All Forum Posts by: Sam Yin

Hi Dean. You are correct, I bought them in CA, by choice to have greater local control. However, I think you may have missed my point, a little.


I bought at market or over-market value just to lock them in, NOT wholesale or a discount. Specialized work was done by contractors.

The first 2 SFHs were major fixers that I had intended to live in, the latter I still do. But they were not at any discount. As for repairs, I did do some work myself, on the homes, but not the plumbing, electrical, roof, remodel, etc... I mainly did clean up and prep for the contractors to save a little time and money, as well as some painting and sealing. For the two tri-plexes, I did a lot of cleaning work, but I hired out for roof and plumbing.

As I went into further in REI and purchased apartments, ALL of the rehabs were by contractors. I only spend a few hours a month on my REI business, mainly for bookkeeping. The rest I rely on is a team of managers, contractors, and local repair vendors. When using professional contractors, I get even more return on the capital investments because I have run it more as a business. For example, the 8-unit that cost $700K only appraised for $660K. I overpaid by $40K because I knew it was my way to get my foot in the door of commercial residential investing. All the rehab and repairs associated with it are done by professionals. Hidden behind the balance between cash flow and ROI for rehab, I also made actual money on what I allocated for maintenance, repairs, management, and reserves, as underwritten because I had 1031 before spending those funds.

I have completed eight 1031s since, and have used contractors for capex, with significantly higher returns on the value... mainly because these are now commercial-type loans, not residential. A quick example is $15K in rehab on 2/10 units (+ rent increases) that returned $400K on equity for an exchange to a larger deal, etc... 

The other point to be made is about the cash flow itself. How can your business sustain itself without cash flow? If you break even, you are losing because you lost time. If you are running negative, that is even worse. I understand that for high-income earners, this is not a big concern because they supplement their primary job. That was not the model I was looking to create with REI. I need both cash flow and potential appreciation. for example, the leftover net cash flow in the last couple of years of investment was used to purchase two more commercial buildings.

To you OP, regarding bookkeeping and Cash Flow: 

1. Anticipated upgrades are worked into the deal before COE, because it was anticipated. The COCR hould not take a hit, unless you DID NOT anticipate it.

2. There may be some quick periods of no cash flow, but that should be made up at the end of the rehab... meaning make up for the loss of cash flow used for the rehab + regular cash flow, not back to neutral cash flow. The rehab should have cause the cash flow to increase above previous calculations, once completed.

Investors run their bank accounts differently. I put my gross into an account. I pay all my operating costs and debt from it. I also pay for all my additional rehab from it. I also pay myself, but I do not deplete the account to a point where I need to transfer personal money back in... unless there is an emergency. This is where reserves are crucial. Reserves in that business account, built from the rentals. When my reserves go beyond my comfort threshold, I immediately deploy them into another investment. I DO NOT pay myself the excess. 

I hope that clears it up a bit more. This is just one of many ways to run an REI business. I am sure others can critique my strategy. I continually reevaluate and adjust my operations.

@Hannah Joy

I'm not an old timer, in age or in REI. You seem to be a hustler from your posts, I respect that. However, I must agree with a few that have already posted... Do not try to rush it too much, but if you do, you better have adequate reserves to mitigate the risks.

My personal rules are to have about 5-10% of equity in reserves, NOT a HELOC reserve. Don't get me wrong, I love HELOCs, and I have used it to grow, but I have liquid asset NOT tied to debt for reserves.

Based on you OP, I would consider keeping $50K in reserves in checking or savings account. I know it may seem like a missed opportunity to do so, but it's what I would do. There have been times I deviated from my rule, but not for long and I have always been stressed when it occurs. AND that should continue to grow as your equity grows. if you have $10M equity position, I suggest a MINIMUM of $.5M in cash but preferably $1M.

You will sleep better, live a longer and happier life.

Just my 0.02.

@Kirstyn Indy

Start a secured line of credit. That's how I did it.

I'm not sure how old your kids are but...

When I was in 9th grade, I was working hard as a diamond cutter and wanted to establish credit because I had learned this is how this country operates. Also, I was working with cash and wanted to be legit. I gave BofA $5000 for a credit card. They hold it for 2 years then return it back to you, but the credit line remains and grows and tied to your SSN. It worked great. I bought a house by 11th grade. I still have that card. I even tried to buy a 7-11 with it back in the day but didn't pull the trigger because I didn't have time to go to 7-11 school.

They probably still do it, people just never ask. Hit up the bank and ask what they require.

@Dean Valadez

Hi Dean. What I am referring to is the evaluation of ROI of improvements/upgrades/rehabs. This is only one of many strategies, but it is the one that I adhere to most. It helps take the emotions out of the investment. Simultaneously, although I underwrite for long-term and that is the fall back, I generally do not have plans to keep long-term because I'm trying to grow differently than you are.

