All Forum Posts by: Drago Stanimirovic

That’s an awesome outcome Henry! 

Turning a single-family home into a room-by-room rental strategy really paid off, especially in a neighborhood like Portage Park where whole apartments typically rent for less.

The demand for month-to-month flexibility is growing, especially in cities like Chicago, where people might need shorter-term housing due to job relocations, school, or other temporary situations. This is a smart way for house hackers to maximize income from properties that might not cash flow as well with traditional long-term tenants. Plus, renting by the bedroom offers more control over tenant turnover and higher overall rent.

For other investors or house hackers, this strategy could be a real game-changer. It’s worth exploring in neighborhoods with strong demand for affordable yet flexible housing options. With $5500 a month on a $350K property, plus rehab, your client is likely pulling in solid cash flow.

Great work—definitely something to consider for more investors on Chicago's north side!

If you or your client need help financing more deals like this, feel free to reach out.

Best,
Drago

Hi Robert,

Congrats on taking the plunge into real estate investing and going PRO—that's a big step!

Since you're just getting started, it’s a great idea to focus on building a strong foundation. Here are a few tips to help you out as you start your journey:

1. Educate Yourself:

Even though you're already making moves, there's always more to learn. Real estate investing has many layers, from financing and rehabbing to tenant management and taxes. Continue reading, listening to podcasts (like BiggerPockets), and connecting with seasoned investors to soak in as much as possible.

2. Networking is Key:

You’ve probably heard this before, but your network is your net worth. Start building relationships with local real estate agents, contractors, property managers, and lenders who are investor-friendly. They’ll be crucial to your success, especially when you're tackling more complex deals down the road.

3. Focus on Cash Flow Early On:

While appreciation is the long-term play, as a beginner, I'd recommend focusing on cash-flowing properties to provide you with a safety net and help you ride out any market fluctuations. Cash flow will give you stability as you learn the ropes.

4. Don’t Be Afraid to Make Mistakes:

Every successful investor has made mistakes early on. The important thing is to start small, learn from those mistakes, and perfect your processes as you go.

5. Financing is Crucial:

As you're diving into PRO investing, understanding how to secure financing is crucial. For example, hard money loans can help you get started, but be sure you have a solid exit strategy like a bank refinance or sale once the rehab is done.

Feel free to reach out anytime you need help with financing or have any questions! You’ve got this, and we're here to support you along the way.

Best of luck,
Drago

Hi Rafael,

Great question! Deciding whether to buy properties under your personal name or an LLC is an important consideration, especially when you're planning to use hard money and then refinance.

Buying Under Your Personal Name:

• Easier Financing: Most banks prefer to lend to individuals rather than LLCs, especially for first-time investors. You’ll likely qualify for better interest rates and lower down payments with a conventional loan in your personal name.
• Refinancing: If you purchase the property in your name, refinancing through a traditional bank is usually straightforward. Banks offer better terms, such as lower rates and longer amortization periods when the property is in your name.
• Liability: The downside is that owning property personally exposes you to more risk. If something goes wrong (e.g., lawsuits from tenants), your personal assets could be at stake.

Buying Under an LLC:

• Limited Liability Protection: The main advantage of buying under an LLC is the protection it offers. If a legal issue arises, only the assets owned by the LLC (the rental properties) are at risk, not your personal assets.
• Hard Money Lending: Hard money lenders are generally comfortable lending to LLCs, especially for investment properties. You shouldn't have trouble getting hard money for the initial purchase under an LLC.
• Refinancing: This is where it can get trickier. Traditional banks often hesitate to refinance properties held by LLCs, especially if you're new to real estate. You may face higher interest rates, shorter loan terms, or be required to put up more equity in the property. Some banks, however, will allow you to do a "transfer of ownership" to move the property back into your personal name when refinancing, but it could involve additional costs and paperwork.

