All Forum Posts by: Randall Alan

@Tyler Kesling

Sounds like you have the right perspective.  I just worry sometimes when I see too much gung ho... and maybe not enough practicality, so I try to step up and offer a little advice from my 7 years in the business. It also feels like a little bit of analysis paralysis on your side... lots and lots of reading.  At some point you have to make the actionable plan.  

For most of the properties we bought, we needed about $30,000 to buy a smaller single family home (20% down).  If you have that, why not jump in and make something happen.  It's a great learning experience.  If you don't have that, figure out how you are going to get it so that you can move from 'reading about real estate' into 'doing real estate'.  Real estate appreciates usually at least 3-5% a year.  So in 3 years if you bought a $150,000 house, you would likely have accumulated $12,000 -$20,000 in equity on your $30,000 initial investment - not to mention your tenant paying down your mortgage, plus some really awesome tax advantages (3.3% depreciation, etc.), plus hopefully some cash flow!  You can always sell the property at any time if you want / need to... but once you take that first step to buy door # 1, it is much much quicker to get to your next one!

All the best!

Randy

@Tyler Kesling

 I know Grant Cardone is doing a big push right now, which it seems apparent you are pretty pumped up about... "I've got this 243 unit complex right here that you can buy... I can show you how to do it (holding 'dozens' of deals' in his hands.)  Just know that the majority of those in the 'education segment' of real estate are presenting you their information to make the speaker money... and if you happen to benefit too... that 's great!  Please note I am not speaking about Grant Cardone from any first hand knowledge.  I am just using him as the example you provided in your post.  

Education 'opportunities' in real estate come in several flavors. One is seminars...

My first seminar I went was "free"... an hour presentation at a hotel where they 'invite' (or was it lure) you to a 3 day seminar for a couple of hundred bucks.  That seminar is also informative - I learned a lot - but you will quickly realize it is actually a funnel for the speaker to entice you to join "the club"... whatever each of them will call it... "Master Group", "Winners Circle", or whatever - where they will promise to hold your hand, find you deals, find you money, find you whatever you need - all for the low low price of (in my case) $45,000 for a 2 year membership.  "Come on in ... it's cheap... you are going to make so much more than that in just the first year of being with us!"  "Head right on back to the back of the room and my associates will get you signed up today!"   And people were signing up left and right.  That seminar probably made a million dollars off the sign up fees. (I wasn't one of them.)

You need to be able to view any of those types of opportunities through two lenses... one is the eager learner that says, "Hey, they are talking my language, I can do this, I'm going to be rich, he has the plan and its so easy!!!"... and the other through a cautionary lens. The vast majority of what you need to know about real estate can be learned right here on Bigger Pockets like you are already doing. The seminar types bundle it up and make it look flashy... but the majority is common knowledge you just didn't know was common knowledge. 

Just like going to an auction where lots of people are bidding and there is a frenzied atmosphere... and you want to be a part of the action...you bid too, is not a good (controlled) way to spend your money.  But you won't realize that until after the fact when you are sitting at home with the 4 books that came with your $45,000 seminar payment and you wondering "What's my next step?"  I know, "I'll call the coaching hotline they gave me!"  And all of that is great!  They will talk to you and guide you... and maybe you pull off doing a deal? Who knows!

As to Grant Cardone, you have to have capital to do a bigger deals... and syndications is one way you can do that (which as I understand it is the deal that Grant pitches)... combine  your money with others to do the big deal... but at the end of the day, you own $20,000 worth of a $10 million deal if you put in $20,000.  Maybe you collect a finder's fee if you were the one that brought the property to the groups attention.  So money can be made.

The downside of syndications is that you have no control of the deal as a limited partner...  you are just a silent investor.  As a general partner it's a different deal.  My advice to you is that syndications involve more layers of what I would call "Middle Management" - which takes money (profits you might call them) to fund.  Many syndications offer an 8-10% return on investment.  Hey - it's better than the stock market.  But to put that in comparison, my portfolio of single / multi-family rentals is doing 23% cash on cash return - and I have COMPLETE control of it.  Yes - it is far more work than a silent investor in a syndication... but I want the control, so find it personally more rewarding.  

Also - be aware that syndications don't always go as planned.  Check out this thread on Norada Capital Management here on Bigger Pockets where out of the blue this big syndication suspended payments to all it's (many) members:

https://www.biggerpockets.com/forums/960/topics/1196567-nora...
  

