All Forum Posts by: Michael Ealy

It's my first time posting here and I'm completely new to the world of REI so please forgive my ignorance on the subject. I'm hoping to network with people who are either currently in my situation or have been in the past. Since I'm an overseas contractor, I've been researching REI strategies that best fit the lifestyle of an active duty military member stationed in a foreign country.

My question is, what different types of investment strategies have shown the most success for someone doing it completely hands off and remotely (my focus is on cash flow)? Should I invest in multiple strategies or focus most of my energy/capital in one?

So far, I’ve done a considerable amount of research over the past few days on partnerships/JVs, turnkey, syndicates (non-accredited investor), and remote managed MFH strategies. I’m also hoping to use this platform to meet/network with other people and absorb information while building strong relationships for potential future partnerships.

A little bit about me to paint a better picture:

-USAF Veteran

-Married (dual income) with children.

-Net worth: Enough to get a very decent start in REI.

-Debt: $0 (CCs paid in full every month)

-Housing situation: Renting; no properties.

-Job: Me - Information Technology, Wife - Program Management

-Education: BS and MBA

-Location: Asia (I’m sure some of you can guess where exactly by my initial greetings.)

-Duration of Expat Status: Indefinite (So far, I’ve been overseas for 12 years.)

-Books Currently Listening To: RDPD and Crushing it in Apartments and Commercial Real Estate.

-Research Sources: BiggerPockets and their YouTube channel, FromMilitaryToMillionaire, Richonmoney, various articles from multiple sources, blogs, podcasts, other YouTube channels, etc.

-Long-term goal: To generate enough passive income to reach financial independence and retire early, hopefully over the next 8-10 years. Ultimately, spend more time with family and do other productive things with the freed up time. Also, I’d like to eventually qualify as an accredited investor for those bigger deals. (I’ve already calculated our “freedom number.”)

-Regrets: Not listening to that elderly man I met at CVS 10 years ago who told me to get into REI. *facepalm*

Please let me know what your thoughts are. Thank you for reading and I hope to get to know as many of you as possible!

-Nick

TL;DR - Expat looking for the best passive investing strategy to reach FIRE within 8-10 years while also networking on this platform.

Nicholas,

There are only three totally passive ways to invest in real estate: (or 4 ways)

1. Syndications

2. Private lending

3. Buying mortgage notes or buying tax lien certificates

All the rest require some time to manage the property or manage the PM who manages the property.

Now, with regard to syndication, you can invest even if you're non-accredited as long as you have pre-existing relationships with the sponsor. How do you establish pre-existing relationships? You can't invest because of one email. You can call sponsors and see the deals they work on. You can ask questions and learn over time (could be several weeks or several months or even a couple of years). You're vetting them and at the same time, establishing that relationship with them.

Not all my investors are accredited. I am sure other sponsors do the same. I use an accreditation form just to document when I spoke to the investor and that can be used as a basis for preexisting relationship. Now, having said that, I am not an attorney so don't construe the above as legal advice. Please consult your own attorney.

By the way, where in Japan are you located?

I have investors from Asia by the way - in China. Here's a post I made about my experience with Chinese investors:

https://www.biggerpockets.com/forums/432/topics/738518-how-to-raise-private-capital-experience-with-chinese-investors

0 Votes

Originally posted by @Barry Ruby:

@Douglas J Andrews

Hi Douglas, if you are intent on this property your best bet is to get it under contract with contingencies.

A key element in making your purchase offer is doing a critical path analysis to determine the steps, time, players and capital needed to pull the deal off.

To save yourself time and aggravation, make your first pass offer the the form of a term sheet. The critical path will guide you in determining drafting the terms and conditions of your offer. In particular it will help to establish milestones, the amount and timing of earnest money payments and closing.

Closing should be tied to having all required permits in hand as well as the debt and equity capital needed to fund the project.

If you decide to go forward DM me and I will send you an example of a critical path analysis and term sheet.

Best of luck.

Barry's answer is the best one and he wrote it better than I would.

One aspect he said that I want to emphasize more (and I am phrasing this in layman's terms) is YOU DON'T HAVE TO DO THIS DEAL ALONE. In other words, you can Joint venture with other investors who are knowledgeable and experienced with what you're trying to do. As you said, you're out of your depth so it's critical that you have the right partners to do this.

Real estate investing is NOT like school. We can copy from others and work with others in real estate.

This is what I did to go from a duplex to owning over 1,000 apartments and what I did to transition to hotels.

3 Votes

@Vincent Pirrone,

First of, congrats on actually taking action with what you've learned here on BP and getting a deal. Also, as others said, with a $200/month house payment - that's not bad.