Here are a few real examples and I will try to explain the logic. I purchased a SFH for about $300K. I put $30K down payment. I have to pay PMI. It is used as my primary. It was a HUD home, that was boarded up, stripped, and there was a large hole in the wall where burglars had cut open to ransack it. I'm married with 3 little kids at the time, 5, 4, and 2. We got one toilet to work and we slept on the dining floor. We put everything away when we wake up contractors can work on the place. Got complete HVAC system (used) from habitat from humanity store for $40. Welded the pipes and recharged the Freon ($300). Got a few toilets from same place for $35. Hired out repiping and tile the kitchen/dining room, while we slept in the garage. Bought a heat gun from Harbor freight ($10) and wife spent evenings removing multiple layers of stick-on linoleum while I use a hammer to break up a brick wall to make space for a new patio. I watch a few YouTube vids on flooring, rented sanders from Home Depot, sanded and sealed the original hardwood floors for the entire house in 3 days. Lied to the wife about visitors and got her to spend a weekend removing all the kitchen cabinets, sanded and resealed all of them (probably my best trick since we married). Put new hardware. Remodel bathroom, Yada yada yada. We lived in it almost 2 years while working on it. Hired help when needed. Total capital costs was approximately $40k. Moved out and got another major fixer for $600K, by refinancing for the new down payment. Rented that one out a bit then sold for $600k, 1031 to an 8 unit building that cost $700k. Did some upgrades and improvements to the 8 unit, including new roof and paint. Total cost was about $40K, but I was cash flowing ($40k/y) those 2 years and 1 day I held it (net $40k). Sold it $900k and 1031 to 14 units and vacant lots for about $1.9M, cash flow 30k/y. That's all because the $40K improvements raised value from $300k to $600k for the SFH and the $40k improvements on the 8 unit took it from $700k to $900k. Btw, I sold the SFH to friend, so it was a discount from about $675k real value.

Back to the $600K home I moved into from the $300k home. Slept on the garage floor while we made 1 bathroom and bedroom usable (5 weeks of contractors and demolition, $40K) redid the floors a year later was another $5k. Refinanced and pulled $120K to buy a $420k duplex, cash flowing $800/m at COE. Then refied again as interest rates dropped, pulled out $150K to buy two tri-plexes, each cash flow about $800/m, but needed lots of work, which I did. Spent about $30K on those 2 triplexes (which basically nulled the cash flow) and sold it 1.5 yrs later to 1031 into a 19 unit building for $2M, that cash flows $60k/y. Recently pulled HELOC on that primary and used $230K to help buy a 6 Plex and a 9 Plex and invest in a start-up, because the roughly $50k improvements had an ROI on my $600k to appraise well over $1M.

I can keep on going, but you get the pic. When commiting capital improvements/upgrades, consider what it's worth. What will it return and what will those returns be used for? How much cash flow in the mean time? Are you working to fun/hold the deal or is the asset working for you and paying you with cash flow? Are you over improving? Are certain upgrades necessary? Did you underwrite the old/worn appliances and structure during your inspection? Did you have enough reserves, build from the gross rental income?

Some believe in cash flow later down the road by buying class A/B in high appreciation areas. I believe in cash flow at COE now to sustain the rental business, but build/grow wealth through it's equity, realized, NOT HIDDEN in the asset. Im just a small time guy, but I wanted to make REI a sustainable business, not an investment that constantly draws outside income. Once stabilized, I then concentrated on the operation and created my own management and maintenance team to free up my time. They get free housing and a salary. They bill me for additional hours when they make repairs.

Also, for context, the above all happened in just a few years span, not decades. But it takes intentional investing. Therefore, create a goal, work backwards to a realistic strategy in the timeline you want, and do it. It may not seem easy to some, but it is more than doable by all. You just need to have realistic expectations of yourself.

Only you know what you can tolerate. But that's an illustration for what I mean by capital improvements expected to return 3-5X. Don't redo the kitchen, maybe some paint and new hardware will suffice. What will be your actual return on investment... Ask that over and over again.

@Jeff G.

This is actually really concerning because I have several State farm policies. I have not gotten that letter yet but I guess I better keep an eye out.

The insurance thing is becoming the most expensive part of the operation. Now the tenants will have to incur the costs.

@Dean Valadez

Based on your initial statement, you bought this property with value add potential. Therefore, the money spent was to add value. That rental money reinvested into these value add components should theoretically have a 3-5X, or more, return. Thus, your exit/extraction, with grant you all that money back TIMES 3-5. If not, then that was not a value add play. Think about it... If you spent $5000 on a value add item, that should rais the value of the property by $15-50K or more. If not, then it was not a value add event, it was just maintenance, and it should have been covered by your maintenance budget.

