All Forum Posts by: Matthew McNeil

I've been investing in Waco for 5 years now specifically in student rentals. The large apartment complexes have had a negative impact on SFH and small MFH properties by stunting the growth of rents. Students still want to live in non-apartment style properties but age of the property and proximity to the university are huge factors.

As far as management, make sure you speak with all companies available and that their goals align with yours. Also if they have their own properties caution as they may be renting their own first before others. It's hard to prove so good luck.

Final comment is to make sure you account for higher property taxes. Waco has been very aggressive the last 3 years in overvaluing properties to pump up their revenue.

@Stephanie Choi i would definitely set up an LLC. You can still get a residential loan with an LLC, you just need to close on the property in your personal name (as someone else stated residential loans are hard to obtain in an LLC) and then quit-claim the property to the LLC. While this technically may violate the due on sale clause of your loan, I've never heard of a bank enforcing it.

One thing to keep in mind is If you plan on acquiring more properties in the future and place them all in that same LLC, all of those assets in that same LLC are exposed if you were to ever get sued. So, something worth looking into is a "series LLC". This type of LLC compartamentalizes every asset held under the same (parent) LLC, so each asset is not exposed in case of litigation. From what I've heard, you can create one bank account for this LLC and multiple properties and it won't be considered co-mingling funds. I wish I had more info on this type of series LLC and if someone reading this does, feel free to chime in, because it's something I myself am looking into setting up. I believe you can even take it a step further and set it up as an Anonymous trust, which would allow others to have to dig a bit deeper in case of a lawsuit (if they don't know you own an asset or other assets then the less likely they may be to move forward with litigation).

Why I dislike Arbitrage. Keeping simple. Arbitrage a $200,000 house in average area. You supply furnishings, maintenance and upgrade. Both need STR insurance.

Arbitrage is all the work for part of the money. 

If landlord changes mind, you have a furnished place to deal with.

Any upgrades don't belong to you

You build up no equity. In 15 years, house belongs to me ($200,000)

Average price rise is 3-5%. You make none of that. In 15 years, that a lot of money. If house now worth $300,000 I make simple $20,000 a year on owning house plus appreciation. 

It ain't yours. 

A property is a great inflation hedge. 

You can borrow against equity and get more properties 

Most markets are flooding with airbnb's driving down rates. If mine, I can always rent long term or even do the travel nurse thing. 

When you put down 20%, you are using OPM. You are getting good cash on cash. 

In many areas, local regulations are making harder for non-owners 

In many markets, it is a lot of work for not that much extra money

@Matthew McNeil

Alright its late for me and gotta get up early for Mothers day tomorrow.

Here is the quick and dirty of why it went wrong.

#1  Finding a long term tenant is difficult in any rental.  But there are special challenges at this higher price point like $3000/month rent in Atlanta suburbs.   $3000/month rent is like $6000-7000/rent in places like SF bay area - this is higher end rent and the target individuals are different from  your traditional renters.    

The tenants tend to be very short lived.   Nearly every good tenant wanted to leave shortly after 1 year renting due to desire to buy their own property.   I even had 2 different tenants who paid me higher rent to just rent for 2-3 months in transition (UNFURNISHED) while they look to buy their own home.

High turnover is bad, very bad for rentals

#2  Self-managing a property was not as easy as I thought -  How to deal with problems when it happens.   Evictions?     These are things that professional property managers should be dealing with.   My model of self-management did not work out well when there were issues -  That's another LONG post which I have no time for.

Could this rental have worked out and made positive cash flow around $400-600/month -  Sure.    But given the issues I faced, there was no way it was going to make $1000/month.

That being said,  people forget that with more expensive homes you get 

#1 More equity in my pocket each month with pay down of principle of almost $1000/month vs $100/month on a $100,000 home.

#2  HIGHER leverage so interest deduction is great

#3  HIGHER depreciation losses to use to offset income

#4  HIGHER or more rapid appreciation since 3% appreciation on a 500,000 = $15,000   vs. 3% appreciation on 100,000 = $3000 only.

So it's not a complete LOSS but certainly not what I expected nor what met the planned SCALING.

But I found something NEW that did help me scale. Read my posts on Airbnb/STR (short term rentals). I have an update on my progress soon.