Second, I would turn these "problems" or "failures" or stumbling blocks into stepping stones to success. Here's a good graphic that illustrates this:

For instance, now that your debt to income ratio prevents you from getting a mortgage, this is an opportunity to learn CREATIVE FINANCING. I bought my first couple of deals without using banks through seller financing (which is a form of creative financing). You can also buy properties with the help of private lenders and credit partners (meaning, other people use their credit to get the mortgage for you - again, this is a form of creative financing).

The fact that you need cash, you can learn how to wholesale or maybe get a real estate agent license so you can sell houses as your side-hustle while allowing you to learn your local market (and your MLS access allows you to study your market deeper).

Real estate investing is like life. Sometimes you take one step forward only to take two steps backwards. But, when you learn from the failures and more so if you turn them into stepping stones, then success becomes a sure thing as long as you don't quit.

8 Votes

Originally posted by @John Warren:

@Morgan Madill in 2015 investors were saying the world was coming to an end, and I bought a screaming deal. In 2016, investors were saying the crash is coming and I flipped my home and bought a 20 unit. In 2017 investors were saying the crash is almost hear and I bought a gut renovation 19 unit in Berwyn where I am about to get most of my cash back using the BRRRR method. In 2019 everyone said the sky is falling and I picked up a screaming deal on a six unit. The sky still hasn't fallen and I have healthy cash reserves just in case... happy investing!

Morgan,

My experience is the same with John.

I was buying back in 2005, 2006, even in 2007 and 2008 - and even though the market crashed in 2008-2009, I made money on the houses, land and apartments I bought before the crash, during the crash and after the crash.

In fact, I made so much money during the Great Recession to me personally, there was no recession. I feel bad for the flippers because a lot of them went from flipping houses to flipping burgers.

Here are the 7 reasons why I made money buying properties before, during and after the Crash:

1. I focus on properties that generate cashflow like apartment buildings

2. I bought my buildings RIGHT - with enough discount to value that even if the market drops 20-30%, it does not really matter. Besides, since I bought properties that cashflow, it didn't really matter the market went down.

3. I was buying properties in low to middle income markets what people here on BP would call "C" areas. The rents in those areas did not really drop significantly during the Crash. However, apartments in the A areas were forced to reduce rents as people traded down during the Crash.

4. I have enough cash reserves. I allocate 3% of the rents I receive from my apartments for replacement reserves/capex in addition to a repairs and maintenance budget.

5. I built relationships with private lenders by being known as the guy who gets great deals and knows how to manage them. So when the Crash happened and other investors couldn't get bank financing, I was buying because I have private money behind me.

6. I focus on VALUE-ADD strategies, not on buying properties simply for cashflow nor I speculate and hope for appreciation. Ironically, doing value-adds, I increase the rents on my properties and that increased the cashflow and the value - meaning, I force the appreciation. So again, the recession really didn't matter.

7. I became very knowledgeable about my real estate market and I continually tweaked & adapted my strategies (acquisition, financing, value-add) based on what's happening in my local market.

You can choose to sit on the sidelines or you can figure out how to make money in real estate regardless of the market. I have just outlined for you the 7 things you need to do the latter.

9 Votes

Originally posted by @Heshel Mangel:

@Michael Ealy I keep writing your name as Mike and it don't come up ;)

We are looking forward on closing some of those deals. Very impressive that it got all shopped out that quick. The right deals find the right buyers.

The only caveat I have with rents per square foot, is that in lower-income neighborhoods and lower rents, prospective tenants generally don't look at the "per sq ft" cost and are instead looking at the "bulk" costs and comparing that to other rentals in the area.

It's a good evaluation approach but when really digging into comps I think the total bulk amount matters as well.

That's right Heshel, especially if you're dealing with large units, say 1,000 square feet and it has only 2 bedrooms. You can't really rent it for $1100.

1 Vote

Originally posted by @Tony Kim:

Originally posted by @Michael Ealy:

Originally posted by @Tony Kim:

I'm not Alina and I don't want to speak for her, but one potential angle that one can take is that a 7 to 10 year holding period might be relatively safer than a 3 year holding period at this moment in time because a good syndicator will secure a 13 year term loan at a nice low rate and will be able to ride out the next down cycle. On the other hand, a 3 year investment with a 5 year term might be in trouble because the dip could very occur at right around that time.

I specifically used a 13 year term loan because a syndicator that I really like has secured a loan for precisely that period.....13 year term loan at 3.87% for its upcoming QOZ fund. I would think that a 13 year term loan, as long as the LTV is reasonable, would provide some security against any potential upcoming downcycle in the RE markets.

But aside from the anticipated length of the deal, the far more critical factors are to evaluate each deal with cautious skepticism and also closely evaluate each sponsor's track record and especially how they performed during the last real estate cycle (sorry, but that eliminates 99% of syndicators here on BP, despite there being some very talented ones here).