If you want a quick reality check on anything 'big ticket" event you are looking to attend or invest in real estate, try this simple exercise.  Go to google and put the name of person / entity you are interested in the search engine, and then add the words "and scam".  You might be very surprised to find out what you see.  Again - this is just a way to 'reality check' yourself to make sure you are well educated going into what endeavor you want to do.

Here's Grant Cardone... again... I don't have a pony in this race...  so just continuing to use him as an example.  I'm just suggesting you be well informed:

I loved reading Robert Kiyosaki's "Rich Dad Poor Dad"... it was extremely informative and eye opening... albeit told in a bit of a crazy way.  But understand that Kiyosaki has a financial agenda behind his education as well.  So you just have to keep the other "Control the hype" viewpoint in your head going when you attend seminars and such.

So like I said, I'm not preaching against the choir of educators in the field... I'm just trying to temper your expectations so you don't get financially exploited. All these educators have good information - and are successful at what they do. You will learn a lot of good information at their events.  But you don't want to end up being a victim of their success.

All the best!

Randy

 @Tyler Kesling

I love your enthusiasm, but you need to be careful about being so enthusiastic that you ignore the basics.  There is something to be said about knowing what NOT to buy.  $100/door is a no-go - probably in most people’s books.  Why?  Because you realistically won’t be covering the expenses of the property where it justifies the risk or investment.   Realistically your money is probably better in the bank if you are only making $100/door on a property.   Put another way - you want a better deal than that.  For context - after 7 years we are averaging over $700/door… but this is after many financial moves to get us there… but even starting out, the  $300/door was, and remains a good goal post to judge a deal by. 

As a beginner you are green enough that you need to temper your enthusiasm to make sure you don’t bite at bad deals.  This is also a good reason to start smaller… you get some experience under your belt with less risk of making a big mistake. 

There are A LOT of nuances to being successful in real estate investing, and some are only learned after the fact.  

A few to be aware of as examples…

Capital gains… you probably know they are either 15 or 20% (and in rare instances zero if you have no income)… but have you heard of NIIT (Net Investment Income Tax)… this is an extra 3.8% tax you get hit with when your gains are over $250,000 in a year.  We sold 2 properties in one year and that popped up… cost us $15,000 we didn’t budget for.  

How about realizing that when you use the current property taxes of a property you are buying to calculate your per door profit that the following year your taxes will reset to what YOU paid for the property and will likely significantly increase your tax expense - which can take you from a positive cash flow to a negative cash flow on a low cash flow property… now you are paying your tenants to live in the property every month out of your W2 income  hoping for an appreciation play until rents hopefully increase.

I could go on and on.  The point is, it’s great to be enthusiastic, but you don’t know what you don’t know… until you find out some day.  So there is something said to go at a measured pace as a beginner… even if only your first couple of deals.   Did we do that… no… bought 12 properties in 2018, 10 in 2019, and 9 in 2020.  But we had significant resources behind us, and  we were buying 1-2 unit properties that were cash flowing with great numbers - so we were taking a measured risk.  It’s a lot harder today with properties at 2-3x the price and interest rates much higher too.

I truly wish for all your success!  I’m just advising caution as a beginner.  I drive a Tesla… it’s a really fun car… but has so much acceleration you can get yourself in a dangerous situation if you don’t respect its capabilities… especially as a new driver.   I was talking to a lawyer friend of mine who was involved in a lawsuit where a guy was letting his friend try out his Tesla in “launch mode” in a residential neighborhood.  The short version of the story is they ‘launched’ the Tesla right over a curb and into the side of a house killing someone’s inside.  As an analogy to real estate… by starting of with a couple of smaller deals you will be on a much better footing to know more of the ins and outs of doing real estate deals so you aren’t a novice when you get to the 20 unit deal where if you miss something you don’t end up like the Tesla driver with lots of enthusiasm but not a lot of practical experience and you get burned.

All the best!

Randy

@Tyler Kesling

Hi Tyler,

I wanted to just jump in and say, "Hurray" for your enthusiasm... but a 20 unit property as a first purchase is a pretty big stretch.  Even at $60,000 a unit - that is a $1.2 million deal... and realistically I bet they will be over $100,000 each... all just a guess... but when you get into these price points and you are "new to real estate" as your title in your post suggests - I think you are probably getting in over your head for a first deal.  

The lesson there is that everyone - be it a bank, your friends, your family, or whomever, are going to judge you on your experience first before they pull out their checkbooks / do your deal; and if you have no experience, I think you are going to have a hard time getting that size deal done as a first deal. 