Hybrid Approach:

Some investors choose to buy property in their personal name, refinance with the bank for better terms, and then transfer ownership to an LLC after the refinance. Keep in mind, though, that transferring the deed could trigger the due-on-sale clause, so make sure to check with your lender first.

Things to Consider:

• Financing Flexibility: For your first deals, keeping the properties in your personal name may make financing easier.
• Future Growth: Once you grow your portfolio, transferring to an LLC can be a good strategy to limit your liability.
• Consult a Professional: It’s always a good idea to consult with a real estate attorney or CPA to help you determine what’s best for your specific situation.

If you need help navigating financing for your hard money loan or refinancing later, feel free to reach out→ I'd be happy to assist!

Best regards,
Drago

Hi Phillip,

Great topic! The balance between cash flow and appreciation is one of the most debated in real estate investing, and David Greene's quote highlights the long-term wealth-building potential of appreciation.

Cash Flow vs. Appreciation:
You're absolutely right that cash flow gives you the flexibility to cover operating expenses, deal with vacancies, and manage surprises early on. But appreciation is where your portfolio can significantly scale. However, as you mentioned, appreciation is tied to external factors, making it less predictable in some markets.

Greater Toledo Market:
When looking at the Toledo area, there are certain neighborhoods where appreciation potential may outweigh cash flow, but it requires a strategic approach. In Toledo, appreciation is often driven by proximity to strong job markets, redevelopment areas, and high-quality schools.

Potential Appreciation Areas in Toledo:

1. Old West End: Known for its historic homes and proximity to downtown, this neighborhood has been undergoing revitalization. There's potential for both moderate appreciation and solid rent demand as the area continues to develop.
2. Ottawa Hills: This is one of the higher-end areas in Toledo with excellent schools and a more established market. Properties here may require a higher initial investment but tend to hold and grow their value due to location and community desirability.
3. Sylvania: Located just northwest of Toledo, Sylvania is a family-friendly suburb with great schools and a growing business district. Home values here have been rising steadily, and the area appeals to long-term homeowners, driving appreciation.
4. Perrysburg: This is another well-regarded suburb with strong school systems, attractive housing developments, and an influx of young professionals. Though not cheap, Perrysburg has seen consistent appreciation, making it a good bet for long-term growth.

Investing $100K+ in Toledo:

If you're putting $100K+ into one property, Ottawa Hills and Perrysburg would be top choices for appreciation-focused investments. Both have strong fundamentals, good schools, low crime rates, and job growth → which are critical drivers of long-term property value. While cash flow might be tighter, your equity gains over time could more than make up for it.

It's also worth considering hybrid areas, neighborhoods that offer a balance of cash flow and appreciation potential. Old West End might be a spot to explore for this blend, but it's essential to do your due diligence.

If you need any advice on financing options for these investments, I'm happy to help!

Best regards,
Drago

Hi David,

Great post! Here's an additional section you can add to this:

Utilize Flexible Financing Options: Rising costs can strain cash flow, so securing flexible financing is key. Consider short-term loans, lines of credit, or construction loans tailored to fix-and-flip investors. Access to quick capital allows you to take advantage of cost-saving opportunities, like bulk purchases, without stalling your project. Additionally, some lenders may offer rate locks, protecting you from further interest rate hikes.

By staying adaptable with your financing and strategic with your spending, you can protect your margins and stay competitive in a challenging market.

If you need help exploring financing options for your next project, feel free to reach out!

Best,

Drago

Hi Nazimuddin,

It’s frustrating when rising property taxes and insurance eat into cash flow, but there are several strategies you can consider to help boost your profitability. Here are some ideas that have worked for other landlords:

Appeal Property Taxes→ You might be able to challenge your property tax assessment. If you believe your property has been overvalued, you can gather evidence (like comparable property values) and appeal the tax amount. It won’t always work, but it’s worth looking into, especially if there’s been a significant increase.

