All Forum Posts by: Sam Yin

@Jessie Dillon

We all have a certain level of tolerance. But if you have commercial type loans, you may not have much of a choice and HELOCs do not count when you are under audit.

I try my best to keep between 5-10% of equity in reserves. At least that's my preference. I get audited about 4 times per year from different lenders based on the assets original closing dates... Spread out about every 3 months.

They expect reserves. So depleting capital to aggressively grow is out of the question these days.

@Dav Pohote

This has already been stated, but I'll state it again and elaborate. Since this is a commercial REI post, the question seems a bit contradictory to the general commercial investment strategy. But, as has been stated, it depends on your goals.

Here are a few things to consider: how long are you planning to hold the asset? Over 15 years? Over 30 years? The longer you hold, the more Capex risk you have, above and beyond routine maintenance. Do you expect to live long past that time frame and be healthy enough to fully enjoy that great cash flow and deal with the landlord stresses? Are you investing to make money and live life on your terms? Or are you working to invest and want to continue investing by working for the capital? The later seems to fit many people when they do not consider the costs of capital... That is, they just keep working and trading their hours to save up more capital, versus the mindset of having the actual investment quickly repaying the capital.

These questions will lead you down the correct investment path for YOU. Because it's different for everyone. Because we all have different goals and operate with different mindsets towards investing. Some are data driven and profit driven, others are emotionally driven and have grand visions of great appreciation through long-term holds. Some are still trying to figure out what drives them. There is no one perfect solution, just as there are so many opinions.

My opinion, for commercial REI, is to first go with the easiest loan you can qualify for. Do not get picky if you are starting out, or else you will never start. Next, pick the terms that will mitigate your risks the most, which can mean terms with true cash flow 10 years down the road, or terms with cash flow now to recoup your capital. The first will require you to have another form of cash flow to sustain your lifestyle and future investing, commonly being a W2/1099 job. The latter will be pushed by your lack of a job or pursuit for quicker financial freedom.

I normally go with 5, 7, or 10 yr term, depending on rates. I have a few sub 4% at 10 yr, a few sub 6% at 5 yr, and even a 7.5% at 5 yr. Just got priced yesterday for 6.2%. it all depends on my EXIT strategy.

I always recommend an exit strategy. I would not want to be 60, 70, or 80 dealing with tenants, if I can help it.

For me, I go with those metrics and it often leads to short/medium term financing, amortized for 30, and often I/O. I do not have plans to pay off any of my current assets, I want cash flow and appreciation, and I want to stay financially free with the ability to continue to invest without a job.

As Joe has pointed out often, your tenants are paying the mortgage, not you. At least you should not be, if you pulled the trigger properly. If this is a business, it needs to be profitable, just it need to be self sustainable and generate cash flow. That's how a business is valued. Or else, you are collect properties and incurring risks without reward. I know it may trigger some if I say that appreciation is speculation, but it is still somewhat true. I don't bank on application, but I do try my best to control it and capitalize on it when appropriate. I am not in the business of collecting properties, but if I were infinitely rich, may be I would, but I'm not. REI is my business, and it is always a continual pursuit to make it more efficient. It must cash flow for it to be sustainable and revalued higher for equity extraction (appreciation play). If I were of the mindset that I buy with higher debt terms for the sake of quicker pay off and realize higher cash flow later, it would not be a business and I would likely still be working a job.

Many of the posters here are already financially free, but either chose to continue to invest, continue to work, or a combination of both, but not a necessity. I bet the folks that are financially free via REI will often have a different outlook on this subject from those that are depending on a job and are just collecting real estate.

@James Wise

James, thank you for this thread. Some people may never understand the full depth of your contributions to the community and the site as a whole. You keep the ball rolling on this forum. A true entertainer in all respects.

I enjoy reading the viewpoints this far. Has anyone come close to changing your mind yet?

Based on the information so far, I would not compensate anything at all. Do not get emotionally attracted. It is a business and you should run it like such... From the beginning.

I have made those concessions early iny journey, and I regret it. I did not have anyone guide me.

@Bradley Buxton

As much as you can get and someone will pay. Start high, and adjust your numbers if it doesn't rent. You will eventually find that sweet spot. It might mean over market, at market, or under market. Let Capitalism be your guide.

@Kee Lee

I have had something similar twice. On the first occasion, I leveraged it as an opportunity to move the tenants along, complete some rehab, rerent at market... About 80%+ higher. This raised the valuation of the asset tremendously.

On the second occasion, about 2 months ago, a tenant complained a few weeks after the fire department soaked the unit to put out a fire. After hearing her plight and the fact that she never opens any windows, I reminded her that this is business and I would not take it personal if she felt the need to break the lease and move out. I would even credit that current month. But if she stayed, I would be greatful for her loyalty. I told her that the property manager will enter her unit during the day to open all windows to air it out or the next 2 weeks. We will paid for professional carpet cleaning. That's it. Although I was hoping it would cause her to move out, she stayed and later told me that it finally aired out. Her rent will be going up soon.

