All Forum Posts by: Michael Pearse

@Alec McGinn Great question. I am sure many other graduates are in the same situation and are looking for an answer.  At a high level all you need to consider is what interest rate your student loans are at, and what type of return can you get with real estate. If you can achieve a return higher from real estate than your student loan interest, then you are making money.

If your ROI from real estate is higher than student loan interest, then you can appreciate these perks as you develop your technical knowledge. 1. You are learning the business 2. Networking, 3. Building equity, 4. Have the opportunity to take advantage of the tax breaks that come with real estate.

In my opinion you should find a balance of paying down student loans and investing in real estate as you are comfortable with. I would not recommend paying down only student loans as you may fall into the cycle of thinking that you will learn more about real estate when all the student loans are gone. Which could be 2+ years from now, and who knows if you will still have the energy or motivation to get involved in this business. If you can save money for an RE investment, you can get over the biggest hurdle (buying your first investment property), and focus on refining your systems to make even more progress on the next deal. Good luck 

@Shannon Young Making repairs on a property is a great way to add value. When you are sinking costs into a property make sure that you are not overspending on a house where the area will not support the upgrades. For example, adding a $30K pool to a home that is valued at $50K, adding a 3 car garage to a 900 sqft home, ect. Think of this the same way if you plan on renting out the property. If you are upgrading the kitchen appliances and are not able to increase rent or make the home more desirable, then it would be best to save the time and energy to focus on the next project. 

With my experience in real estate and life thus far, there is no wrong or right answer for situations as these. There is no definition or clear cut answer on what is the correct method of solving this question. The scenario on determining whether having a property manager early on in your investment career or never at all is totally up to you.  If the numbers make sense and you are happy with your decision, then you are right to your own unique situation. I personally enjoy having as much free time as possible, so I choose to have property management in place when I purchase a real estate investment. Don't get caught up with other peoples opinion. You will make the right choice. Make decisions based on the math, and you will do well. Something to keep in mind.

Best of luck Ted.

@Jason Dammer 

1. If the property is truly below market and there is not a hidden reason why this is, then this sounds promising. Hidden factors can be anything not easily visible on pictures or stated on the sales advertisement. Some examples are dated electrical wires, foundation issues, a lien on the property, ect.  Walk through the property if you have not done so already.

2. Raising the rent and getting a year long lease is a great idea. 

3. Self managing is a great way to learn the business. Make sure to separate any liability that is involved with this process. Having umbrella insurance or having an LLC for your property management services is a great business model to protect yourself. If you are just starting out in the property management business, I would recommend connecting with another like minded investor who has experience with this.

4. Having a larger tax estimate is good conservative approach. If the taxes are less, then that will only help.

5. Good to hear. Having a nice duplex in a bad area does not make it a nice duplex. Because you found the duplex in a great area, you always have the opportunity to improve the condition without worrying about the location bringing the value down.

6. Same as note 3.

7. I would highly recommend adding in the 10% fee for a property manager. One day you might want to offload the responsibility to a professional management company. This will give you more time to expand your business and develop a more refined system to focus on finding more deals. Having the 10% calculation in there will give you a rough idea if you can afford to have the duplex managed by someone else. You should have this calculated in every analysis as this will only help you down the road.

Cheers. 

@Jason Dammer It is hard to make a fair assessment on this scenario without more information. If you can provide the selling price and condition of the property I can give a better response. Here are some things to keep in mind.

1. Take a look at duplexes in the area, is this property selling around the same price or way above the market averages? 

2. Do you plan to purchase this property with tenants in place? If so, how do you plan to update the lease terms?

3. Are you going to use a property manager?

4. How much are taxes for this duplex? 

5. Is it located in a safe, quiet area, desirable area?

6. With all expenses calculated (taxes, insurance, mortgage, PM (10% cost), Vacancy, and Capex), does it still cash flow?

Just a couple of things to keep in mind.

As for calculating a turnkey investment, a good way to do a quick analysis assuming everything has been rehabbed, is whether it meets the 1% to 2% rent to price ratio. If the duplex meets this, go ahead and run an excel sheet for note 6. If you cash flow well, the property may be worth investing in. Best of luck 

@Kyle Johnson Transferring the loan from your name is not a problem at all. Find a local bank in your area, as they are more likely to switch the loan from your name to your LLC. You will want to setup a bank account that goes with your LLC. That way when you need to make payments on your investment house, all you do is transfer money from your personal bank account, to your business bank account, which will then pay for the mortgage.

@Rapheal Shepherd This is sort of a loaded question. A great deal really can mean anything, its all about perspective. A good investment could be a home that has been recently rehabbed, is turnkey, is located in an A-class area, and rents out at a 2% cashflow. Another "great deal" could be adding value to a house, cashing out all your money AND making 2% cash flow. These perspectives on finding a good deal can be better assessed from other like minded investors in your local market. Going to a real estate social in your area would be a great step in understanding what metrics meet the criteria around you. Best of luck

@Account Closed

@Kyle Johnson Yes, put your rental properties under a business. Your rental investments are for business, so you will want to keep it that way. This will protect you in case things go south. You should have all investment properties bought under your LLC.

@James Partsch Jr You are in a great position to get started. I recommend finding a house a house that needs some rehab, and add value to it. Following the BRRRR method is a great way to keep up momentum and making deals happen. This will give you tons of experience and build up the empire you are looking for. Use a small bank for investment loans as they will give you better mortgage options (they could let you refinance immediately after rehab, use equity as a HELOC, use multiple properties equities combined for the next deal, ect). Keep on learning and taking action. You are on the right path.