All Forum Posts by: Sam Yin

Quote from @Julien Jeannot:

@Becca F.

I've yet to find a model that allow to retire from a W2 on cash flow without starting off with Millions to put in down payments, even in "cash flowing" markets

The math simply does not play out. If anyone has a model that proves otherwise, I'd love to see it.

Generally, you start by building a large equity position, then covert to cash flowing assets.

I've retired from my W2, but it took 9 years of pushing equity via rehabs, YOY rent increases and riding appreciation.

 This is the way.

I'm still in the learning phase of Commercial MF, but based on my experience thus far, another factor may have been glazed over. Commercial loans include prepay penalties that must be factored into the cost analysis. Additionally, the lender regularly audits.

However, on appraisers/comps and CAP rates, the lender will factor in the current equity, as already mentioned. They usually remain aware of the trend by conducting their annual audits on your property/loan, assuming the PnL you provide is accurate. This leads to the more important aspect of running the business, which is risk mitigation. By tracking your PnL closely and making adjustments to your operation costs/revenue, you should continue to increase the NOI at a similar pace to the rising rate, thus maintaining your DCR. A PITI term also helps a bit better than a I/O loan.

When it comes to the original loan itself, investors should avoid deviating too far from the standard 1.2 to 1.3 DCR. I know there are lenders out there that will loan on 1.1 or even less. That can be fine if the original purchase was at a sizeable discount. If not, then you run the risk of what we are discussing on this thread.

Finally, I think that banking relationships can also play a huge factor in mitigating the risk. Lenders often favor those with good history and their review board can make concessions and adjustments to help everyone involved get over the hump at the end of each term. On more than one occasion, my Lender has surprised me with their willingness to adjust terms in the middle, or even days before escrow closing. I have had 5% reductions twice on down payments that were way off their standards for a given market, from two separate institutions. On separate occasions, the lenders have reduced rates by as much as 30 basis points, without additional fees, to get a loan to work in my favor and to keep me from shopping with another lender when the interest rate was still trending across the board.

Back to the OP, I think the ultimate responsibility falls on the asset holder/investor. Your actions regarding operating the business, cost cutting to increase NOI, keeping good relationships with the Lender, and ensuring that the asset was not overleveraged, to begin with, are the keys to surviving untimely interest and CAP rate fluctuations.

Chris and Henry already laid out what some probably did not consider. I would immediately trade a point to relock into longer debt before it's too late. I may even take a 2 point hit depending on the situation. At the same time, I would monitor my NOI closely and keep a pulse on the market trends to get a better guess as to what an appraiser would evaluate my properties at. Frequent trades are great for growth and you can use shorter-term debt if you can guarantee you have the energy. But during these times, I would not use debt that is shorter than 5 years. Time to make moves is the key, or else you better have a large portfolio or reserves to cover the difference.

@Glen Wiley

Great tactic. It is more commonly used in MFRs vs SFR. In multi, it allows the owner to increase NOI quickly and force appreciation for refi or cash out.

Do it if it works. I know some people may not be aware of how common this practice is. It's out there, just less common in SFRs because it adds nothing to long term value and often increases maintenance calls. In multi, you get the benefit of scale and it actually increases your buildings value.

Quote from @Becca F.:

I currently have 3 SFH rentals solely owned (1 in San Francisco Bay Area and 2 in Indianapolis metro area) and 1 apartment building in the Bay Area with co-investors). I have a lot of equity in the Bay Area house and the apartment building. SFH is currently negative cash flow because I'm renting out to family members, trying to get roommates in to bring it up to market rent. The apartment building cash flows the most out of all the properties.

Indy SFH#1 in Class A nice suburb with great schools has appreciated in 10 years (doubled in value) that I've owned it. However my cash flow has decreased from $400 a month (in 2019) to now $110 a month in January 2023 due to property tax increases. It's really $66 if you divide the annual HOA fee into monthly amounts. House was built in 2005 so haven't had too many expenses recently (replaced water heater 2017 and HVAC 2018), but it will need a new roof in a few years, I would guess.

Indy SFH#2 is a renovated home (built in 1920) bought 7 months ago in a Class C moving up to B area. It's supposed to cash flow $176 but I have only received 1 full month rent (minus the property management fee) due to repairs that tenant has called the PM company for. I'm in escrow on Indy SFH#3 - projected cash flow is negative - $100 or so with these interest rates. Hopefully I can raise the rent over the next few years.

