All Forum Posts by: Paul Novak

 Welcome to BP I think you will find it to be a great resource to get information.  I invest about an hour north in Sheboygan and I focus on long term rentals.  I do most of the flipping work myself but my best friend owns a general contracting company who does flips for people.  If you are ever looking for a good contractor he is someone who I obviously trust.  He has helped me out countless times when I get in over my head.  His company is Roerdink Remodel and he current does work in the Milwaukee area.  Here is a link to his business Facebook page.  https://www.facebook.com/roerdinkremodel/

I do something very similar to you.  I am okay with taking some risk so when saving like this I tend to invest the money in VOO within my taxable brokerage account so it has the change to grow, knowing it also has the change to go down in value.  The other thing I have done in the past is held this money in my cash position within my brokerage account with it not invested.  I use Fidelity and the cash position is like a money market account where I am getting 4.5% interest on my money.

 Before the end of this year it's just get back on track with paying down debt on the last property we just purchased so we can save for the next one.

 Congrats on looking to get started.  I live in Sheboygan Falls Wisconsin and we have a good balance of cashflow and appreciation.  We are a community that has strong manufacturing which supports strong wage growth and jobs.  Our average home price is also only around $250K making it a very affordable market.

I highly encourage you to get started as I love real estate but I caution you on moving too fast too quickly.  I would recommend getting a property and start building up your systems first before buying multiple properties.  The best way I have found to learn is to be in the game.  You will learn from the first time you purchase a property, market a property, vet tenants, raise rents, handle maintenance requests, etc...  I could see this being a bit overwhelming as a beginner with a bunch of units to manage on the top of trying to learn.

Josh it depends on your comfortability level but I have been taking out 401K loans to fund my real estate and personally I love it. This has now become a part of my strategy going forward. When I use my HELOC I pay interest to the bank vs. my 401K loan where I pay back the interest to myself.

The opportunity cost comes from the money not growing while it's borrowed from the account.  But this can work in two ways.  Your money also won't go down in value if the market goes down while you have the money borrowed.  Don't get me wrong the market goes up more over time then down but if you happened to take out the loan when the market was at a high point this would actually be a win for you.  I am not trying in any way advising to time the market I am just making a point.  I have also done the math and my account over the next 20 years will grow larger assuming a flat 7% return by taking loans then not.  My other counter argument to the opportunity cost is that your money is going from one investment to another.  Yes you are losing out on market gains but you are gaining appreciation on the property, cashflow from rents, tax benefits, etc.....  My other positive is the money that is generated from taking out the loan can be used now vs. locked away until you are 59 1/2 years.  Another draw back is short term your expenses will be higher because you are paying the mortgage plus paying back the loan but that is a short term draw back until the loan is paid back.

How it works: I have experience with my wife's company and mine, each is a little different.  What I have learned is that you can borrow $50K or half your loan balance whichever is the small amount.  For us we have pulled $50K each time.  For my wife's account the total fees to do this was a one time $75 fee.  For my account the fees are $10 per quarter while I have the money pulled out.  The max loan terms we could do are 5 years.  This equated out to around $480 to $500 coming out of our paychecks per bi weekly paycheck.  The other thing that was nice is that you can pay the loan back as soon as possible but they didn't allow extra payments.  If you wanted to pay the loan off early it had to be done as one lump sum payment.  The next part that I learned, and this an IRS rule, is that you can only have an average balance of $50K out per calendar year.  Meaning if you pay the loan back you can't turn around and borrow $50K again right away, you have to wait a year.  How we have worked around this is by pulling $50K from my account this year, then $50K from my wifes the next year, and then repeating that cycle.  That is assuming you pay the money back in the same year.

Prior to real estate my 401K was my golden goose and I would never consider touching it but now my views have changed.  What's important to me is that your 401K isn't viewed as something you can just take money out of for personal use but if my 401K is there to fund my retirement and I borrow money against it to fund other retirement assets I don't see the issue.

If you have more questions let me know.

 I am not a huge fan of buying a new car because of the value it loses but I agree with you, you are making money to spend it on something.  I can also say buying new with a warranty can provide piece of mind.  My wife and I buy cars and keep them till they die so if you have this car 10+ years it will still be worth it.  

As for cash or not I think it depends on rates, your level of risk tolerance, and what the opportunity costs is for that money.  Personally at the spot I am in now I would probably pay cash, as I don't like debt and interest rates aren't that low.  If I could use that money to purchase more real estate and then finance the car I would probably take that option.

 An 800 credit score it achievable as I have had one for years but I will say maintaining it while doing real estate has been a challenge only because when taking out mortgages they show up as hard inquires which impacts your score.

Number one thing is to not miss or be late on any payments.  The biggest impact to your credit is payment history.

