All Forum Posts by: P.J. Bremner

@Stephanie Medellin

I bought the first house in 2012 and have self managed since then.  Second house end of 2012, third by end of 2013 and 4th in the middle of 2014.  I stalled out after that because I quit my W-2 and couldn't get loans anymore so I worked on other businesses instead.

The problem is that for tax purposes, the rentals make a small spread over the expenses. The Amazon business is the one that isn't a full 2 years yet, but I have bank deposits showing about $650k this year ($1M in sales minus all the Amazon fees, they really take their share lol). My main concern is the LTV and at 80%, I would be a happy camper. Now, when you say 80%, is that ARV? The reason I ask is that my goal is to buy a house cash (personal equity, business line of credit and HML for the balance) and then rehab, put tenants in and refi the cash out. Standard BRRR strategy. If I can keep my personal equity out of the deal, I would have 0 issues getting the cash flow to cover the bills and then some. What kind of terms would we be looking at for a 30 year fixed, assuming I can qualify?

@Stephanie Medellin

Thank you for the response!

My issue with traditional financing is that my personal income would not qualify just yet.  I have very little debt other than the mortgages i currently have for the rentals (which are offset by rent) but since going full-time self employement, my income dipped from around $120k per year down to $45k per year after all write-offs.  This year will be much higher since I have an Amazon store bringing in over $1M in sales but it only did $250k last year and I know that when the underwriter looks at it, they will take the lower of the two years for self employed (at least that was how the underwriter worked at my mortgage job).  Plus, I won't have this year's taxes done until 2nd quarter of 2017, hence why I am looking for a portfolio lender.

Also, I would like to go this route in order to avoid the mortgage cap limit once I get to that point.

Here are some basic stats on me and you tell me what you think my best options are:

- 810 FICO with several mortgages on record, all paid on time since 2012

- Bank balance fluctuates from $100k - $160k each month, so plenty of cash on hand and reserves and saving roughly $10k/month net

- $90k business line of credit with 0 balance but ready to use (3.99% from Wells Fargo)

- $45k net income 2015 on taxes, 2016 on track for over $100k

Thank you for looking into this! : )

Hey BP,

I have been making tons of phone calls with local banks, over 15 now and have yet to run into someone that is lending non-conventional residential non-owner occupied "portfolio loans".  I did run into a guy that said they were a portfolio lender, then after starting their loan packet I realized they had the same guidelines as fanny/freddy... I have my MLO endorsement and have originated millions in mortgages but even this guy almost pulled the wool over me.  I can't image how much harder it would be for some of the newer members that don't know what to look out for!

Does anyone have a referral for a SoCal local lender that does portfolio lenders?  If so, what kind of terms are they looking for?
- LTV

- Rate range

- Fixed, ARM, fully amortized, interest only?

- Points charged up front?

I really appreciate your help and I am looking to BRRR some properties in SoCal, either SFR or Multifamily and this information would help me greatly.

Quick update:

The Inland Empire REIA that meets at the mission in was AMAZING. I've gone to a few REIAs since posting this originally and I am totally floored with how good it was. Great information, over 150+ people to network with, knowledgeable hosts, great format, only $20. It was truly amazing. I can't think of any reason a real estate investor would NOT benefit by going to a meetup like this, new or experienced.

@Faisal Farnas

I have tenants that smoke weed at every property I manage, several per house do.  If you call the police for someone smoking a joint, they will most likely be annoyed as I'm sure they have much better things to do that deal with a "drug" issue.  If it is anything harder than weed, for sure evict immediately.  But to say that weed is a gateway drug is nonsense.

Interesting side note, I had a tenant overdose in the house and die this year, most likely from heroine.  Really tragic, he was in his early 20s, a college kid and one of the kindest humans you would ever have met.  He was literally the ONLY ONE in the house that did not smoke pot.  I had no clue he was using, neither did anyone else in the house.  Sad story, but I wouldn't worry about pot.  Anything else, absolutely make it a priority.  My only rule is that they don't smoke INSIDE the house, otherwise their deposit goes bye bye.

Hope this helps!