Since these cash flow amounts are small, they would be wiped out by a major capital expense for the year. I have reserves but I feel like I have too much in real estate and should take a break and invest in more liquid forms (stocks and index funds). My net worth in RE is well over 50% (don't want to go into specific numbers on a public forum). I've heard different investors have net worth range from 20% to 98% in RE.  My goal is to leave stressful W2 job within 5 years or scale down to working on part-time/contract basis. I feel like I'm starting to over leverage or take on too much risk. Is that part of the definition of over leverage, with rents barely covering my monthly expenses? 

Also there's the headache factor with investing out of state especially older homes. My thoughts were to in the near future possibly sell the Indiana properties because of the ever increasing property taxes, 2.77% and 2.78% tax rate and 1031 to a SFH in a less expensive part of Northern California (90 min drive). Nevada or Arizona have much lower property taxes and better appreciation but I would be cash flow negative with those also (as long term rentals) and again it's out of state. Or just sell them and take the capital gains hit but then I lose the rental income and tax write offs.

 Am I missing something but how am I going to leave my W2 job or go part-time if I'm barely cash flowing especially on these Indiana properties? Even if I bought 10 more Indy properties all my net rental income won't add up to my W2 income (after taxes). I do my own taxes so I can see my taxable income reduced every time I add a property into the tax return form. They're passive losses but I'm tracking my hours to see if I qualify for Real Estate Professional Status. This RE investing combined with a W2 job is stressing me out. Thoughts?

Sorry for the essay but I'm frustrated. 

 Do not give up. Keep at it. You got this. I applaud you for being in the game already.

The responses have been very honest and realistic... for many. You can be the outlier, but it will require you to be strategic. Just as @Henry Clark stated, set your goal, set a timeline, work backward and see if your current holdings are even in line with the strategy to meet your goal.

This may mean that you need to liquidate them and start over or adjust them to fit. Based on the current numbers you elude to, those are not what I would consider great, or even good deals, for you. It combines your current situation/responsibilities and the return on those investments. Most times, if not all, you have the most control over an investment when you can be there in person. That level of control includes the ability to control its appreciation for you to be able to extract and reinvest or grow your net worth. That net worth or extracted equity is what you need to grow and be able to leave your W2. It is that simple. But you may need to review your current holding and fill in the holes so that your ship is tight and can weather storms for you to leave a W2 long-term.
The above is regardless of whether you want to do SFR, MFR, Officers, Land, development, or Shopping centers. It has to do with the most efficient use of time and money.

For example, if you are currently in the Bay Area and want to keep up that lifestyle, then you need to be even more aggressive. Let us say you make $200K/yr, have a few kids, and your W2 gives you insurance, a 401K, 357b, or an IRA with some employer match. Well, you effectively have a job that is worth closer to $300K/yr. Thus, figure out what asset type you are willing to put energy towards that will get you to $300K in the number of years you wish to leave your W2. Be realistic, but set the goal high. Work that math backward. Go back in and see if there are any adjustments on your part that you can make to get you there faster, or make it more tolerable financially until you get there.

This may mean cutting back on current luxuries, like subscriptions, coffees, and similar common leisure. remember, it is temporary... or it can be permanent, up to you. Can you bring your portfolio closer to save on frequent flights to maintain better control/save time? Even a property 60 to 100 miles away is better than most OOS. believe me, there are just as good deals here in CA as there are in any state in the US. That is because CA is huge and the majority of the land here is tertiary markets that many overlook. People will tell you that they can get SFRs for 100K OOS. They are here in CA as well, AND it is closer so you have better control. That "control" includes keeping a direct eye, picking up after tenants to increase curb appeal or giving you a better sense of when to increase rents based on the neighborhood evolution, or when to trade for that matter. you do not have that when it is too far from where you are. 

Obviously, if your life situation does not allow you to be too aggressive, then the formula will need to be adjusted. Either get more risky, lengthen the timeline, get partners, etc... One thing is clear, it is not easy to leave a high paying W2 through REI, commonly. However, it is more than possible, it has been done by many on here. Some call them exceptions, others say it is because of timing or luck or the right cycle. I rather believe it is 80% hard work and dedication.

There is so much more to write. But the final part is whether you will be passing this on to your heirs. if so, they should have direct and constant contact now for better assimilation into REI. or else your REI portfolio will be a statistic after you are gone. Then, if some children finally see the light, they will start from scratch and the tragic cycle starts all over. but it can likely be overcome with closer assets that cost less to be on-site regularly.