I don't know why a syndicator will risk his/her investors' money by getting a 5-yr term.

Even though I do value-add and I like to exit in 3-5 years, I get the longest term possible (10 years or even longer). I plan for the worst - which is - what if I am forced to hold longer than 3-5 years? If the only way I can make money is to hold it short term or hold it long term (meaning, I have no flexibility either way), then the deal is not worth the risk and I move on.

I guess I am part of that 1% you mentioned then since I've been investing since 1999 and actually made money during the 2008-2009 Great Recession.

Michael, you have strong vertical integration, a very long track record of success, are intimately aware of the market in which you invest, have a loyal group of repeat investors that fill up your deals quickly, and have consistently shown professionalism and maturity (as seen by your willingness to help and build other up in this forum). You are in the Top Gun when it comes to syndicators, IMHO.

Thanks Tony. It's a track record built over 20 years and the key is continuing to adapt to changing market conditions and be willing to grow.

1 Vote

Originally posted by @Isaac S.:

Thanks, I guess it comes off as selling myself short, but I am just realizing where, in the bigger picture, I would best fit in. It seems like @Brian Burke made it kind of clear, in his previous post, that there is a potential ceiling for my hands-on-in-the-trenches kind of experience, even when coupled with a 1-2 million dollars, when it comes to trying to actively partner with a more established sponsor, like his company. I get his position, too much potential head-ache with unknown quantity of new partner(s) and potentially less return for him, when he has spent a life time forming his own company/dream team and investor pool.

Also, just like I would carefully vet my partners, anybody worth doing business with, would be vetting me too. So, I am trying to be honest, with myself, about what I really bring to the table and how that would best compliment what type of partnership and the best place/way to try and cultivate that. And furthermore, if that is even a path I would travel, instead of just finding several great sponsors and expand more into passive investing, instead of my natural inclination to want to be hands on.

Anyway, I don't want to hi-jack the thread...so, I will ask how should someone that has just pulled equity out of existing investment, redeploy capital safely to a syndication?

Is there a list of top syndicators? Just for passive investing.

Are there syndications that I could potentially be active partners with? How would I find and vet them?

I am open to any direction you want to go with the apartment syndication topic.

Thanks again!

Isaac,

For passive syndication opportunities:
You can watch the apartment syndicators here on BP and talk to them offline. Another option is to invest in crowdfunding platforms and check the opportunities listed there. They usually do a thorough job at vetting the sponsors because some of them look for extensive experience.

For active JV opportunities:
As to how you can find apartment investors willing to partner, well - talk to people. Start with your local market and attend your local REIA (Real estate investors association) or BP Meetup or search Meetup.com for apartment investing groups. Established and long time apartment syndicators like Brian Burke and myself are not really looking for active partners. However, you might be able to find some local investors who are investing for 5-10 years (so they have some track record but they're still small) and they want to scale up (say they have been buying 10-40 unit apartment buildings but partnering with you could help them buy 50-100 unit buildings instead).

Hope this helps.

2 Votes

Originally posted by @Account Closed:

Here is brief story about my first flip.

My name is Dakota Coburn and I decided a few years ago that becoming a real estate investor was the right career path. I spent 12 month researching, reading, analyzing, going to seminars and even paying for a mentor, which I do not entirely feel like was a waste but I do not recommend it unless you really know what you are doing. Bigger Pockets as well as a few other sites offer everything needed for new investors that the mentors do, and they are all way over priced and usually a scam.

Anyway on to the deal. Denver Property just outside of Cherry Creek. We bought the property from a wholesaler with an estimated return of $50k profit and an estimated rehab of $105k which quickly turned into closer to $130k. We had a time line of three months to do the rehab and get it back on the market in Sept. So we went with a hard money loan and raised $110k from investors. In this deal I had my brother and two friends all very interested in giving flipping a try.

Side note this was the 10th property I had made in offer on during the course of last spring and I had analyzed another 100. So I felt like we had a good deal when we found this property for $445k, adn we were looking at a minimum ARV of $615k.

The problems started right off the bat when we lost our first lender due to low Appraisal, so we had to rush and find a second and got charged an arm and a leg from this lender, but we felt we had a great deal and moved forward.

Next we ditched our GC week one when is estimate for the work was $30k more then we had budgeted. So we decided we could GC it ourselves.