I would suggest starting smaller.  Get a couple of 1-4 unit properties under your belt and make sure you like being a landlord.  It's not rocket science, but it takes the right personality to handle it and enjoy it.  Tenants can be frustrating (to say the least)... and the situations that come along with them - from stopped up toilets to evictions, among many others, present challenges.

I wouldn't recommend a Heloc for a long term hold as the rate is variable... and over 4 units you will require a commercial loan if going the traditional route of financing.  I also wouldn't pull the money from your 401k.  That money is there for a different (long term) purpose... and if you are pulling it out to not return it you are going to pay a penalty, which isn't financially smart.

Odds are you have a great rate on your current house if you bought it during cheaper times... so giving up a great interest rate doesn't make sense either on selling your house and renting.  It's sort of going backwards from owning your real estate. 

Saving up a down payment for a smaller house is a good path.  Borrowing from family for a smaller purchase isn't the worst thing.

Cash flow has been tough as of late with the higher interest rates.  Once those drop back down into the 5's cash flow should get a little easier.  My personal opinion is that nothing cash flows well at 7% interest... too much money goes to interest.  It is also tough with the run up in real estate prices in the past couple of years.  If you buy too expensive of a house, you won't get any good cash flow either.  We bought most of our 37 properties between 2018 and 2021 and my personal 'line in the sand' was that I wanted to make at least $300/door for me to consider a purchase.  Below that, it wasn't really worth it.  With cheap housing, we were actually able to do even better than that back then.  But today, with housing prices doubled (or more) since then, it is tougher - especially when you factor in higher interest rates as well.  Understand that cash flow is awesome when you can find it!  But more money is made on appreciation than on cash flow every time.  Take a $200,000 property increasing in value 3% a year - that is $6,000 in appreciation just at 3%.  Whereas $300/month in cash flow would only give you $3,600/year. Between 2018 and 2022 we had properties double in value (so 100% appreciation in 24 months).  It was crazy!  Obviously both appreciation and cash flow is best.  

You have to realize that real estate is cyclic.  We are starting to come off the high side of interest rates and expectations are that more properties will hit the market... but will probably be eaten up by pent up demand... so prices aren't expected to drop.  Right now you have a market where existing landlords have all these properties at cheap prices where they can afford to charge less for rent than new buyers and many don't want to shock their tenants by jumping rents by $400+ in one rental cycle... so we are gradually easing those tenants upwards each year.  Of course they will eventually come up to the prices you have to rent a newly financed property for... but there is a lag there where the market equalizes.  Tenants that move out we jump the rent to market rent.  

All beginners want to jump start the process... but real estate is really a get rich slowly process.  You will quickly find out about debt to income requirements on purchases.. where you will be "Ok , I want to buy another / bigger one" and your lender will be like - "You have too much debt - we aren't going to loan you anything else right now."  So after you have owned a rental property for a year or two, they will let you count that income against the debt you have incurred by buying that property.  That helps bring back down you debt to income level.  There is a process by which all of this works... but it isn't going to be as quick as you want it to be!

Wishing you all the best!

Randy

@Kate Lavery

Hi Kate,

I don't have all your answers... but I can tell you that if you physically received the $500,000 (cash, check or what have you payable to you) on the sale of your property - it won't fly as a 1031 exchange.  A 1031 exchange requires a fiduciary to receive the money and has strict rules around the whole process. If you received the proceeds you can't 1031 it... short and simple.   

But if you lived in the property for 2 of the last 5 years, you should be good to do the section 121 exclusion - but realize that is $250,000 per tax payer.  So if you are married, the first $500,000 is excludable.  If you are single, however,  your exclusion is $250,000.  I can't help you with the turbotax side of things - but I'm sure someone else will chime in.  With the amounts you are talking about, I would probably tell you it's worth hiring someone to do this for you.  You can even do that through turbotax.  It's a few hundred dollars, and probably worth it not to screw it up given the dollar amounts you are dealing with.  If you get it wrong, the penalties will get costly quickly.

All the best!

Randy

@Jaime Ramirez

You should share the listing so we can review how it is being presented.  Where I’m at, if you list on Zillow, and you are priced right, you should be flooded with applicants for an affordable property… but the ‘flood’ decreases as your price point moves up.  But still, within a few weeks you should have someone applying who is qualified from my experience - which is in Florida, not New York… but all things being equal demand works similarly.

If marketed correctly now, it tends to point to price sensitivity (too expensive) relative to other similar offerings,  or some other detractor as to location or convenience.   

Share the listing and we can tell you more. 