@Alex Sloan

I house-hacked my first property by renting the spare rooms out, so I do room rentals.  When I moved out, I just kept doing that.  It's unreasonable to try to collect monthly bills from tenants, much easier as a landlord to collect 1 rent from each tenant that has all of these costs built in.

• The first property did NOT have solar when I bought, I put solar up with one of the lease companies.  My annual energy cost for that house has gone down around $1,000 per year but mostly because the idiot that sold the system to me miscalculated the energy output.  I am guaranteed X amount of energy from my panels, for the last 3 years since I put them on have produced about 2/3 * X so basically they have to refund me that difference at the end of the year, which puts my investment in the black.  If I had to do it over, I would pay cash for the system, which is what I did for the most recent purchase.  Also, I remodeled my homes when I bought them, so I did not get a chance to check energy usage with old windows and new.  I suspect it wasn't a huge difference though.
• As for the increase in rents to cover utilities, I didn't initially calculate it like that.  I let the market determine what was the MOST rent I could charge and get away with it and provide a much easier tenancy for my people.  The mortgage is about 50% of the total expenses, all other monthly bills combine to the other 50%.  If I only paid what landlords normally pay, it would be closer to 20% instead of 50%.  At the end of the month, I keep MORE net because I include the utilities, not less.  I have calculated it both ways, it's easier on me and easier on the tenants.  If they were traditional rentals, I would definitely make tenants pay. *Disclaimer to the noobs! :)*  THIS IS SPECIFICALLY FOR HOUSE HACKING!
• Yes, it is appealing for them but more importantly it is much more manageable for me.  I have 6 - 7 tenants per house, chasing an electricity bill 7x, water bill 7x, internet bill 7x, is NOT gonna happen lol.
• I used to monitor everything very closely, even had a wifi thermostat set up in each home so I could monitor what they were setting the temps to.  I have since then given up on doing that and just limit the summer time temp to 75F and winter 68F.  They can change it to whatever they want as long as it doesn't dip above or below those.  The reason the $1,000 month happened was because some @$$hole put the temp down to 66F during the 110F+ summer days.  I found out after the fact and swiftly corrected that behavior >:]  It's just one of those things that YOU as a business owner need to be aware of and prepare for.  I always keep 2+ months of reserve bills in each account to handle the big fluctuation months when they come.

I hope this helps!!

@Alex Sloan

Great topic, doesn't come up too often!

I have a little experience with this on the buy-and-hold side.  I pay for all utilities in my rentals and have 2 homes with solar and 2 without.  I always upgrade the HVAC to a high seer rating to save energy and install double pane windows.  During the summer, my 7 bedroom runs the AC all day every day, had an electricity bill just shy of $1,000 (non-summer bill is around $250 - $300).  I have another smaller home up the block with 7 bedrooms as well but it has solar (paid for cash, not leased) and my electric bill comes to about $100 per month for the whole year.  It's a HUGE difference in my bottom line.  I'm all for energy efficiency and if I come across them in a property I am looking to purchase, I would pay a slight premium for it.  If the tenants were paying for the utilities, they might appreciate the added benefits, but I'm afraid they would only appreciate it AFTER paying a summer bill that's 3x the norm.

@Robin Hall

Here is the lead tracking spreadsheet I created in Google Sheets.  It has room for 999 leads, can track all the important information for the client AND auto-calculates your KPIs for you as long as you keep the information updated.  I am more than happy to give you a blank one to use for your own, let me know if that would help :)  If you're not sure how anything is calculated, let me know and I can walk you through that as well.  I made this spreadsheet in about 10 minutes so they are really simple to make once you get used to it and you can customize it however you like once you get the hang of it.

@Robin Hall

KPI - Key Performance Indicator

In any business, you must watch your KPIs if you want to ensure you are being as efficient as possible.  The reason you track these numbers is to diagnose areas where your process is broken.  For example, if the industry standard for response rate is 5%, and you send 2,000 mailers and get only 20 responses, then your response rate is 20/2000 = 0.01 or 1%.  This means that there must be something wrong with your mailer OR something wrong with your list because you are getting 1/5 of the responses that most people get.  The overall goal is to stay within margins here.  I'm going to use fake, arbitrary numbers here that are NOT accurate, but they will allow you to get an idea of how powerful KPIs are when you track them religiously.