Next biggest impact is your credit card utilization.  Work to always keep this at or below 10%.  Two things help you with this.  Having a high available credit and then not using it.  When I was a kid I had one credit card with a $500 limit.  I'd have $250 charge to it and my utilization was at 50% which killed my credit.  My wife had $25,000 available credit with $2,500 charge to it and her credit was actually better because she was only at 10% which is nuts but how it works.  Having high limits with low utilization is the way to win in this category.  My other feedback to keep you limits high is to not let credit card accounts close.  I have one main credit card that I use.  Others that I have acquired over the years I charge a small amount on at New Years, pay them off in full that week, and put them away to not be used again for another year.  This way they don't lapse out and close.

Next thing is don't have anything go to collections.  Derogatory Marks are a high impact and once something goes to collections it stays on your report for 7-10 years.

Then comes credit age.  You want to have your accounts open for a long time.  Again why I like keeping credit card accounts open.  With real estate investing this again becomes hard because every time you take out a new mortgage it drives your average down because it's a new account.  Having your average accounts at 9+ years is best.

Now into low impact categories but they still impact your score, total accounts.  They like to see that you can manage credit responsibly and the more accounts you have had success with the higher the score.  Old and active accounts count towards your total accounts.

Lastly comes hard inquires every time you apply for credit and a pull is done on your account.  You want to keep this at 0 to have the highest credit and these stay on your account for 2 years.  

Hope this helps, if you have any other questions let me know.

Quote from @Tiffany Da Silva:

Hello All,

I have been investing for the last 4 years in real estate and am on the way to purchasing my 3rd property (a flip :)

I am having a hard time knowing how I should organize my incomes, expenses, taxes, ect for easy bookeeping, to help keep everything separate legally, & to produce income on the money sitting in the accounts.

I can only explain my ideal thoughts in a graphic design so i will include that here:

Does this make sense in order to maximize profits & keep things organized? 

Few notes: I will not touch the money in these accounts unless the income is being used to buy a flip or another property, which is about 10 months for me so that money will be sitting there.

I am considering a HYSA from Capital one as i saw as of today their APY is 4+% with a minimum deposit of $10K

I will be using baselane to organize and manage these transactions.

Any criticism / advice is welcome :)

I will share what we do.  I am a similar size as you maybe slightly bigger.  We have 5 long term rentals, 7 doors and have also been at this for a little over 3 years.  By no means am I an expert but I tend to be very organized and our systems have worked well for us.  Similar to what you said I knew I needed cash reserves for our business but didn't want that money laying around in a checking account not earning any interest.

For book keeping I recently transitioned from Google Sheets to Stessa.  They are a property management software that is free.  It can link to your accounts and bring in your transactions for book keeping.  They also do listings, track leases, house documents, and can run reporting on your financials.  Stessa also has banking with high yields but I haven't used them for that up to this point.

For banking I use one business checking account for all of my properties.  I don't have individual accounts per property or per door.  My book keeping breaks up my income/expenses, not my accounts.

To get more returns on my cash I opened up a business brokerage account through Fidelity. I have some of my money in that account invested but on my idle cash position I am currently getting 4.28% APR. This acts as a high yield savings account for me.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $255,000
Cash invested: $65,000

4 bedroom 2 bath newly remodeled single family home in Sheboygan Falls. This property is walking distance from River Park and downtown Sheboygan Falls.

What made you interested in investing in this type of deal?

The property was move in ready and required very little work. It had just been remodeled with all new appliances.

How did you find this deal and how did you negotiate it?

I actually found this property in a Facebook post and was able to negotiate it off market with other local investors.

How did you finance this deal?

The financing was traditional 30 year fixed rate mortgage financing.

How did you add value to the deal?

The only value I added was the down payment to make sure the property hits our business cashflow goal.

What was the outcome?

The outcome was getting another property to add to our portfolio that fits our buy box and that we are proud of. We follow the small and mighty strategy and we are only 1-2 more properties away from hitting our goal. At which point we will shift from acquiring more properties in the short term to paying them off.

Lessons learned? Challenges?

The one lesson that I learned is to look out for lead inlet pipes. With this house being a newly flipped property we decided to get a home inspection. We wanted to make sure we didn't look past something being that so much with the property was new. During that inspection we uncovered a lead inlet pipe coming into the property. The cost to replace it was around $10K. We did water testing to verify the water was safe but this is something to look out for with future purchases.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

I worked with Matt Kapellen from Pleasant View Reality in Plymouth, he has helped us with our primary residence and all of our rentals. Amazing agent!!!

We also worked with Wendy Conto from Bank First as our lender. She has helped us get amazing rates with all of our recent rental properties. She is also someone I would highly recommend.

I am curious what others are using for property management software if any.  I was at BPCON this year and a few people recommended Stessa so I just switched from Google Sheets over to Stessa.  Does anyone have any feedback on Stessa, pros and cons based on experience.  Does anyone have any recommendations of what software they are using and what features they like about it.