Asbestos came up on inspection and put us 10 days behind right off the bat for abatement period. Which gave us time to find a new contractor. Our first plumber gave us a low ball quote then robbed us of $3500, and we lost two weeks trying to find a new plumber. Our electrician, did decent work but at a snails pace, and decided through one of our partners he was capable of doing the plumbing, which we found out way down the road that he never pulled permits, wasn't licence and did none of the work to code. So we had an electrician doing his work plus plumbing, dumb, a GC that was really just a carpenter, and a guy doing our new load carrying beam opening up the floor plan, that was nothing more then a great wood worker and never followed the plans from the structural engineer to secure the beam properly.

So we did all the work and spent $150k on rehab about ($20k over budget), and we listed two weeks after our goal date. All in all we felt like things were going really well. Meanwhile I had been living out of state and not watching the progress on a daily basis, come to find out a TON of little details got left unfinished or ignored and all the initial hype of the listing was received with feedback of half *** work. I was confused until I was finally able to take a trip back to CO to walk the property and see light fixtures not cut in right, and trim unfinished, etc. We listed at the high end of the market at $700k and quickly dropped to $685, then $675. We ended up going under contract at $615 to find out that permits on the property were never closed and the laundry list of **** that the inspector wouldn't pass would cost about $20k.

Now we have lost two buyers that pulled out due to the open permits and the inability to close the permits on our end. We are at the point of default with our lender and we are negotiating with them to not go into foreclosure.

And to top it all off one of the silent investors is threatening to sue for his losses.

All the fun of a first time flipper. Any suggestions on how to survive this?

First, thanks for sharing this. It takes guts to openly share mistakes in a public forum like this. People here might "blame" you but I am not going to do that.

Second, COMMUNICATE, COMMUNICATE, COMMUNICATE. Worst thing you can do is not talk to your lender and investors. If I were in your shoes, below is how I would communicate:

1. Talk to your Hard money lender. Tell them what happened and tell them your game plan. Ask that they suspend if possible, the penalties for late payments. Maybe they will agree to it or not but try and ask for it. By doing so, they don't dig the hole too deep for you to come out.

2. Talk to your investors starting with the one who threaten to sue. Tell him that you will make it whole and if it means paying out of your pocket over several years, then pay him out of your pocket. You want to ensure that no matter what happens, your investors don't lose money with you. Otherwise, your investing career will be cut short.

3. Talk to the city inspector and follow everything he requires you to do and keep him updated.

Third, take the property off the market if you have not done so yet. The house being on the market not selling after a while is hurting you.

Fourth, hope you learned the lesson of not trying to be cheap but hiring the right contractors even if at first, they seem more expensive. I am assuming you have the right contractors now but if not, then working on that is the priority.

An option can be partnering with an experienced rehabber in the area and having him/her finish the project and get all the profits in exchange for paying the holding costs (including the interest payment to your lender). The experienced rehabber might also have the right real estate agent who may have buyers already and so, you might be able to exit from the deal faster than you think.

Fifth, you need to raise cash - and do everything in your power to do so. Ideas like borrowing against your 401k, borrowing from friends and family, selling some of your stuff - are just some of the things that can explore doing. You need cash to be able to finish the rehab and sell the property. This is specially true if you can't get an experienced rehabber as partner.

You need to survive this and learn. Hope the above helps.

5 Votes

Originally posted by @Sam Grooms:

we just got the reporting for December. Income is up $15K over November. November was up $15K over October.

As for the renovation, we added a new ramada/bbq area, added a dogpark, the playground is going in now, they just finished painting the property last week, and plans for the new office/gym have been submitted to the city and we expect to start that project the first week of March.

About two months ago, we took over the interior renovations from a third-party and hired our own crew. Our renovations are averaging 30 days, while the third-party was double that, with some units getting up to 90 days. Cutting down on that vacancy is a big reason for the increases in November and December.

We also cleaned house when we took over and evicted quite a few people. Sure it hurts for a month or two when you see income going down, but you have to believe in the plan and process. Having better tenants in there has also contributed to the increases in November and December.

We haven't even sent this to our partners/investors yet, but here's a graph of the income since we took over.

This is awesome Sam and Ben and congrats!

Some people here on BP might say "That's too good to be true" but I can see why your numbers have increased like that.

Vertical integration works. It's only through vertical integration that we are able to have renovation costs 50% (or more) cheaper than our competition and yes, we get it done faster as well.

0 Votes

All Forum Posts by: Michael Ealy

Michael Ealy has started 68 posts and replied 1506 times.

Post: How to Get Deals in Today's HOT Market

Post: First Time Real Estate Investor as an Overseas Contractor

Post: Renovation of a motel to apartments

Post: Changing my Mindset - Any Advice?

Post: Crash? Crash?! CRASH!

Post: How to Get Deals in Today's HOT Market

Post: Why do most syndications sell instead of long term hold?

Post: Apartment Building Syndication

Post: Fix-n-Flip Gone Wrong

Post: 164-Unit Closed in Phoenix, AZ!