All Forum Posts by: Keith Linne

@Andrew Postell - Such a fantastic breakdown of the different scenarios. I plan to use the LLC strategy on my 1-4 unit rehabs moving forward.

A question for you pertaining to 5+ unit buildings. I am currently looking at acquiring an 18 unit apartment building. In this case, I'd be assuming the existing loan (contract for deed with 4 years remaining on the term), and bringing the 20% down payment as a mix of a private capital and my own capital. Being that the size of this property pushes me into the "commercial" world, do requirements vary significantly (do commercial loans have the same seasoning requirements, etc)? A 6 month season on this property wouldn't be the end of the world, as we'll be working to increase rents, etc to increase the property value before a refi (likely 12-18 month process); however, it would be great to hit an 80% LTV (instead of 70% LTV) on the exit side of things to cash out myself and all private money 100% after the value add.

On this deal, I’m assuming the CD balance is eligible for refinance, since it’s a lien on the property; however, in order to make the 20% down payment eligible as well, should that be recorded as a 2nd lien at the time of closing, or is commercial more flexible/a different beast? For example: 

Purchase Price $1,000,000

CD $800,000 balance

Down Payment $200,000

ARV $1,250,000

Refinance at 80/20 = $1,000,000 new loan balance

I would greatly appreciate any insight you may have regarding this side of the lending world. Thanks in advance!

@Joshua Hollandsworth If you don’t have your real estate license, find an agent who is willing to provide you with a market analysis of comparable properties - both in the same shape as your property currently, and in the same shape as the updated property nearby (but without the perks your property lacks). Spend a ton of time examining differences and learning what impacts value in your market. I live in Minnesota, and garages play a huge factor in property values (many buyers completely rule out homes without them). That being said, price point also plays a huge role (cheaper homes don’t have as high of expectations). Also keep in mind non-rehab related costs such as holding costs (utilities, taxes, mortgage payments, etc) and selling costs (commissions - typically around 6% total, staging - if applicable, etc). Unless you are able to command a similar re-sale price point without the nice garage/driveway, and while also completing the rehab for a significantly cheaper total cost, you will likely find the upside a bit thin. When i was rehabbing properties full time (2011-2014), I also always aimed to set my re-sale price 5% shy of market price. This led to fast sales on the back end, and allowed for slight market downturn, just in case (I prefer to be conservative). Good luck!

I agree with @Anthony Wick and @David Moore. 

In addition, you're focusing too much on YOUR benefits (great tenant, eliminate vacancy), and ignoring the TENANT benefits (great landlord, quality unit, fully furnished). It's coming across as a given all landlords are equally professional, and that certainly isn't the case. If you are highly responsive, maintain an excellent quality property, and take care of all concerns promptly, the tenants should value that. They are in just as good of a situation as you. I have firsthand experience inheriting tenants in properties we purchase from bad landlords (those who don't fix broken windows, respond to maintenance calls, etc). They are amazed at how much more responsive our teams are and this goes a long way in good tenant retention.

I work full-time as a general contractor and any time I've had a client request a price reduction, I simply take the time to walk them through our figures a bit more closely. This shows them I am treating them fairly from a cost-perspective, and also builds trust. Most potential clients assume I'm making a lot more money on their projects than I am, and that may be the case with these tenants. If you verify you are treating them fairly, that may be all they need.

If the clients want to save money, offer a trade off - they take on lawn care, and you reduce rent by the amount saved monthly (unless you were planning a rent increase to keep on track with your financial goals). One less service for you to coordinate, and they save some money for minimal effort. Win-win.

Finally, I'd like to echo what @Sheena Lee mentioned. It seems as though everyone is focusing on the 2 year period and potential vacancy. These tenants may decide to renew again in two years - what happens then? You either continue at a lower rate of return/margin, or have to propose a significant rent hike just to get back in line with market rates. I'm all for treating people fairly, but you also need to be sure you're sticking to your financial goals.

Good luck!

@Patrick Vos I work full-time as a GC in the Twin Cities (based out of Minnetonka) and hold both my Residential Real Estate Broker license and Residential Building Contractor license. If you're even somewhat active in the purchasing/selling space, I highly recommend you obtain your Real Estate license for the following reasons:

- CE credit often overlaps and counts toward both licenses. In the event that it doesn't, a few extra hours each year is worth the direct market access a license provides.

- Knowing your market is key - what better way to learn it than to have real-time access to all current sales, pending transactions, etc? I've also found that some (certainly not all) agents are either overly busy or lazy, and don't provide real time information promptly. This makes it difficult to really get up and running knowledge-wise. It's also easy to feel guilty bugging agents with tons of beginner questions when those requests won't necessarily turn into income on their end (this also pushes your requests to the bottom of the priority list).

- As others have stated, total cost to maintain your license annually is ~$2,000 worst case, depending on your brokerage setup, etc. If you're in need of tips for low cost brokerages, please feel free to message me. In addition to over 30 business-related transactions, I've completed 3 personal residence transactions. My savings from the personal transactions alone have recouped the cost of my license for 10+ years. I also find that I typically help at least one friend/family member with a transaction each year (which will cover the maintenance costs of my license indefinitely, moving forward).

- Yes, there is increased liability; however, if you take earning your license seriously, it doesn't take much to understand what must be disclosed, how to disclose it, etc. I've never found disclosing my licenses when selling a property as a disadvantage. I also don't cut corners when remodeling either for myself or clients, and I document things very well. As such, I'm not concerned about lawsuits, etc.

- You're able to go straight to the source. I'm used to dealing with all clients directly, so there is no way I could deal with a middle-man in negotiations, etc. I did that recently for an out of town purchase, and I strongly prefer to lead my own charge, so to speak. On both sales of my past personal residences, the homes were on the market for 30+ days. After that amount of exposure, my following up and discussions with showing agents lead to multiple offer situations on both homes, netting me more on each sale.

