75k) off the MLS three weeks ago. You got at best a 6.5% interest rate, and I doubt that, on a $375k house. Assuming, and knowing you buy in Texas & Arkansas-- let's use the latter as an example--that's at least .4% property tax and $80/mo in HOI. You're paying about $2100/mo in mortgage. Assuming no reserves, just banking measures your breakeven on cash flow is $2625/mo. This is not assuming a more appropriate amount which would be $3150(50% net). You can find $2625/mo in Arkansas, you very rarely can get a $3000+ tenant.

$375k speaks to me of a Texas house, and that'd put you at minimum $2500/mo payment and therefore raising those numbers a lot more. If you found 11 of these, good for you. I am not buying it, I think how we do our math is totally different. 

The $124k house is really rough example, if you're investing those areas I question how you underwrite tenant turns, vacancies, etc., something is awfully amiss. 401 loan rates are 1-2% over prime, so  you're paying 9-10% money to put down to then leverage a 7% deal on?

My net cash flow on the 10 houses I bought in Arkansas in the last 10 months is 5k/month if nothing breaks. Not great but not bad. I’m  getting around the 2% rule on those. The house I bought last Monday for 70k rents for $1600/month. The house I bought 3 weeks ago there I found off the MLS for 75k rents for $1200/month. Property taxes and insurance are extremely low there so my net profits on those two are $1,000/month and $800/month respectively with loans with 6.875% interest rates putting 20% down. 

The one I bought in Arlington, TX for 210k 11 months ago was turnkey and only needed a fridge. It rents for $1950 and is more of an appreciation play because I like the area. 

I bought 3 other houses in the DFW area in 2023 that net me $3500/month. I rent two of those by the room to increase my profits. This profit doesn’t count for vacancies or cap ex, but you get the idea that there still are decent cash flowing properties to buy out there with 7% interest rates. People have been telling me I can’t make money off rentals since 2018, but somehow I keep finding cash flowing deals that are appreciating well. I’ll keep buying while others make excuses as to why they can’t or say they’ll wait for the big housing crash that they’ve been predicting for the last 5 years. 

Quote from @Shelby McKean:

I think I am learning that I probably should have said rent-ready and not turnkey, but I think you have answered the subtle question I was asking which is, is it possibly worthwhile to invest in properties that give you only one type of revenue (paying down the mortgage) and maybe don’t give back the cash immediately for the next investment?  

If I am understanding, you don’t (or can’t) refinance these properties for seed money for your next investments. 

Thanks for your reply  

I’ve bought 18 or 19 houses with tenants in place. I’ve done well off them and they were all easy transactions. I actually bought one last week and another one two weeks ago with families in place. For me, I prefer investing this way. I’ve also bought a half dozen houses that were vacant but only needed an appliance or two to get ready to rent. Those are easy too and they all appreciate the same over time. I target C+ class hoods that seem to have tenants that stay much longer so my turnovers are almost zero. Almost all of my tenants won’t ever be able to afford or qualify to buy a house. I keep them under market rent and hopefully they’ll stay for a decade or two. Turnovers within 3 or 4 years will crush your profits. It’ll cost you 5-10k to repaint and clean them up. Think long term and look for  properties you can buy with tenants in place. Those are the properties I love buying because I know these people don’t ever want to leave and will be with me for a long time. 

@V.G Jason

It's still doable today. I bought 11 houses in the last year that cash flow well. I got creative with coming up with money (401k up to 50k, 0% interest for a year credit card loans and lines of credit loans from banks). I just closed on one last week for 70k with 20% down. And another one three weeks ago off the MLS for 75k with 20% down. Both of these had tenants in place and cash flow well. People have told me it can't be done for the last 5 years, but I refuse to listen to them and keep finding deals. I'm ok leveraging and borrowing money to get them. I pay off these loans asap with the cash flow. I don't pay myself with the cash flow. It all goes into paying off my short term loans so I'm ready to repeat when I find more cash flowing deals. I'm in Texas and Arkansas. Not all markets are dead right now. I have a few other investor friends who are finding deals too. One just completed a BRRRR in only 5 weeks and did his cash out refi on Friday. He was all in for 100k with purchase plus rehab. He got 124k back from the bank and his house cash flows $600/month. So he basically got a house for free, plus 24k profit to keep for himself. And a nice rehabbed cash flowing house with a new roof, hvac, driveway, LVP floors and updated kitchen and bathrooms. Just because the numbers don't work in some areas, doesn't mean you can't leverage up and borrow to invest in good deals in other areas.

@Daisy Hawkins

Check with a CPA regarding the tax savings. Moving it from your personal name to your LLC will be treated the same for tax purposes when selling, so I don't see how moving it to an LLC will change your capital gains. But double check with a CPA on that.

I have a friend who's an attorney and had over 25 rentals at one point. He said it's so easy for any attorney to sue you if they wanted showing you're behind your LLC. He said he keeps his in his personal name and just gets extra liability insurance vs putting them in LLCs. But some people think LLCs are bullet proof and go through all the hassle to try and hide behind them. I just get a million in insurance and leave them in my personal name. However, I've bought 7 in my LLC with DSCR and commercial loans. But I don't do my leases in my LLC because an attorney has to represent the LLC in court, not us.

@Daisy Hawkins

Any attorney can show you're behind your LLC if you ever get sued. It's simple for them to do. Just ask them. I would just keep it in your personal name and get extra liability. I switched the deeds from 6 of mine that were in my personal name over to my LLC and wish I didn't.