Shop for New Insurance→ Insurance rates can vary greatly depending on the provider. Shop around for a better insurance deal or negotiate with your current insurer for a lower rate. You can also consider increasing your deductible to lower the premium, assuming you have enough reserves for emergencies.

Energy Efficiency Improvements→ If you cover utilities for your rental properties, look into energy-efficient upgrades (such as LED lighting, better insulation, or energy-efficient appliances). These could lower utility costs over time, and you may qualify for rebates or tax incentives.

Add Value to the Property→ Consider adding small improvements or amenities that justify increasing rent without losing tenants. Upgrades like in-unit laundry, new flooring, or upgraded kitchens can increase perceived value without major investments.

Rent out Extra Space→ If possible, look for ways to increase income from the property. For example, if you have a garage, basement, or storage area that’s not in use, rent it out separately to a tenant or even a non-tenant for additional income. 

Consider short-term rentals: If local regulations allow it, converting one or more units into short-term rentals via platforms like Airbnb can increase your revenue per unit.

Cut Maintenance Costs→ Review your ongoing maintenance costs. If you have been using expensive vendors, consider switching to more affordable service providers or negotiating bulk discounts for regular services like landscaping or repairs. If you own multiple properties, vendors may offer discounts for securing long-term contracts.

Reassess Your Debt Structure→ If your mortgage terms allow it, you could refinance to a lower interest rate or extend the loan term to lower your monthly payments. Lowering your mortgage payment could offset the rise in taxes and insurance.

Lease Adjustments→ Offer longer lease terms: Longer leases (e.g., 2-year terms) can create more stability, and some tenants might be willing to agree to a small increase in rent in exchange for locking in rates. This helps you avoid vacancies and turnover costs.

Other Revenue Streams→ Implement pet rent or additional fees for amenities or services (like parking, laundry, or appliance rentals). Many tenants are willing to pay extra for convenience, which could give you additional cash flow without a full rent hike.

Reassess Your Portfolio→ If one or more properties have become too burdensome with high expenses, it may be worth considering whether selling and reinvesting in a different market or property type makes sense for your overall portfolio.

While raising rents is the most straightforward approach, these alternative strategies can help reduce costs and increase revenue without disrupting tenant relations.

If you need help assessing the numbers or exploring financing options to lower your monthly expenses, feel free to reach out → I’d be happy to help!

Regards,

Drago

Hi Maggie,

The biggest challenges in funding a fix and flip typically include:

1. Access to Capital: Fix and flip projects require significant upfront capital - not just for the property purchase, but also for renovation costs. Traditional financing options can be slow and often require larger down payments, making it harder to jump on a good deal.

2. Speed of Financing: Time is crucial in fix and flips, and traditional loans (like bank loans) can be too slow. It’s not uncommon for banks to take 30-45 days to close, which can cause you to miss out on profitable deals that require quick action.

3. Risk Management: Securing enough funding to cover unexpected expenses during the renovation is a challenge. Many projects go over budget due to unforeseen repairs or delays, and having a financial cushion is critical to staying on track.

4. Credit and Loan Requirements: Traditional lenders usually require strong credit, significant down payments (20-25%), and a proven track record, which can make it harder for newer investors to secure funding.

Could Private Lenders Be the Solution?

Sure, private lenders can often be a great solution for overcoming these challenges since they offer:

• Flexible Terms: Private lenders are more flexible with loan terms compared to traditional banks. They may offer higher loan-to-value (LTV) ratios or work with investors who don't have perfect credit.
• Faster Funding: Private money lenders can provide funds much faster than traditional loans, sometimes within a week, allowing you to move quickly on deals.
• Fewer Requirements: Private lenders are typically more focused on the value of the property and the potential profitability of the deal, rather than your credit score or income.
• Relationship-Based: With private lenders, it’s more about building trust and a relationship over time. If you demonstrate a good track record, securing future funding becomes easier.

If you're considering this route, structuring your deals with private lenders could help you secure financing quickly and move forward with more projects. If you’d like advice on how to approach private lenders or need help structuring proposals, feel free to reach out!

