All Forum Posts by: Justin B.

Now that I have 10 properties, I don't factor in capex expenses into my monthly numbers. I handle that by keeping a minimum balance in my bank account for my portfolio in case major items like that happen. I also don't plan on replacing big ticket items for every house, nor do I expect more than 1 or 2 at a time if they do happen. Also, we don't buy properties that need "majors" replaced soon. Our strategy for SFR's is only a few more years (5-7 tops). We don't ever "plan" on replacing them ever for the SFR's, so I think it's very realistic to not plan to replace all the majors during the life of the investment. If I planned to replace all you mentioned on every house, I'd go bankrupt. If we inspect and find out that any of the major's are due to be replaced within our scheduled investment window, we either have the owner replace it, adjust our price to compensate, or walk away.

Also, I've mentioned before (in various places) that my first property that I bought in April of 2010, the air conditioner went out in August of 2010 and we had to replace it.  All in all, it was around $4k.  It sucked but we kept going.  Outside of that, in 9 properties over 5 years, we haven't had any major's replaced on any property, however, if we do, we are fully prepared for the expense.

Mel, any chance you want to share your story on what you're relationship with the bank is, how it got started, and what you currently get on average for terms?  When I tell people about my relationship with the bank, I always get a variety of "I hate you" looks and I keep saying it's the same relationship that anyone can build over time.  It would be nice to have others in the same boat to help encourage the many that are frustrated that there is hope, it just takes time.

I agree.  There are always ways to play with numbers.  Like I said in a previous post, I'm not using vacancy because it's already rented and we've already seen the place and know we have no upfront or deferred maintenance.  all the "majors" are in good shape, etc.  Of course something can always happen.  When I ran my initial numbers, I used my standard 10% vacancy and $50/month misc to cover maintenance upkeep.  My cash on cash return using those numbers is still well over 100%.  The normal cash on cash return we look at is around 40-50% on average so even with that in there, I'm double what I'm use to so I'm happy :)

Plus, Cash on Cash is just the sexiest number.  Saying I bought a property for $350/month (the most important number to me) cash flow isn't near as sexy of a title :)

Understood.  The majority of the houses we own are $70-$100k and rent for an average of $1,000/month.  However, this property and a couple of others we have are a third of the price and cash flow better.  No matter what you do in real estate, there is always risk.  This one just happens to be a risk we're comfortable with.  We done a lot of analyzing and another thing that keeps the risk low is that we're experts in the area we invest.  That doesn't mean something bad won't happen, but again, it's a risk we're ok with.  And keep in mind, I wouldn't necessarily call this low income for MS.  $750/month is not bad.  MS has a VERY low cost of living.  I know the "low income" areas well and I wouldn't be caught dead in the them....actually, I probably would be dead if I was in them.  They typically are the $200-$350/month range and are being bought and sold for $10k or less.

 Yea, that's pretty much why basements don't really exist in MS.  The effort and cost to put one in is prohibitive among other things.

The person who we work with the most actually used to work at Community Bank back in the day. My first car loan when I was 16 was done by that bank. I don't even know if they still exist anymore. Eventually we want to be out of SFR's and into MFR's but in MS and TN, the pickings are just too good right now for SFR's. It's hard to turn them down especially since we've been looking for MFR's for quite a while and just aren't finding deals that are any good.

I wouldn't classify anything I said as misleading.  I was just stating what I got.  The post was all about the deal, never "how" I got my terms.  It looks like people focused in on the 5% down so I elaborated and answered questions.  How I got started and they way I do things I've never hidden.  I unfortunately don't have time to lay out my life story every time I post.  That's why I have the blog :)

I will say this though.  My relationship with our bank is nothing that every single person out there can't eventually get.  My "personal" history with the bank is that I have financed a couple of cars through them.  I never even had a mortgage with them and when I moved to Maryland 12 years ago, I ended my personal banking relationship with them all together (closed my account and went with BoA up here).  My brother and father do still use them as their personal bank.  If you have a bank you hold a car loan and mortgage with, then you have the exact same relationship I had with our bank in 2010 when we went to them for our first loan.  In fact, they didn't even want to finance our first property because we had no business history with them so we had to do owner financing to start.  All they knew us for was personal items.  They did finance it 6 months later in a re-finance type scenario.

So the personal relationship (again, nothing more than anyone else has with their current bank), several years of payment history, and several properties later, we have a great relationship and we get great terms, but we earned it.   I do think relationships like this can only happen with smaller banks.  If you currently bank with BoA, Wells Fargo, Regions, etc, then I doubt very seriously you'd be able to garnish a relationship that would get you the terms we have.  You may be stuck at "normal" terms forever unless you're a big dog financing buildings in major cities.

Also, we did find one property out of state that we considered purchasing at one point.  When we went to the bank, they said they would require 40% down because they don't do a lot of business out of state.  So even our relationship has it's limits.  If we wanted to buy up here in Maryland, I'd be in the same spot as many of you.  I'd be lucky to get 20%from a local bank here.

On the topic of 3 of us, yes, we have 3 people that can personally guarantee loans but again, that's 3 people.  3 people that have to split everything we get.  So it takes a lot longer to get to a goal with 3 people than it does with 1.  The good definitely outweighs the bad in my opinion.  We've got 3 people looking towards this income to retire on instead of 1.

 You are right on.  Jackson, MS and Memphis, TN are some of the best markets in the country right now for buy and hold properties.  There are others as well but we're interested in buying where we have a presence.  When we're all full time doing this, I'm sure we will venture out.  We're buying sub $100k properties and cash flowing hundred of dollars a month even with low % down payments.

 We actually own in Jackson, Brandon, and Hattiesburg.  This particular house is in Jackson.  And I'll be clear.  If you read my blog or my profile here, you'll see that I grew up in Jackson, MS (first 23 years of my life), then moved to Maryland after that.  My Dad still lives in the Jackson area and my brother now lives in Memphis, TN (he was in Jackson when we started this business), which is where we own a few properties as well.  So I don't want to put a false illusion that I just up and started purchasing property in MS and found a bank who was willing to give a guy who lives 1,000 miles away 5% down on properties.  another reason may be that all 3 of us personally guarantee these loans as well.  I'm guessing the bank feel pretty well covered in that respect and I'm sure that contributes to the favorable terms we get, but I'll take it :)

Understood.  That's why I put about 20 different numbers in my post.  Different people look at different things.  Cash on Cash is not my #1 number.  Cash Flow per month is my main number that I care about.  I don't even care about equity.  As long as I can rent it and meet my goal of cash flow per month, that's all I care about.  Once cash flow reaches a certain point, that's when I can retire and do this full time.  I'm on a mission! :)