This is only an opinion to consider. Others may have differing opinions. I did those things and I was able to leave my W2. I reassessed my few SFRs and sold them all to start over with a different strategy based on the timeline I wanted to achieve. It is ALL in CA. I did not listen tot he naysayers and cut folks out of my life that was a drag, friends/family. I did neglect my kids and my wife to a large degree, compared to what they were used to. AND they were my "Why." It was temporary, just a year or so. Worth every moment of neglect!!! No regrets. And you can do it too!

There are a lot of resources online and on this forum. Keep up your health to keep up your energy and pour it all into REI if that is what you truly want. You got this.

Quote from @Kelby Schimming:

@Sam Yin I appreciate your feedback and understand where you are coming from. The ease of paying the loan back comes from the margin between the IO payments and the NOI. Yes, I know this margin is not always the same, but I have conservatively run some numbers and figured 3 years solely based on that monthly margin. I also know the numbers on the T12 are most likely not entirely accurate...I have already discovered the property taxes have gone up a lot since the previous year. I am doing my due diligence and posting on BP is a part of that process. Folks like you and the others who've replied to my post, bring value through different perspectives that help me get a better understanding of what I am working with it.

The 100+ properties are currently run by the owner's daughter who seems to be doing a good enough job to keep it afloat, but not good enough to optimize the portfolio. Example, they use the red "for rent" signs when they have a vacancy and post it on Zillow. There is no branding or company website. There is a lot of opportunity for improvement just through property management. My first step would be to hire a professional property management company and have them help to improve the items I listed above. I think leaning on them will help me mitigate the learning curve involved. 

I appreciate your insight and the feedback you've provided. 

If this is a 100 unit deal, you are going to have to account for payroll. There should be a full time manager onsite. In fact, you may need a small team on payroll for apartments of this size. There are a lot of moving parts when there are that many tenants. Trying to efficiently/satisfactorily manage that many tenants using local techs for repairs and having unpredictable response times is a recipe for headaches. This is why payroll is needed. Additionally, most lenders will underwrite with it if you are going to involve them in a deal.

Im not saying a person can't run it on their own efficiently, but if you do not have experience, it will be difficult. As it is, it is almost a full time job to deal with an apartment that size and you better have a Rolodex of handymen for constant repairs. 

In any case, I think you are wise to use the BP Forum for their insight on a first move of this size. Do not give up. It sounds like your deal is close to complete because your biggest hurdle of find this deal is already done. Keep going. Take everyone's advice and find what works best for your particular deal.

Best of luck. Keep us in the loop because I love to learn more. 

@Nathan Gesner

Im just checking back on this post... It's been almost 2 months. I'm still not a Mogul. But that's because it's only been about 2 months.

How have you guys been? Growth in that last few months? Hope so.

I know a few of you are already quiet Moguls...

I'll check back later.

@Kelby Schimming

To piggy back on @Chris Seveney I would seriously do some more due diligence. With very few exceptions, when a deal is too good to be true, it usually is. This came to mind when you stated you could easily pay back the lon in 3 years

On the surface, what jumps to mind is your experience. Without knowing the other details of the deal/type of asset, I will suggest you get someone with experience in that asset category to manage it and learn from them. If this is a multifamily at 8M, depending on where it's located, this could be a 8 unit to a 100 unit. That is goin to involve more active management or payroll. It's not impossible, but there is a learning curve. If it's a commercial office, there are other management nuances you will need to learn. Additionally, if it's a NNN that is an A rated company, like Target, Costco, or the like, you will likely see lower, but steady, returns.

In any case, be cautious. Part of your verification should include the bank/deposit statements. There are sellers out there that may not be totally transparent and/or are facing delinquencies that they want to unload.

With all that said, if things check out, you got a really good deal that should be enticing to many HMLs.

@Jonathan Marsh

I think you are looking at this from the wrong/in efficient perspective.

To your OP, there are other benefits of owning you missed. For example, based on the scenario you laid out, you will be tax exempt if you sold, so there is no need to stress on the 1031x and it's timelines. You also need to factor in principle paydown, depreciation, write-offs, etc...

Above all, as others mentioned, for a primary, you should concentrate on buying a place that works for your needs. If this was primarily for an investment, then perhaps find a different type.