Regards,

Drago

Hi Mark, 

You're in a fortunate situation with your parents owning a mortgage-free home in a desirable area that has both appreciation potential and rental income opportunities. Here's some input to help guide the decision between selling or renting the property, considering the specifics of the property and the potential additions like the ADU (Accessory Dwelling Unit):

1. Selling the Property

If your parents decide to sell, they could:

• Sell As-Is: At a current appraisal of $350k, they could walk away with a sizable profit (after transaction costs like realtor fees, taxes, etc.). This would provide liquid cash to reinvest or use for other financial goals.
• Renovate and Sell: Given that the house could be worth $500k or more with updates, they could do a renovation first, potentially adding $150k+ in value. Since your dad is a contractor with access to affordable labor, the renovation costs could be lower than average. This could significantly increase the sale price and net profit after selling.

Pros of Selling:

• Immediate large cash flow that could be reinvested elsewhere (stocks, other real estate).
• No dealing with tenants or long-term property management.
• Benefiting from a high sale price in a desirable area.

Cons of Selling:

• No further long-term appreciation or rental income potential from the property.
• They may miss out on future gains if the neighborhood continues to increase in value.
• Capital gains taxes if the property is sold, although there may be exemptions if it’s their primary residence.

2. Renting the Property

If your parents rent out the home, they have multiple income-generating opportunities:

• Renting As-Is: A 4-bed/2.5-bath home in a desirable area could command a high rental rate, likely around $2,500–$3,500/month, depending on local market conditions. Since it's mortgage-free, the rental income would be mostly profit (after expenses such as property taxes, insurance, maintenance, etc.).
• Adding an ADU: With your dad's construction experience, building a 2-bed/2-bath ADU could significantly increase the rental income. An ADU could rent for an additional $1,200–$2,000/month, depending on the local market, potentially doubling the property's cash flow.
• Future Appreciation: Holding onto the property allows for potential appreciation over time, especially since it’s in a neighborhood with homes ranging from $500k to $1.5 million.

Pros of Renting:

• Steady Cash Flow: Renting the property, especially with an ADU, could generate substantial monthly income, especially since there's no mortgage.
• Appreciation: The property could continue to appreciate in value, especially after adding an ADU and further updates.
• Tax Benefits: Rental property owners can deduct expenses like property taxes, insurance, maintenance, and depreciation, which could offset income.
• Long-Term Wealth Building: Holding onto the property can contribute to building long-term wealth through both appreciation and rental income.

Cons of Renting:

• Property Management: They’ll need to manage tenants, handle maintenance, and deal with potential vacancy periods. However, this could be offset by hiring a property management company.
• Upfront Costs: If they add an ADU or renovate the property, there would be upfront costs to consider, even though your dad's connections could lower the construction costs.
• Market Fluctuations: The rental market can fluctuate, and there could be times when finding good tenants is more challenging.

3. Best of Both Worlds: Rent Now, Sell Later

One approach would be to rent the property for a few years, taking advantage of the strong rental market, then sell it down the road when they're ready to cash out or if they see the market peak. They could even add the ADU for extra cash flow in the meantime, potentially increasing the future sale price of the property.

Considerations for Adding an ADU:

• Rental Income Potential: In many areas, ADUs are highly desirable, especially in neighborhoods with high property values. An additional unit could easily add significant rental income while increasing the overall property value.
• Cost of Construction: Since your dad has construction experience and labor connections, the cost of building an ADU would likely be lower than market rates, making it an attractive investment.
• Zoning and Permits: Make sure to check the zoning laws and permit requirements for building an ADU in the area.

4. Next Steps:

• Market Research: Look at local rental comps to get a clear picture of what a 4-bed/2.5-bath would rent for, as well as how much an ADU could bring in. If rental demand is high, this could push you toward renting.
• Speak to a Realtor or Appraiser: Get a more detailed estimate of what the property could sell for with and without renovations, as well as its potential value after adding an ADU.
• Financial Projections: Compare the projected monthly cash flow from renting (especially with an ADU) to the net profit from selling after costs. This can give you a clearer picture of which route is more profitable long-term.

