All Forum Posts by: Sam Yin

 This is where experience comes in. For those that are afraid to get creative privately... here is a scenario that might better settle your nerves...

Create yourself an LLC, since this is the path you are embarking on anyway. Get on Legal Zoom or something similar, knock it out. Use that entity as a management company. Lease one of the units to your management company. You now pay rent and have an office to operate your rental business. Thank goodness that office has a bathroom and place you can lay down when your are tired of working.

Just sayin.😎😉

@Travis B.

Ditto!!!

There are many approaches. There is no one perfect approach. This topic has been discussed often. It's nice to see more people thinking about it.

Travis said something profound... if you love your job, then it will be great for you to wait decades to achieve FI from your appreciation strategy. However, for those of us that want freedom quicker, the appreciation strategy that has been laid out is not the answer.

Then the question is: do you want your time freedom now at an able young age, or do you want it a few decades later when you are not as able and not as young?

Easy comparison, 2 to 5 years of investing intentionally for cash flow and be free of W2 OR 20 to 30 years of investing for appreciation while working W2? Which is more worth it to you, the cash flow investment strategy that allows you to have the freedom to transition to appreciation later WITH the freedom of time meanwhile? OR the W2 that you love for the next 20+ years to get to time freedom? Then at the end of the day, will your children (if that's your 'why' like mine) appreciate and be able to carry on the generational wealth??? If you were never free enough to fully influence them in their childhood years??? Or do you think that after 20+ years of sacrifice to build wealth you will have any influence on the adult they became as they were influenced by societal norms?

These are questions people may not have asked themselves. Only you know what the right answer is for YOU. As for me, and a few others that I have read from on BP, investing for cashflow now to get to FIRE sooner is the answer. When I made the conscious choice to go down this REI path, it took a few years to get to FIRE. I get to spend ALL DAY with my family if I want to and I'm still investing for generational wealth. But there is no W2 holding my time down. Had I gone the other way, I might likely create even more wealth because my W2 would have supported my investments longer. I chose the first path for my family legacy.

This is where you should consider a commercial type loan. The entire thing is done as if it was one 5 unit property. Ask for a separation clause, which will allow you to sell off pieces if you need to in the future, as long as they are on separate parcels. It does not sound like to have any easement issues between them... do you?

@Byron Paille

There are pros and cons to you mental processing. Allow me to explain, since I have a little experience with this.

5 note, 5 escrow, and 5 closings is not difficult. Keep shopping for a lender that will do it. Biggest PRO: you have separate notes and can realize the full market value. This is especially true if your valuation based on OP is accurate. The CON is that it kills a few more trees. A few more additional strokes of the pen.

A commercial loan to cover all 5 is nice. Biggest PRO: you can average out the income to assist with leveraging all the properties as if it was one. Possibly easier to qualify and less money up front out of pocket... via 75%-80% LTV. The biggest CON is that you might not be able to grt a separation clause. Thus these homes will now need to transfer together until they th loan is paid.

Do not put too much emphasis the terms, unless you plan to keep them and pay them off. A short term loan via commercial lending is a fine product.

I come from a position of experience. I was able to get a package deal of 14 home and an empty lot. It would have cost me more up front to go with separate loans, so I chose the commercial route. However, it was tough to find a lender that allowed a separation clause... it cost a nothe point and other fees.

Picture this, how will you be able to sell for the best valuation if you cannot sell them separately as you fix them up or whatever? Do you think you can sell them as a package if you are in a bind? Because you cannot separate them? Is there enough cash flow or market rents to qual for better terms as a whole or individually? Do you have enough funds to close them all?

@James Hamling

That was thorough and wise. I will have to agree 100%.

When I began this journey, I did not think I would need a PM. I was able to handle it solo. 1 turned into 2 then 6, then 10, 20, etc.. However, when I got to about 50, i realized that it want impossible to self manage, but it was inefficient. The time value was not making sense.

Admittedly, I was still holding a full time job and had 3 young kids. But thank goodness for that, because it forced to shift my thought process to make better use of my time. I hired/trained my own PM so that they can align with my growth strategy. After some growing pains in the beginning, it smoothed out. This gave me more time to concentrate on deals.

I think this is is the natural progression. Just as @James Hamling stated, you will get to a point where it become more about growth. At that point, you have to shift your management strategy. If your goal is just to own enough for semi passive FI, perhaps 10 to 30 rentals, then self management might still work. However, if you are focused on wealth building and going beyond FI, getting to the point of time freedom AND into leisure lifestyles/frivolous purchases, then you will need to focus more on growth.

@Stephen Jones

I use to struggle with this as well. However, I have evolved to operate this as a business, not a charity. Not to sound like a jerk or immoral LL, but you have to ask yourself, will these tenants be willing to front you money for major repairs? Live in the place if you put off major repairs because you become short on reserves? Is your reserve where it should be...5-10% of equity or 6 to 12 months of mortgage AND operating costs? If you do a stress test on the current gross, will the portfolio withstand a recession that may cause 15 to 20% vacancies?

Based on your post, you have a sizable portfolio that should be able to sustain a few move-out and turn over. I would raise the rents, even if its just 2% to 4%. This keeps tenants mindset right and they know that costs go up for the owner every year. Closer to market rents if they move and you need to rehab.

With that said, if they are very close to market rents already, then you may need to look closer at cutting operating costs vs rent raises... but I would still consider a small rent raise.

For example, this summer I spread out about 50 rent raises, ranging from 3% to 15%. Only one moved out and it was entirely due to the rent raise. They relocated to live on the beach. The rents were not all equally raised either. I had a few inherited tenants that were long term (over 35 years tenancy) they got a 3% bump, on top of SUPER LOW rents. A few newer tenants got 10%+, on top of HIGH rents.

Your costs will go up. If you dont adjust up your income now, it may be too late to catch up later. I plan on another series of rent increases next month or two with the same strategy.

I use to be very empathetic to my tenants and bend over backwards. Sacrifice my sleep, health, family, and well being for the sake of keeping tenants happy. I was too focused on the customer service and not focused on the profit building of the business. Although I feel I had to do that at the beginning, I do not think it was necessary. It was due to mindset and lack of experience on my part.

This is only my opinion. There is no single right way to do it. Every market is unique. I'm still learning and evolving.

@Joe Homs

Agreed!!

Totally understandable. These current rate make us look a little harder for cash flowing deals. There still out there, no matter the rates, because prices are always relative. But is definitely harder to find.

Based on that detail information,  that is not bad for your scenario.  The ones I descride have no seasoning period either. But I do understand that lower amounts ofter cost more.

@Alan Asriants

I think it all depends on your personal goals.

I had 3 SFRs, 1 duplex, and 2 Triplexes, ALL with fixed rates from 2.65% to 3.75%. Some cash flowed great, considering what most investors are looking for in cash flow. I sold ALL of them.

It was to grow. Best decision EVER! I allowed me to scale up by free the equity. Right now, my purchases are creeping in the high 6%. And I'm elated.

Rates should not be the determining factor. Do not let rates hold you back. Look at the big picture. If you focus on rates, you will forever be left behind.