All Forum Posts by: Stephen Lewellis

Quote from @Ronald Fontenot Jr:

Thanks for the info Jeff. They are family and friends, yes, which is why I want it to be on the up-and-up. Right now we're looking at $50k worth of loan money from several people, all of whom are excited about what I'm doing. And I wouldn't put their money, nor our relationships, at risk over it. I'll reach out to a lending attorney. Any suggestions or referrals are appreciated. I agree, a few hundred bucks to get the details right would be money well spent. And that is exactly why I'm posting here to get the opinions and advice from those in the know before pulling the trigger on anything. Thanks again!

“And I wouldn't put their money, nor our relationships, at risk over it.”

I’m looking into acquiring short term private financing for the first time as well, which brought me to this thread. The advice has been excellent so far, so I don’t have anything to add to the nuts and bolts part.

Just a word of caution about what I quoted above. If you say you would not put their money or your relationships at risk, you should not borrow their money for this purpose. It’s naive to think you are able somehow to do risk free real estate investing (not a thing), especially given that you are just getting started.

I’m not saying they shouldn’t be excited about doing this with you, but since there is something in it for them (a return on their investment), there is of course also risk. And the risk to the relationship is the same because that typically only becomes a problem when their investment does not pan out as planned. 

I’m not trying to discourage you; I’m doing something similar at the moment. The bit about not being willing to put their money or relationship at risk just isn’t consistent with also being willing to involve them in this.

Remember, you are giving them an opportunity to make a return on their investment. THEY are the ones putting their money at risk, as with any investment, not you. The relationship part, however, is of course tricky and much less transactional, which is why it’s both fun and risky to mix business with friendship/family, even if you think you aren’t taking any risk.

Good luck!

The end of the year is a good time to reflect on where you started and where you ended up.

I’m always impressed by the intrepid rookies who are featured as Rookie Rockstars on the Real Estate Rookie podcast. Now I’m feeling just a bit like one of them.

I love Dan Sullivan’s “Gap and Gain” mental model for thinking about personal and professional development. I’ve focused on staying in the Gain this year and now realize I used to have a big problem getting stuck in the Gap. This realization alone was a huge gain.

One of this year’s big gains was overcoming analysis paralysis after years of educating myself about private real estate investing.

The photo shows my initial entry in Brandon Turner’s Intention Journal, dated 1 Jan 2022. I’m not a journal person, but I decided I needed something uncomfortable to hold me accountable.

This led to a cash flowing duplex purchased in our local market in June 2022. This was our first investment property. Wausau, WI certainly won’t appear on any “best rental market” lists, but I wanted my first deal to be local, and I want to contribute to my community. There’s a great story for another time about how I met my rockstar investor agent.

The biggest challenge I faced was stepping through the fear that hit me when I walked the property with my inspector. It’s an old home (1910), and the tenant in the upper unit had recently been evicted. I told myself I wouldn’t impulsively walk away without thinking about it more, re-running the numbers, and reminding myself why I wanted it despite the perceived challenges.

Knowing the property met my investment criteria and that my underwriting was quite conservative to help account for my lack of experience, I changed my mindset from “What could go wrong?” to “What could go right?”. I followed through and got the deal done.

NUMBERS:

Purchase price: $103,500 (off market deal)

Closing costs: $4,409

Financing: 25% down, 6% fixed 30 year note

Appraisal: $117,500

Renovations and deferred maintenance: ~$10,000

PITI: $673/month (tax will likely go up next year; they are relatively high in this market which is one of the downsides)

Vacancy, maintenance, long term cap ex: 15% of monthly income

Management: ~2% of monthly income (self-managing for now with Hemlane, cost is highest for the first unit due to flat annual fee for the software and decreases as properties are added due to nominal fee incurred with each additional unit). I do all of my initial underwriting using 10% to make sure the deal will still cash flow sufficiently when I decide it no longer makes sense to self-manage.

Turnover costs: ~$500/unit/year

Owner paid utilities: ~$50/month

Current monthly income: $1,590 (lower unit rent has been steady since mid 2020, so there is room to grow there)

Projected CoC return: 15.3% (my minimum when analyzing properties is 10%)

Investors often say the first deal is, in many ways, the hardest. As we say in the House of Medicine: See one. Do one. Teach one.

I wasn’t looking for a home run, especially during a historically difficult time to buy real estate. I was just looking to get on base. This property is part of my real estate school of hard knocks tuition. I'm enjoying the ride so far and am grateful to have a steady day job where I get to take care of people and build up savings for reserves and new investments.

I’ve already done my second deal, this time with a partner. That’s a story for another time, but it brought me to >5 doors. The one-year goal I set for myself at the beginning of 2022 was 5 doors, and I thought that was audacious.

The time disparity between the start of my education and my first deal (2.5 years) compared to the time between my first and second deals (5 months) tracks with what I’ve heard from many other investors. This pattern makes a lot of sense.