So, the question is when will you realize the gains produced by your value add expenses? Don't wait too long, because those gain may lose value based on time, trends, or rates.

@Samantha Ward

Your goal should directly influence your strategy. Set a goal, work backwards, and create a realistic strategy based on your personal abilities.

An aggressive investment strategy can get you free from your 9-5 in about 3-5 years. A typical strategy will take closer to 10-15 years. A lazy strategy will likely take you 20+ years. You have to pick one. Higher risk equals higher stress but higher rewards, faster. Your wealth is accelerated as you property appreciates and gets paid down and you extract that equity to reinvest. That is not the same as recoupling your initial investment to reinvest. Factor your equity growth and use it to help leverage.

@Bill Brandt

That was very well put Bill. I wanted to say the same thing, but you were able to write it out best.

No need to constantly compare. One of the biggest factors for people's pace is their risk tolerance. Greater risk yields greater rewards, but it comes with greater stress and higher chances of failure. Once that train starts moving, it is truly amazing how quickly it can accelerate.

@David Lutz

Very thorough post and thanks for the transparency. I'm here in SoCal. I invest in SoCal. I have had many, if not all, those issues, AND MUCH MORE. However, based on your capital costs, leverage, and cash flow, it does not make too much sense to me. At least from a sustainable investment standpoint. There have been a few responses that shed some light and provide different strategies, but I understand you will do what makes most sense to you based on your personal goals.

As I have slowly grown my portfolio, I ran into your capital expense issues. But my cash flow has always covered it. There may be something amiss in your underwriting. Did you account for vacancy, capex, management, maintenance, and reserves, before your cash flow projection? Outside of doing a whole new roof or whole AC system, you should always cash flow. Although I mainly focus on small multifamily, I did start with SFR and duplex/triplexes. They were in some nasty shape. They needed a lot of work. They received a lot of work. But they cash flowed.

Wealth is built on the equity. Thus if you lever too high, it will take you too long to make good use of the proper ratio of equity to grow. Your current operation/trajectory will likely take to the a cap/limit of growth very soon. Unless these were just a brief growing pain and you are now running a very profitable business in REI. For context, I'm not an RE professional. I'm just a guy that hustled to get out of W2 via RE and grow generational wealth along the way.

This is only an opinion based on what I have read so far. It may not be an accurate assessment if there is more information not yet produced. But the way I see it, if you have that many units and are looking to grow, you should be cash flowing roughly 15K/yr in your pocket, minimum. However, your 90% LTV may be your Achilles. If you have not already done so, take a moment and do a stress test on your portfolio. If it can sustain, you are OK to continue on your current strategy. If not, consider adjusting and reinforcing your current holding. Better yet, prune it. It has been suggested already, but it appears it not the right strategy, in your view. I recommend revisiting that concept of pruning your portfolio to increase the quality of your assets, regardless if you are investing in B, C, or D class.

 @Don Konipol I would like to comment and hope that this comes across without any negative misinterpretations.

Your post is timely, for me. Although I have not been in the REI business for very long, I have been sharing my experiences with folks going through similar journeys when I can. I have found great value in reading through posts that are related to some of the happenings in my journey. This one is no exception.

Don, I have read some of your posts in the past few years and I have found them to be honest, thorough, and well-intentioned. I understand that this public forum is a collection of many personalities. Some react quickly/unreasonably to what they read, rather than sleeping on the information they just received.  As such, responses can sometimes be snide, even spiral into personal attacks. However, I keep on holding on to the notion that the original intent of BP was to share experiences and help everyone in the community with like minds to prosper and avoid pitfalls if possible.

With my limited experience, I have had a chance to meet a few people on this forum in person to connect and grow. Many more have called and I have spent countless hours answering questions and assisting where I could, but most have faded away and some have been just a waste of my time. It gets old and I have cut back quite a bit. On the opposite end, I have reached out to a few to connect. Most have been busy as well or felt what you have been feeling. Everyone has a different set of experiences and are on a different part of the journey. I will agree that there appear to be a lot more people on the forum just lurking or fantasizing about REI with unrealistic expectations and ZERO notions of what hard work and grind really mean.

I am about to spend half a day taking some people, that I met on this forum, on a tour my some of my apartments and showing them my setup. They requested it and I figured it a way of paying it forward. Will it be just a waste of my day? maybe, maybe not. Maybe I will run into them in my journey since they are younger and likely have more energy to grow way beyond me. Maybe I will be asking them for a tour in the future. 

There are still a large number of serious newbies, like myself, that take heed of what you have to offer to weigh out options. It is still a great place to research, ask, learn, and absorb wisdom.