Final Thoughts: Given the location and your dad's construction expertise, holding onto the property and adding an ADU could create a strong cash-flowing asset and increase the property's value. However, if managing tenants isn't something your parents want to deal with, selling after renovations could also provide a large profit.

Feel free to reach out if you'd like help with running numbers or considering financing options if you go the ADU route → I'd be happy to help!

Best,

Drago

Hi Abdiel,

It sounds like you're at a crossroads between keeping your current property and reinvesting in a newer one. Since your goal is to build a portfolio of rental properties, you’re right to weigh both the financial and practical aspects of this decision. Here’s some input to help you think through it:

1. Equity and Cash Flow Considerations:

• Old House (1960, near payoff): With $100k in equity and only $38k left on the mortgage, you’re close to owning it outright. Once paid off, your cash flow would increase significantly since you’ll no longer have a mortgage. That said, the rental income may not be great without improvements or rent increases.
• New House (2020): While the new home would require a $100k down payment, it wouldn’t cash flow much, and you’d be taking on a new mortgage that leaves you $160/month in debt. The advantage is that a newer property would likely come with fewer maintenance issues, which can save time and stress.

2. Maintenance vs. Cash Flow:

• Older Property: Yes, an older home might need costly repairs down the road, such as roofing, plumbing, or electrical upgrades. But if you’ve managed to rent it for 8 years with minimal hassle, it’s worth considering how much additional work is truly needed to keep it going for a few more years. With the right improvements (even modest ones), you could increase rent and make it a more profitable rental without starting over with a new property.
• Newer Property: The appeal of a 2020 build is understandable—fewer maintenance headaches and potential for more stability. However, newer properties don’t always cash flow well, and you’re giving up significant equity in exchange for a home that might not provide you much financial gain immediately. The low cash flow could become more challenging if your aim is to expand your portfolio.

3. Debt and Long-Term Strategy:

• Old House, Nearly Paid Off: By keeping the older property and paying it off within a few years, you could use the increased cash flow to either fund repairs or reinvest in more properties. With no mortgage payment, even a modest rent increase could turn this property into a cash-flowing asset. You could also explore using a home equity line of credit (HELOC) or a cash-out refinance to tap into the $100k equity and use that capital to invest in additional properties, all while keeping the current home as an asset.
• Newer House with Debt: If you sell and buy the newer home, you’re essentially starting over with a new mortgage, and that $160/month in negative cash flow may restrict your ability to save and reinvest. The downside here is that, despite having a newer home, you’d be more tied up financially, limiting your ability to build a larger portfolio in the near term.

4. Investment Goal:

Since you dream of becoming a real estate investor, ask yourself:

• Cash Flow or Appreciation?: If you’re more focused on cash flow, sticking with the older house (and increasing rent over time) may be a better long-term play. It will soon be mortgage-free and could become a strong source of income. On the other hand, if appreciation or avoiding future hassle is more important, then selling for a newer property might make sense.
• Portfolio Growth: Keeping the old property and leveraging the equity (through a HELOC or refinancing) might give you more flexibility to buy additional properties. A newer house with a mortgage will take longer to build up equity, which could slow your growth as an investor.

5. Potential Middle Ground:

• Consider Renovating: Instead of selling, you could do a light renovation on the older property to increase its value and attract higher rent. Even modest upgrades (kitchen, bathroom, fresh paint) can make a big difference without requiring a major financial investment.
• Keep and Leverage: Another option is to keep the current property and use the equity to buy a second property. This way, you keep the cash flow from the old property while growing your portfolio with another rental.

In Summary:

Selling the older property for a newer one seems appealing from a maintenance standpoint, but it may limit your financial flexibility and growth potential. Keeping the older property, especially with its nearing payoff, provides an opportunity to increase cash flow and potentially use that equity for further investments.