Try your best to see the glass half full and find an opportunity to make your asset better performing. This can mean some improvements, new and more resilient tenants, or just some attitude adjustments.

@James Wise

I think we all have the right to make up our minds our way. I think that a person who feels a renter should not sell real estate should always screen their realtors and only work with ones that own their own home. For everyone else, and their specific criteria, screen as such.

James, I don't think anyone on this forum can change your mind, if you already made it up.

For me, the young commercial agent that I work with was a renter when we first met. He had been selling commercial real estate for Keller Williams for only a few years. He has been a great partner to work with and learn from. I have grown 10X in knowledge since working with him. We have done several deals and will be doing several more in the foreseeable future. Beside just me as a his client, he has others as well and have been averaging roughly $1M in commission the last few years. We are about to enter into a few more escrows today.

During our relationship, he has purchased a primary home, a duplex for his sibling, several other multifamily for his personal investment. All this within the last year or so.

The point is that he had to start somewhere. He was trained well in real estate investing. But he started from scratch, and had to work up to it and was very proficient and efficient. If he was to be screened by way of personal ownership, he would have been a$$ed out.

But in the end, you do your thing. Especially if it has worked well for you. Granted this is philosophical discussion, but that notion should apply to all we do in our lives... Live free and Die well!!!

@Joe Villeneuve

I think CA has a bad rap, but if people give it a try, and put in some actual time, they may realize it's not as bad as they think. I do understand that people all have their biases and advocate for their investment markets. May be I'm one of the few that advocate for CA. Non the less, it's the strategy that really makes money. The market will determine the strategy and vice versa.

The strategy I used has allowed me to live off the cash flow and achieve FI. I always buy with long term hold underwriting, but I work to be able to exit within a year or two. I only spend just enough to pay basic bills, the rest gets reinvested for more cash flow. Either into more real estate, stocks, start up companies, etc.. It's not for everyone, but it worked for me.

Hello there Joe. How's the weather where you are at? How's business? Hope all is well.

This is very true. I knew that if you came on you would call me on it Joe. I was trying to keep it short. Glad to see that you don't miss a beat.

Here is a recent example with some actual rounded numbers. Location: SoCal. Final price $965K. Down payment about $290k (30%). NOTE: That money came from a 1031x that used $30k savings for down payment in a $300k SFR live-in fixer a few years prior, which sold for $600k. Loan about $675k. Cash flow at COE was $15k.

Rent increase notice to all 10 tenants immediately. 60 days later, cash flow projected to $27k. One tenant refused rent increase, booted her out immediately at end of 30 days and renovated unit (cost $10k) and rerented $800 higher (from $700 to $1500). Another unit booted out as well, rehabbed (5k), rerented $700 higher ($800 to $1500). Now projected rents are about $38k. Added locking mail box to apt (found on OfferUp for $40, usually $2700) and installed lock from Postmaster for the mailman. I poured the foundation myself using quickset cement ($30 plus my time). I was going to get rid of a few more tenants and bump them up $700 more per unit... But before I could, people had been keeping an eye on what I was doing and offered $1.35M. that all happened in about 4 months of ownership.

I took the offer and closed escrow 45 days later, and worked with our resident 1031 expert (Dave F.) on BP as the QI. 1031x to 16 unit townhome stye B class building in B class neighborhood (CA) at $1.855M, which closed escrow at $35k cash flow. After some rent increases, currently cash flowing about $60k... But I'm probably going to exchange that at around $2.2M or higher. This one is about as passive as can be, I haven't seen it in a year and only had a few texts from the tenants in the last year.

in summary, my initial $30k that I saved from working/side hustles now controls a $2M+ 16 unit building tht cash flows over $60K but will likely net another $400k+ in a sale/1031x to something else.

As you can see, the other side of my strategy is how it all ties together. You are right, the cash flow % does not tell the whole story, but nor does the buy and hold to recoup funds, in my case. This was only one of six similar deals that I did in CA in the last 2+ years. The cash flow between them was enough to purchase 2 other deals outside of 1031 that totalled 23 units and some vacant land, all in SoCal.

if I told you my latest one from a few months ago, it would knock a few socks off those CA nay Sayers.

there are still deals to be had in CA. I still believe in it. But I do understand that some may not have the same risk tolerance I do and probably do not want to be as active as I am. I also focus on operation efficiencies, thus now I only put in about 4 hours/month and can still grow... but that's a different topic. I feel that for beginners/newbies like me, this is the best way to scale and grow. I may try other strategies and OOS later, but staying local but the foundation to do so.