All Forum Posts by: Mack Benson

Dave Ramsey is a great first step for financially uneducated. Most people don't understand the difference between an asset and a liability so the Dave Ramsey way is a great method for them to crawl out of the debt hole they have gotten into. They try to eliminate all liabilities which is smart until you learn you can't save your way to financial freedom. You can, however, invest your way to financial freedom. Unfortunately the Dave Ramsey method doesn't take into account good debt and leverage. 

I'll start with a baseline for comparison. If you want to invest in stocks $100,000 will get you $100,000 worth of stocks. 

Now let's run a hypothetical on a BRRRR. I don't know where you are so I'll use an average property around me. It will be a 3 bed 2 bath rambler built in the 1950s or 1960s. Let's assume that it hasn't been touched by renovations in the last 50 years so it has the original everything. The ARV would probably be about $250,000, I'll assume it needs about $75,000 in renovations because the bones are good it just needs some updates. The equation many use for a BRRR is 70% * ARV = Purchase Price+Rehab. Do some math and we find that we can offer $100,000 for the property. Remember, it hasn't been updated and needs a lot of work. Now for the financing assuming you are using a conventional loan we'll say you need 25% down on that $100,000 loan so you need $25,000 down. Your all in cost including down payment and renovation end up at $100,000, the same as the stock purchase. Here's where the BRRR diverges though. After it is renovated and rented out you go back to the bank that you got the original loan from and have an appraisal done and ask for a cash out refinance. We'll assume the bank allows you to go up to 80% of the ARV for the cash-out so ARV x 80% = The amount you can cash out refi. You'll take that amount and subtract your cash invested to give you how much profit you can realize in addition to the return of your original cash investment.

 $250,000 * 80% - $80,000 - $20,000 - $75,000 = $25,000

In this case you have a cash flowing asset that the resident is paying the mortgage for you on. You also have an extra $25,000 you didn't have before and the original $100,000 you had before.

For comparison, you originally had $100,000 and if you bought stocks you ended up with $100,000 worth of stocks. Alternatively, if you used that $100,000 on a BRRR you ended up with $125,000 in cash plus a property that is paying you every month and you will one day be able to sell at a profit.

Hindsight being what it is I wish I would have house hacked 20 years ago when it would have fit into my lifestyle. You say you are able to buy right now, does that mean you are able to put 20-25% down on a rental property or you are able to put 3.5% down on an FHA loan? The reason I ask is because you mention buying a rental property and rent it out until you need a room then house hack. If you buy the property without the intention to live in it (rent it out) then you will need to have the 20-25% down as an investment property. If you are planning on living in it as your primary residence you can use the 3.5% down FHA or a 5% down conventional loan. Last I checked you only need to live in the property for 1 year and you can do it again.

If you have the 20-25% down I would suggest finding a place that you can house hack, even if it's a SFR and you are renting it out by the room. In a year you can do it again with the 3.5-5% down so you could look for a 2-4 unit.

There is always the possibility of a market crash and you never know when we hit the top or bottom until after it happened. You could buy today and the market could go up another 20%, or it could go down 20%. You could choose to wait and not buy today and the market could go up another 20% before you get sick of waiting and buy before the market goes down. Unless you have a crystal ball all you can do is run your numbers conservatively and buy right. What does the deal look like if you have no renters? What does it look like if your rental income decreases 10%? 25%? If the deal looks promising after stress testing then go for it. 

By the sounds of it you are in a comfortable place for your living situation which is good. You can take your time and only buy if the deal suits your criteria. Stick to it and you will be in a great place!

Typically if you are having a hard time finding good comps close to the subject property you will need to expand the area like you have done. You may need to expand even more. The next thing would be to expand your time, go further back. Neither option is perfect but finding comps rarely is.

I just saw this come across. 

I was pleasantly surprised because I had heard that they would change the net worth requirement because some say it has not kept up with inflation. For me the first two are big deals. Accepting individuals with expert knowledge of investments is a great change. To me it has always been odd that a financial advisor who may not have the income or the net worth was unable to invest in a syndication. 

It's also nice to see that "knowledgeable employees" of a private fund can now invest alongside the firm they work for. This can show a huge alignment of interests within an organization.

It depends on how small you are looking for. In my market the smaller multies, 5-12 units, are usually listed on the MLS, you can have a local agent set you up with a search to send you listings as they come up much like the SFR world. Most listings over 10 units are typically marketed by a single brokerage who may or may not advertise it on their website. They will usually send the OM to their preferred buyers or even those who have signed up on their website for updates. You could also check out loopnet and reach out to brokers in your market who are actively listing deals.

By multifamily I assume you are looking for 5+ units, and my mind automatically goes to 20+ units. In my market both of those property sizes requires different tactics. Often I see smaller multifamily properties, in the 5-12 unit range, listed on the MLS so I had a local agent set me up with a search so I am alerted to new properties that are listed. For the properties over 12 units, and sometimes less than 12, I need to work directly with the brokerage firms because they only list them on their own websites or share them via email.

Being "open to all over America" you are not going to be able to learn the specific niches in any market. I think you need to focus your efforts on a few markets and start to network with the brokers in those markets. When the broker feels you are a serious buyer you may start to get some of their better deals that may include properties that are not stabilized and in need of rehab.

For estimating rehab costs there is always the classic by J Scott The Book on Estimating Rehab Costs. For a guide to flipping houses you could check out another book by J Scott The Book On Flipping Houses. If there is a specific task that you want more detail on I have found Youtube to be the most helpful thing out there. Growing up my dad had a Time Life Home Repair And Improvement set of books. This was his go to when he was trying to figure out how to fix something he had never encountered before. Of course that was in the days before had the ability to watch someone build a house from an empty lot via free internet videos. 

@Sheldon Fleming who is more concerned about your experience? As you say these are motivated sellers, I would think they are more concerned about their situation than they care about your experience. Are you overthinking things and psyching yourself out? If so, STOP. I'll go back to my suggestion for role playing, if you ever hear Chris Voss interviewed he almost always has at least one role playing session with the host. If role playing and practice are good enough for Chris Voss I think it's good enough for us all. If you need to you can start alone in the dark or alone in front of a mirror, play both parts, get good comfortable and confident in what you want to say. 

I know you can do this because you have asked the question. The next part is you have to know you can too.

Confidence comes from knowledge and practice. It sounds like you are working on your knowledge now you need to practice. The practice is why every customer focused role I have ever had involved some sort of role playing. With practice and experience you will know what they are going to say before they know and you will be ready. Another thing many people need to work on is their listening skills, a lot of times we are thinking of our response before the other party is finished talking, this can be a distraction that can cause nervousness. Actively listen and then respond with what you practiced. 

I am not a lawyer but my understanding is as long as every member of a partnership has specific duties they are responsible for then a JV can be as many people as you want. The thing to remember is that if anybody's only responsibility is to provide capital with the reasonable expectation of a return on their investment you have likely created a syndication.

I believe the best thing to do is make sure each partner has their own duties specified in the partnership agreement.