All Forum Posts by: Luke Grogan

Give GTE Financial a call. I know for a fact that they do, but it has to meet DSCR of min 1.25 and I think HomeBanc does also. There are a few others that will, but I'd have to go through my notes. Nick Satel is at GTE and David Darnell is at HomeBanc. Use my name with David, but Nick won't remember me.

Whole Life insurance - the most hated product by everyone who doesn't have it. The rest of us who do, probably go back and forth on it. I'd recommend only an AAA rated company. I have Guardian and my guaranteed dividend for this year is 6.25%. I wasn't the smartest guy on the block, and I'm still not, but I got a policy in 2008 and several others in 2009. I read the infinite banking concept, but for me, it was mostly forced savings and the whole ability to borrow against it from the insurer and still maintain tax advantages and death benefit. If death benefit isn't at least part of it for you, I'd do something else... Personally, I loaded my insurance as much as possible. I was working commission and at every chance, I put my big checks on as PUA (Paid Up Additions). By 2013 I had gone through the downturn in stocks, etc and had almost $300k in LI value making over 6% and then I started buying real estate. You don't have to pay yourself back, but you should. If you tax guy understands what you're doing, you can write off the interest that you pay (even through you basically pay yourself, but not technically), and then you can keep using your cash value. Now that I'm refinancing and taking cash out, I'll be able to to take around $700k against my initial $450k home purchases, put it into guaranteed 6.25%, pay 4.75%, and earn the spread while I make cash offers and look for the next properties. I'm sure I could have just put the money aside in a high yield account (that isn't lawsuit or BK protected) making .75% and probably could have done a lot of the same, but I didn't and it worked for me. Now, you will have to keep paying the premiums, but if your investments cover them, then you'll always leave a chunk of cash and properties for your family and if they use a conservative approach, they'll have money that will continue through generations. The lessons I got from the infinite banking concept (which is a bit misleading and has flaws) are these: - Just like if you owned a store, you wouldn't and shouldn't take groceries for free, you should pay for them, don't steel from your savings: pay yourself back. It is a loan, treat it as such. If you stole one can of corn from your store, you'd have to sell 13 cans to pay for the one you stole. If you don't pay back your LI loan, it works against you. - If you planted trees each year for 10 years before you started harvesting, you could eventually use the money that you sold the trees for to buy more saplings and keep planting. The same is true for LI: you have to keep planting/paying/Maxing PUAs for about 10-12 years and then the dividends you make will cover the premiums and you'll build wealth. You can benefit from it only if you allow it to grow and "cultivate" it. - Use your cash value to buy assets that other people pay the notes back for you (i.e. Real Estate). They used an example of a truck leasing company, but the point is the same: if other people pay the loan, other people grow your bank and you benefit. Is whole life the best thing? No. Is it the most efficient thing? No. Is it something misunderstood, oversold, and always debates? Yes. Can you make it work for you? Depends on whether you can make any financial strategy work for you. Nothing is free in life and everything takes work. Keep reading. I can send you a paper that is heavy agains whole life and has good suggestions on what else to use as your planning concept and I can send the Infinite Banking concept book, then you have the tough decision. Sorry for the long post. And sorry for the people who's blood pressure just went up and now you need to figure out how you will respond to my post because whole life sucks and never works. Last words: I'm not the sharpest tool in the shed, but I'm making mine work until I decide to take my money somewhere else, if I decide to do that.

My two cents is that bulletproofing rentals is a good long term investment. If the bathrooms need new toilets, vanities, tubs, etc. then it's much easier to do this up front, or if/when they are vacant. If the repairs/upgrades are needed CapEx and necessary replacements, I'd do what I could. If they don't "need" the investment, but you can delay it and reap the reward later (like before a sale) or it's purely cosmetic and because you want granite or nicer stuff, I just remind myself that it is not for me to live in, so it just needs to be safe and relatively clean. If you do it on 0% interest CCs, how would you pay it off in a year? Put all the cash flow into paying them off? I'd rather have cash saved for replacement and operating reserves first than to put everything on credit. Again, it comes down to needs vs wants. Do these units need investments? If yes, get them done efficiently. If no, make sure they are as bullet proof as possible with what you've got and save and re-invest.

Yeah, these are smaller deals, under 25 units. I haven't seen larger deals at those numbers, but I couldn't get a larger deal financed because of the down payment issue. Not trying to get into an internet battle over it, but there are deals to be found, but maybe you're right that when it comes to the final, all in number for purchase plus rehab, then the cap rate is lower. Either way, after rehab the rent prices go up, so we have that... I'll reach out to you and we can talk about commercial. Not sure it's the best way for me to go, but I know it's worth considering. Thanks again for the comments Joel Owens

@Joseph Gozlan @Joel Owens

I appreciate the comments. I agree that 8 CAP MF is difficult, but they are out there and my underwriting is more conservative than brokers! While I'll always make an incorrect estimation on expenses, I work hard to make sure I'm over estimating and not underestimating, but true replacement reserves and CapEx is hard to estimate. Likewise, rising costs associated with both SFR and MF is hard to model as well, but we do know costs go up.