Ultimately, it comes down to how you run your business, your follow-through, etc. Some people prefer to delegate agent duties, but I've found huge advantages to having both licenses. I hope the above information is helpful. Feel free to reach out directly if you'd like to discuss things a bit more. I'm always up for networking!

@Hannah Krebs - Looks great! Lots of work, but I’m sure it will be worth it once you sell!

I live in the cities now, but grew up in Duluth and I'm actually building a portfolio of SFH rentals there. Would you mind messaging me with the address, beds, baths, etc?

@Kayla Wagenmann

As long as you don't misrepresent your knowledge level (always recommend an accountant for taxes, attorney for legal, etc) and are sure you're providing accurate information to clients (correct school district, etc), I don't see any increased liability overall. That's not to say you don't have to work hard with a fairly steep learning curve, but the risk of lawsuit goes down significantly (especially if you also communicate well and follow through on your promises).

As far as taxes go, I would recommend you check with a CPA; however, I've found that the additional write-offs, etc have helped me on an annual basis overall. 

I haven't found a license to be a distraction like @Jordan Moorhead mentioned, though I do agree that working multiple jobs (investing and contracting, in my case) quickly makes 40 hours a week seem very part-time. I also treat the license similar to insurance - a necessary cost of doing business. The bonus is that I typically close at least one transaction a year, in which case the costs for the license are covered (or nearly covered).

I agree with @James W. that everyone knows an agent. That being said, I was able to procure my first buyer client roughly 6 weeks into being licensed. It required routine followup with valuable information (initial contact was at an open house); however, I was able to determine values by comping MLS sales and networking with other agents. Since I had no desire to go full time into client work (I was rehabbing properties full time when I started out), that one transaction was enough to recoup my license/education fees for the year. Going full-time with numerous clients is a different beast when it comes to marketing, etc, but it doesn't sound like you necessarily want to scale that side of things.

When you add in the fact that I was able to save 2.7% on the acquisition price and 3% of the re-sale price on every rehab project we completed (30+ properties/60+ transactions over 4 years), I came out way ahead. Besides the financial benefit, I really appreciate having all of the data at my fingertips (even when I decide to "hire" another agent to represent me). This allows me to be completely comfortable with the ARV of a potential rehab, the rental rate for a 3BR unit, etc.

Although a license certainly isn't necessary to succeed, I don't believe there's any substitute to direct MLS access for quickly learning the market and analyzing deals.

@Julia Bykhovskaia - I appreciate the input and completely agree the higher returns can be worth it for those targeting this approach. Knowing your market (and any STR restrictions) is a major factor to sustained success.

@George Mevawala - Thanks for the in depth response! I can see how having the correct team and systems in place makes all the difference. I work full-time as a general contractor, and after refining my management systems and network of sub-contractors, projects run much more efficiently than when I started out. You bring up an excellent point about knowing the break even point for off-season months, as I think many newer STR investors forget to take that into account. I live in MN, and great STR locations for summer can be extremely hard sells 8+ months of the year. It sounds like you've found a great market and niche, have put in the time and effort, and are reaping the rewards!

Paula Pant of the blog "Afford Anything" (I'm not affiliated, just an avid reader) did an awesome write up on this topic. Here's a link to the first part of her 4 part series (I don't think posting this breaks any forum rules?):

https://affordanything.com/airbnb-experiment-impul...

The main thing I'm surprised hasn't been emphasized more in this thread is the fact that managing AIRbnb units is very time intensive (as you'll see in Paula's experiment). Although more money can be made on a monthly basis with the AIRbnb approach, it is way more hands on. You're also looking at the cost of furnishing the unit (mentioned before) and providing incidentals like soap, shampoo, kleenex, toilet paper, etc. By the time you account for the time, materials, and tax differences (many cities tack on hotel tax), your extra profit is essentially just creating a job.

I'm not trying to downplay the ability to make some extra cash with this approach; however, I view it as more of a side hustle/very hands on investment strategy. My goal is to build a portfolio of passive income producing properties (I outsource management), with the intention of dedicating as little time as possible to those properties once acquired. I'll keep acquiring those deals, and leave short term rentals to the hoteliers of the world.

@Kayla Wagenmann - I have both my MN Real Estate Broker license and MN Residential Building Contractor License. After the initial investment in courses and exams, holding a license costs a few thousand dollars per year (this accounts for state, local, national Realtor dues, MLS access fees, and continuing education costs). If you're able to work one transaction per year, the commission from that transaction should more than cover the cost of maintaining your license.

As others have mentioned, it's totally dependent on your goals and comfort level. I do not have any intention of selling/buying with clients full-time; however, I find that I typically work 3-4 transactions annually for myself or friends/family. I also appreciate having access to all of the market data and MLS analysis tools when comping properties, learning about new neighborhoods, etc. True, you can have any Realtor set you up with auto-emails and searches, but then you're at the mercy of their responsiveness, etc.

I'm working on building a portfolio of properties outside of the metro area, and as such, I'm working with an agent who specializes in that target market. The biggest downside for me is not having MLS access to gain a faster understanding of the market (fully examining sales in neighborhoods, quickly comping properties when they become available, etc).

Based on both approaches, I'm biased toward having the license but also knowing when it's best to utilize an agent to achieve your goals.

@Derek Lacy, @Will Gaston - Thanks for the additional insight regarding potential providers as I'm getting started in the student rental space. I'll look into BHHC and Penn-America. I have Auto-Owners for my general contracting GL policy, so will look into that as an option as well. After some networking with other local investors I've come up with a few smaller shops that should have good insight into the best avenues, so will pursue that as well. Great to finally be jumping in!