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

@V.G Jason

 How is in LA situation Sam ?

We're in N. CA is having very weird situation I guess that owner occupant buyer is aggressively bidding any cheapest house left in the market regardless of the condition.  

I think 10 years from now the house over here is considered more like rare collection, with 3-5 DOM as the new normal.

If stock market and IPO goes well it would rise the value of home price again and again. I don't see tech industry to reduce their influence in US anytime soon in fact they always raise in almost any condition and that action trigger new generation of buyer or landlord.

Good morning Carlos! I have not seen much change here in the LA and surrounding areas, at least where I invest, the IE. The inventory for investment-grade property is still very tight and the demand is overwhelmingly higher than supply. Deals continue to fly off the shelve at a lightning pace!

For the good/great deals, 0-1 day on the market. As you know, REI agents have their list before they publicly list. Furthermore, many hold for a few days to allow their buyers list to do preliminary due diligence. Thus, it appears ALL the good/great deals never hit the market. It just shows sold once it closes. The semi-good deals will hit the market, go pending the same day or the next, and then be off the market again. There is not much out there listed, but there are a lot of investors banging on the door, and there are a lot of closings still happening... you get my drift.

My last three deals (one sale and two purchases) never hit the market. I brought buyers to the table and had the agent do the paperwork, negotiating 2% for me and 2% for the buyers to pay. I must have been near the top of an agent's list because I was allowed to see a few properties before letting anyone else know. I took both, and then some extra bonuses during the negotiations. Investors in the area were a bit miffed as to why they were never made aware of those deals.  Several other deals came my way that I forwarded to guys I knew who wanted to step into the game and begin to grow their portfolio. They took them immediately. On another occasion last week, there was a deal that I suggested to a guy in the afternoon, but he hesitated for a few hours and only decided later that evening. It was scooped up about 30 minutes before he committed. That will be his learning lesson. I think this goes on everywhere at every stage of the game. Therefore, those who just go by publicly traded data may only see average deals.

I closed my last two deals in September and extended myself financially. On top of that, my mom, who I have been caring for in my home for the last 2.5 years, passed away end of October and I had to fly out to start cultural ceremonies since we are Cambodian. I had to become a monk and will conclude the ceremonies with a sacrifice and final celebration in 100 days. Because of all this, I am going to sit back a bit and just let things settle to rebuild my reserves and investment capital. I also needed some time to reflect on life and my vision of the future. My mom became incapacitated for the last several months before she passed. I was balancing that and my family's needs because I did not want my wife to feel that burden/stress since it was tough enough to have my mom live with us. My wife is Hispanic and I am from Cambodia... you can imagine the culture clash with my mom living with us. 

In the meantime, I have shifted almost all my focus back to my kids and upcoming jujitsu competitions. I do still keep a pulse on my local market. I still catch up with locals, check out local deals, and am always on the phone with agents, property managers, and non-related tenants to get the tone of the local market. What I see is that rents are still going up and that there is still a high demand for small to medium apartments. The rent rates have met, or beat, the operational cost increases. I was initially shocked by the higher insurance rates and utility rates. However, the rents have kept up!  This worries me a bit. I have decided to pause rent increases on some units and keep others to a minimum.

Last week I received a letter from the Housing Authority that states they will suspend ALL rent raises until further notice. They have run out of funds. I have several Section 8 tenants and requested an increase to one last month, but it is now on hold. Luckily, I did four others the month before and it went through. The weird part is that other programs have increased their rent rates by about 20% this year, and three increases in the last three months! It does not make too much sense, but it may be a sign of things to come.

Carlos, I really enjoy reading your posts and the data that you put up. I also like the perspectives of many of the other guys that get on here. Each market is unique because they they have their local influx or outflux of capital that make them more or less attractive to renters. I am not in the fix-and-flip world, so I concentrate on just rentals. However, at the end of the day, there is still something to be said about gut feeling and I trust my gut.

@V.G Jason

Very interesting assessment. I really like the varied perspectives of this discussion. You make some very good points.

I think that all we can do is speculate based on our experiences in the areas we know.

I have been out of the SFRs for a bit and have been concentrating on small MFRs. The variables are a bit different. However, I think what will determine the actual direction will be a combination of rates, supply, lender requirements, and public policy. As we know, certain areas skew from averages based solely on the policies of the area or the lender availability for the area. That then affects the supply of the area. And the cycle continues...