All the best!

Randy

@Michael Ming

I will preface this with I don’t have any direct experience to offer you… but my guess is that if you are talking about the IRS, there would not be a lien placed on anything in any sort of quick manner.  If this is an estimated tax payment for your tax return you file in 2025, they certainly aren’t going to place a lien for simply not making that payment on time.  If it is for some sort of back tax due I might think they could act faster.  The IRS typically operates at a snails pace.  It would probably be months before the gears that have to turn within the IRS bureaucracy got to filing something like that - unless those gears have already ‘turned’ and you have been given notice of the intent to levy your property.   Typically what would come would be all of the notices from the IRS notifying you of their intent to lien the property, which usually give you time to resolve the situation.

 With that said, there is something to be said for not getting yourself in a situation of trying to buy something you can’t afford.  My bigger concern would be around your disclosures to your lenders… usually you have to disclose your financial situation to your lender and if you have this huge outstanding obligation it would seem like somewhere you would be obligated to disclose this to them.  I would be more worried about potential mortgage fraud in what you are trying to accomplish. 

Broadly speaking, with what little we know of your situation, it seems like you are probably overextending yourself and you don’t have the funds to be doing what you want to do here.  That often doesn’t end well.

All the best!

Randy 

@DeAndre Mason

If you are only 2 points off being able to accomplish your financing, mortgage brokers should have resources to refer you to be able to boost your credit score.  They usually have simulators that will tell you how much you need to pay off on a particular debt to accomplish a particular point gain on your credit rating. 

Beyond that, there are companies out there that (for a fee) can "influence" your credit score.  They do this by adding you on to one of their 'perfect' credit cards that have a high limit, usage, and also paid off every month.  You don't get actual access to the card... you get access to the boost it gives your credit by being listed as an authorized user.  They know down to the day when they make a change to your credit file what it will do for your scoring and when.

If your broker doesn't know about these things, reach out to another one.  They aren't secrets or anything... and while they are a bit 'fringy'... they are perfectly legal as I understand it... just manipulating the credit scoring system by playing by their own rules.

Hope it helps!

Randy

 @Christian Licata

Hi Christian,

Do you have experience with foreclosures?  That isn’t the easiest / safest first foray into real estate ownership. The way foreclosures are offered varies greatly around the country, and we don’t know where you are located… but where I am at they are all cash affairs, with the money due within 24 hours of winning the bid.  There is a lot to know about who is foreclosing, what lien position they are in, and just general risk of what you are actually buying.  I would just suggest you make sure you fully understand that process before you dive into it - because you can lose a lot of money fast if you don’t know all the ins and outs.

Likewise, rehabbing isn’t always straight forward… like who will do the work, permits, contractors, unknown damage you may not have accounted for - especially in  a foreclosure where there usually isn’t the ability to inspect the property.

We’ve done several flips we won at auction, and lost plenty of them in the bidding.  Most of the ones we won worked out ok, but one wreaked so badly of cat urine even after stripping out all the soft surfaces we cut our losses and sold it to a handyman unfinished who wanted to live in it and refinish it himself.  We went back over after he was done with the Reno and it still smelled awkward.  So you just never know what you will find once you get possession. 

I tell you all this not to give you more analysis paralysis, but to make sure you really are ready to jump into a foreclosure.  A straight up purchase is a safer first buy. 

All the best!

Randy

@Conrado Balicusto

We utilize RentecDirect.com as a tenant facing portal to collect our rent, deposit it to our bank account, market our properties, screen our tenants, handle our accounting and more.  The platform also lets our tenants report maintenance issues, and see their rental account payment history at any time.  So using a CRM program like that really helps automate processes.  It costs about $3-5 per month per door… one of our favorite landlord tools by far.  Finding systems that optimize your time and efficiency with your rentals makes a big difference.  

We tell our tenants that texting us is the fastest way to reach us.  We manage 37 units currently and we seldom if ever get late night phone calls … or phone calls in general at all.  Everyone texts, so there really isn’t a lot of things that interrupt a work day that couldn’t be handled taking a 5 minute break or during a lunch break.  

Having 1-2 go-to vendors for the highest frequency problems… plumbing, A/C, septic, electrical, and roofing, I can pretty much make a 2-3 minute phone call and pass the problem to someone who will solve it with little more input required from me.  That is a big key to efficiency… and the more units / calls you have, the more these vendors take care of you because they know how much business you give them.  I literally get a Christmas card from my Plumber - which tells me we are one of their bigger customers. 

Randy