Response rate: 5%

Appointment rate: 25% (when someone responds, you book an appointment to see their home)

Offer made rate: 50% (when you show up to someone's home, you actually make an offer)

Property under contract rate: 25% (Your offer is accepted)

Deals closed rate: 75% (Your active contract is sold either to yourself to flip or to another investor)

Using this structure, we can find out what to expect for every campaign we put together:

2,000 mailers -> 5% response rate: 2,000 x 0.05 = 100 phone calls

100 phone calls -> 25% appointment rate: 100 x 0.25 = 25 appointments

25 appointments -> 50% offer made rate: 25 x 0.5 = 12.5 offers

12.5 offers -> 25% contract rate: 12.5 x 0.25 = 3.125 contracts

3.125 contracts -> 75% deal close rate: 3.125 x 0.75 = 2.34 deals

So to sum it all up, every 2,000 mailers you send, you can expect to close a little more than 2 deals.  If you find that you get 5% response rate, but you cannot close the appointments over the phone and your appointment rate is 10%, then you are throwing your money out the window and must invest in phone sales skills.  If you have a lower contract rate, then you probably have issues with closing the deal in person and it would help to invest in closing techniques and skills.  If you are contracting way above the average rate but closing far fewer of the deals you contract, then you probably are not structuring the deals properly and should go back and look at what numbers are not accurate. Is the ARV good? Rehab costs legit? Is your buyers list not extensive enough? If you do NOT FOLLOW YOUR KPIs, then you most likely will not succeed in the long run. Any success you have in the short term can be chalked up to getting lucky here and there (broken clock is right twice a day kinda thing). Just remember, no matter what business you go into, find out what KPIs you have to follow and NEVER let them out of your sight :)

Also, knowing what to expect from each wholesale campaign will allow you to create projections for profits and let you know what to invest in order to get the desired returns.  If you want to close at least 1 deal per month, then based on the numbers above, you should send no less than 1,000 per month.  If the average deal nets you $10,000 then you can figure out what your overall profit would be.  If it costs you $0.70 per customer (buying the list, sending the mailer, postage, etc.) then you can expect to spend $700 to earn $10,000 and your net profit without any of your own labor cost is $9,300.  Personally, I would ALWAYS account for your own labor in this number so that you can plan your personal exit when you grow and replace yourself with an employee.  That way, your business is already profitable WITH AN EMPLOYEE structured into the deal.  So lets say you pay someone $10/hour and they spend 40 hours per week, 4.5 weeks per month to get you that 1 sale, you would have paid $1,800 in wages for your employee to get you the deal.  Now your real net profit is $7,500.  Not bad for doing 0 work!

I hope this helps!!

**Disclaimer** Any percentages given are not accurate to industry standard.  If you are a wholesaler and know what is acceptable, please reply and help us noobs out!

Quick updated on this:

We obtained our first list of prospective clients from listsource.com.  We are targeting absentee owners with a specific amount of equity in the property.  We initially were going to use a local printer for the mailers, but found them to be extremely unreliable so decided to spend a little more money and use yellowletters.com, which the service was extremely easy to use and they great customer service.  We sent 2,557 mailers out to 4 local cities, they will be dropping in the next 2 - 3 days and we will be monitoring the response rate from there.  Our KPIs look like this now:

- Total Mailers sent

- Response rate: Phone & Email/webpage

- Appointment Set

- Offers Made

- Properties under contract

- Deals closed

After much debate on the forum under a different post, we have decided to focus mostly on deals WE CAN FUND and close ourselves -or- deals WE CAN PARTNER WITH.  Last case scenario will be selling the deal to a flipper.  The reason being, we want to make certain that any claims we give to the seller are legit and we have every intention of buying their property.  We will NOT contract a property unless we have a buyer lined up or we put up a non-refundable earnest money deposit.  We do this to avoid ethical issues most wholesalers run into AND to avoid lawsuits.  If we cannot do our job, the seller keeps some cash for his/her time.

Any experienced wholesalers care to give feedback or constructive criticism?