My advice to other rookies: Educate -> Take action (step into the fear) -> Connect with other investors -> Rinse and repeat.

My 3-year-old son is obsessed with the Tortoise and the Hare right now. What a fabulous real estate investing parable.

Take your time. Don’t compare and despair. Find your tribe. Enjoy the ride. Be good to your tenants/customers.

I’ll end with my Why(s):

- Add a leg to my family’s financial table that isn’t directly proportional to my time spent away from home and/or unable to spend time with the people I love and do the things I love. I especially want to be able to be more spontaneous.

- Hedge against the ever worsening economic and administrative conditions impacting physicians practicing in the U.S.

- Be a role model to my children of financial diversity/independence, thoughtful risk taking, willingness to fail, learn, and fail again, growth mindset, and entrepreneurship. Our daughter was born 10 days before we closed on the first property. Sadly, my eldest brother — the most entrepreneurial and adventurous person in my family — unexpectedly passed away less than a week after closing. I’ll continue to draw inspiration from him as my investing journey progresses.

- Experience the challenges and rewards of owning and operating a small business.

- Participate in areas of the U.S. federal tax code that are considerably more favorable than the ones I’ve been governed by to this point as a W2 employee.

- Network with like-minded investors and learn something new that stimulates a part of my brain that I don’t often use at my day job.

- Make a positive impact on my local community.

Thanks to the BiggerPockets community for the great information and support!

I'd love to hear from any other rookies who have made it over the hump this year. Congrats to everyone on your progress so far.

@Eric Schmid @Mark Strobel @Lauren Ellis @Matt Rekowski

I don’t know if Eric and Mark are still active in the area, but I’m always looking to connect with other local investors. Matt and Lauren, I live and invest in Wausau and would be happy to connect. I’d be interested in wholesale deals and am always up to talk creative financing.

I’m relatively new to the game but have one older duplex that I acquired in June 2022 and just closed with a partner a couple weeks ago on a 14-unit deal near Wausau West High School. I’m looking for long term buy and hold opportunities. I’d also be interested in learning about mid term rentals.

Good luck to all!

Thank you, @Natalie Kolodij. That was helpful. And, as usual, I learned something. I appreciate your expertise.

I'm a huge fan of the Rookie pod. Bravo to Ashley and Tony for keeping that train moving with content that's consistently helpful and entertaining. Thanks to you both and all of your guests!

I'd love to hear some thoughts from the group on one aspect of the recent tax benefits episode released 12/14/21.

Given that the vast majority of my family's income is attached to a W2, I love learning about the tax benefits of RE investing. In this episode, Ana touts the use of depreciation and cost segregation (presumably for unleashing bonus depreciation) as a way to offset active W2 income, but she makes it sound like it's available to every investor by default. Was anyone else taken aback that there was no mention of the Real Estate Professional Status (REPS) requirement?

For rookies, especially, I found this misleading. With respect to long term rentals, it's my understanding that one (or their spouse if filing jointly) must qualify for REPS in order to use passive RE losses to offset active W2 income. Qualifying for REPS isn't trivial, especially if your W2 is a full time job. I know the situation is different with respect to short term rentals, but it at least seemed like she was talking about RE investing in general, not just STR.

Am I on the right track here? Always looking to learn and find my blind spots. Thanks to Ana for being a great resource to investors and sharing some insights and advice on the pod.

Congrats on taking the first step, Troy. Fellow doctor and rookie here. I relate to the way you're feeling and love talking to other docs about their real estate investing aspirations/journey.

I agree with others that this is indeed possible. As I've heard many in the physician real estate investing community say, this isn't med school hard. Keep your WHY in mind in order to keep you on track and motivated. Just like the road to becoming a physician, this ain't a get rich quick scheme, but I know it works if you pay attention to the numbers, do your due diligence, and continuously invest in yourself and your business. And the reward on the other end is financial freedom and flexibility that allows you to support your family and your dreams without running on that RVU treadmill and feeling like taking a vacation means losing money. I still laugh when my employer called it "PTO".

I've been educating myself about real estate investing for a couple years and just now feel like I'm on the cusp of taking the plunge. I tell myself over and over again that my first deal doesn't have to be a home run and that I just need to get on base, but it's still tough to get over that hump. Remember to think about all the great things that committing to this can bring to your life at least as often as you think about the things that could go wrong. The upside potential far outweighs the downside, assuming you approach it in a responsible and educated way.

It seems like we're in a similar stage. I'm also a father, am about 2.5 years out of residency, and recently moved to central Wisconsin. I'm focusing on starting my portfolio with 2-4 unit multifamily buy and hold rentals in the local market where I live with the goal of generating substantial cash flow independent of my W2 job. I'm happy to keep in touch along the way if you want.

Good luck -- we're all here for you.