If your long-term goal is to build a portfolio, sticking with the property that’s almost paid off and exploring ways to leverage it (or improve it for higher rent) might be a better strategy. If you need help exploring financing options for leveraging your current equity, feel free to reach out→ I’d be happy to assist!

Best regards,

Drago

Hi Ramdi,

Great to see you're exploring private money lending as a financing option→ it's a smart move, especially if you're looking to scale while conserving your own capital. Here are some common structures and terms that have worked well for both private lenders and borrowers in real estate, particularly for those focusing on single-family homes (SFH) and multifamily (MF) properties like you're considering in Philly's B Class areas.

1. Flat % Monthly Returns

This is one of the most straightforward approaches:

• How it works: The lender receives a fixed percentage return each month, typically calculated based on the amount of capital they’ve provided.
• Typical terms: Rates can range from 8% to 12% annually, broken down monthly (e.g., a 10% annual return would pay the lender about 0.83% monthly).
• Advantages:
• For the lender, it’s predictable cash flow.
• For you, it’s easy to project and budget.
• Challenges: You’re responsible for making payments whether or not the project is profitable, which can create pressure if cash flow issues arise during the project.

2. Equity in the Deal

Offering equity instead of—or in addition to—interest is another popular structure, especially if you need flexibility on cash flow.

• How it works: Instead of fixed payments, the lender gets a percentage of ownership in the property or the project. This is especially useful if you’re unable to make monthly payments or prefer to reinvest funds into the project.
• Typical terms: Lenders might get 10% to 30% equity, depending on how much capital they provide and the project’s risk level.
• Advantages:
• No monthly payments, which relieves immediate cash flow pressure.
• Lenders are motivated to see the project succeed since they’ll benefit from the upside.
• Challenges: You’re giving up a piece of your long-term profits, and if the project goes exceedingly well, the lender benefits significantly. It’s important to strike a balance here.

3. Lump-Sum Return After Project Completion

This is a more flexible structure, especially for short-term projects like flips or renovations.

• How it works: The lender gets their principal plus a lump-sum return after the property is sold or refinanced.
• Typical terms: A set percentage return (e.g., 10% to 15% of the capital invested), which is paid upon project completion. For a 6-12 month project, this could be a good fit.
• Advantages:
• No monthly payments, so all your capital stays in the project.
• Lender gets a sizable return at the end, making it appealing for shorter-term investments.
• Challenges: It requires you to ensure a profitable exit strategy, as you’ll need to have funds ready at the completion to pay the lender in full.

4. Hybrid Structures

You can also blend some of these terms to create more flexibility:

• Monthly Interest + Lump Sum: You could pay a reduced monthly interest rate (e.g., 5%) and offer a lump-sum bonus (e.g., 3-5%) at project completion.
• Equity + Profit Share: Lenders get equity in the project, but rather than full ownership, they receive a share of the profits when the project is completed.

Key Elements to Include in Your Proposals:

• Clear ROI: Make sure to outline the lender's return clearly. For example, if you're offering a 10% annual return, show them how that breaks down over time.
• Project Timeline: Be clear about how long the project will take and when they can expect returns.
• Exit Strategy: Have a well-defined exit strategy (e.g., sale, refinance), so the lender knows how you plan to repay them.
• Risk Mitigation: Highlight how you’ll mitigate risks, whether through market research, contractor selection, or conservative estimates.

Philly B Class Areas:

Since you're targeting B Class areas, which typically have stable rental demand but may need some renovations, a structure that combines monthly interest with a lump sum at the end may appeal to lenders. These neighborhoods are usually less risky than C Class areas, but showing solid comps, market trends, and your plan for value-add improvements will boost lender confidence.

If you need any help with financing options, structuring deals, or putting together proposals, feel free to reach out→ I'd be happy to assist!

Best,

Drago