I'm looking for relatively safe cashflow, so it's probably a combination of wealth preservation with an inflation protected asset and inflation protected cashflow, and growing my cashflow. I did this with SFR as we came out of the bottom and it's increasingly difficult for me to find a good rental without a lot of work to get them rent ready and then the rental rate vs total investment is around 8% or less.

This has led me to look more closely at MF, which with a back of the envelope 50% costs vs potential rent, there are some good B class MF assets. The problem I see is the potential for higher tenant turnover and the cost of turning a unit and lost rent can be tough to estimate correctly. The places I'm looking at are older, so 10% repairs, 8% vacancy and 3% replacement reserves is just an estimation and I've been around long enough to know that when you start fixing issues in older buildings, they seem to get bigger as you go...

Good points on the dirt under the asset. This particular deal is a single tenant, national chain quick serve restaurant. It's got a good track record in this location, but if/when it becomes vacant, there will be some challenges to finding the next standalone tenant.

Joel, I appreciate the offer to chat on the phone. I'll take you up on it after I put a little more effort into DD on this place specifically.

@Marc C. Hey Marc, not sure I understand the question. The BET cashflow (before tax?) is $4,700/mo which makes it a 6 CAP on purchase price. I'm assuming "a couple hundred per month" in expenses for NNN, but I'm just at the start of really doing any DD and this is the first commercial property I'm digging into. Without getting it under contract, they won't share tax filings or monthly cashflow/expenses or the lease terms. I understand it, but just not sure I want to put it under contract until I know a little more about NNN and if it isn't he best way for relatively low involvement, protected cash flow.

I'm staying away from fundrise and REITs at the moment. I can also get solid, 7%+ returns with a couple of oil and gas companies and bet on rising energy prices, but I'm separating stocks, REITs, and notes from real assets that I'm purchasing. I've got one good pool of capital to put to work for my second round of major purchases and trying to make sure I am looking at it correctly for cashflow and moderate downside risk.

Kerry Baird that is true, but not sure the benefits make their way to all parts of Titusville... what's available in Cocoa Beach, Cape, and Sat Beach tends to be unrealistically overpriced. I'm sure there is a deal somewhere, and I am looking for it, but the ask prices are out of whack for what I'm seeing... keep me in mind of you do find something that makes sense!

There are several MF deals around FL for 8 caps, some in A+ areas, but properties need some capital to bring them up to standard and to raise rents. They are in JAX, Tampa, Brevard, but they are usually in B/C areas. The one in question is C area, needs work, but is an easy 8 with upside with raising rents. Problem is the area is one I don't like, bleak job growth, low class, challenging tenant pool and needs really good, strict management. The NNN is in an A class, but it's really heavy on the snowbirds and upper class retirees. Definitely no growth, but the franchise is one of the largest in the world that is the stand alone tenant. Been in the location for 15 yrs and has a long term corporate backed lease. For this example, relative NOI is the same and purchase prices are in the $750-800k producing about $50k NOI. Obviously the numbers are not firmed up, but this is pretty close and I have to go off of pro forma for the MF, which I am pretty conservative with. The hard part for the NOI on the MF is that I think there will be continuous replacement/repair issues. Not only getting it ready for the market, but long term, there will be issues with buildings fallen into disrepair and with lower class tenants and I don't know if I can get rid of everyone and get the whole place up to standard, so it will be in states. Definitely more hands on and not sure I want to be too hands on with a rehab on a MF... Just curious if all else was equal, would you look at triple net commercial as a better long term play.

If you were looking for "safe" cashflow and ROI, would you look at a triple net lease with a nationwide brand as the tenant in a stand alone property? Fifteen year lease with annual rent increases and lease backed by corporate. OR would you keep looking for a good, rent ready, B multi-family property with a ~8 cap? Not sure I can do a good forced appreciation MF deal, but I've got an opportunity on a stand alone NNN with a premier, national tenant and not sure since I've never really even screened this type of deal. Curious which you'd choose with these options...

If you were looking for "safe" cashflow and ROI, would you look at a triple net lease with a nationwide brand as the tenant in a stand alone property? Fifteen year lease with annual rent increases and lease backed by corporate. OR would you keep looking for a good, rent ready, B multi-family property with a ~8 cap? Not sure I can do a good forced appreciation MF deal, but I've got an opportunity on a stand alone NNN with a premier, national tenant and not sure since I've never really even screened this type of deal. Curious which you'd choose with these options...