All Forum Posts by: Tucker Cummings

Wanting to get some thoughts on my strategy. I'm going back and forth between buying strategic/sensible MLS properties, or using the BRRRR method:

First off, my goal is to replace mine & my wife's W2 Income with rental property cash flow. My wife and I live entirely off her income, and we end up pocketing about 60k/year after taxes with my income. I have about 85k in cash ready to be invested. My dilemma is how to best strategically invest my income. 

Option A) BRRRR Strategy

This is the one we always here everyone talking about because you could potentially get infinite ROI and equity capture. Other pros are the relationships, experience you gain in this method. The downside is just more moving parts, the 6 months seasoning, managing a project, trying to get a deal with the right numbers in a hot market and tying up all my cash at once. I know people say private money is an option, but without having a track record I don't feel comfortable asking for money. That being said, I'm beginning rehab on my first BRRRR investment, with all my own money, so perhaps after this project I'll be able to use OPM, pending this one is successful.

Option B) Current Strategy - Rent by Room

December 2019 I bought my first investment property. I saw it on the MLS, it was turnkey, no rehab needed and it was right at market value. I bought the property knowing it wasn't the smoking hot deal, but I bought it because I knew, more than anything, I just needed to take action. Moving forward, I'd probably try to get things below market value. The property is in a military town and I rent out to soldiers by the room. Benefits of this are that 1) I'm in touch with their CO so if they act out then we have direct line for reprimand, 2) We have direct contact with HR, so it gives us a steady stream of tenants, 3) If they move out, because of PCS-ing, then we usually know 3 months in advance, 4) When the move out, usually its just one of the roommates, and the one that stays will recommend a buddy - zero vacancy. Long story short, I am running about a 36% Cash on Cash Return in my first year. If I was renting out by single family, it would be around an 18-20% CoCR. I could probably pick up 3-4 of these deals per year. The cons of this strategy are just giving up the "hopeful infinite ROI" for the 36%. Just makes me feel like I am leaving a lot of money on the table.

So summarizing - do I stick with a more passive rent by room for stronger cash flow, or do I go with a more active BRRRR strategy for cash flow by volume?

Follow Up question to the forum: If it's a property you lived in, but now use for investment purposes, is it eligible for a 1031 exchange? Maybe this is what you're referring to, but if possible I would go down this route so you can defer taxes and get a higher cash flowing and/or less management intensive property - depending on your goal.

Adding to @Joe Villeneuve's points, the more money you put down up front, typically the lower ROI. Let's extrapolate that out:

Let's say the house is $100,000, you paid for the whole thing in cash, and it's going to rent for $1,200/month. After budgeting for taxes, insurance, maintenance, & property management, you'll cash flow $850. $850 over 12 months is $10,200 or 10.2% ROI.

On the other hand, let's do the same house, but 20% down ($20,000 down). Now we have to factor in mortgage, which hurts cash flow. Now, I'm using these numbers because I have a house exactly like this and can tell you that it cash flows about $430/month. $430 over 12 months is $5,160 or 25.8% ROI.

These are on two different ends of the spectrum, far off from what you're proposing, but it illustrates the point of stretching your dollars and maximizing your ROI.

As an additional point, you can keep that extra 10% you have (the difference between 30 & 20 percent), and put that into another investment property, thereby spreading your risk. For example, if you have one property and it goes vacant, you're at 100% vacancy. If you have two properties, one goes vacant, you have 50% vacancy, and so on. 

Lastly, if you spread out your investment, you'll capture appreciation on multiple properties rather than just one. 

Hope this helps!

If you're looking at the numbers and it makes sense according to what's important to you, then I don't see any reason why not to invest right now. If the numbers make sense, its a good deal. Would you forego a good deal because you think you can get a better deal? That just reminds me of waiting to buy into the stock market because you think its going to go lower, or you wait to buy in because you think its overbought, but it just keeps going up and you look in retrospect thinking "I should've got in sooner."

It's investing, if you're one and done, you're running the risk of a bad deal. But if you're consistently buying deals for years and years, then you'll take advantage of dollar cost averaging. Some deals might have an awesome cash on cash return (like the one I picked up in December that's running a 44% COCR) and some deals might be ehhh not so much. Even if its a bad deal, hopefully you'll get an education out of it.

Personally, I think the worst thing you can do is just sit on the side lines and do nothing. Just continue to make strong, sensible offers and maybe you'll snag one. 

I’m reading through “The Book On Rental Property Investing” by Brandon Turner and just came across a point where he said when he was 25 he bought a 24 unit apartment complex for $15k down with $550k seller financed.

My first reaction was “I’ve got more than $15k, I can for sure do that!” My second thought was “Ok, how?”

I understand the intricacies of seller financing, rather my question is if anyone has good marketing tactics for advertising to multifamily apartments? I want to get in front of them.

- How do you source a list?

- Is there something particular you look? (Much like how when looking for smaller buildings you might look at foreclosures, probates, tired landlord, other forms of distress, etc.)

- Do you do mailing campaigns or is there a better way to get in front of these owners?

- Any other tips for finding great deals are welcome.

100% House Hack. You'll create an asset out of life's biggest liability/expense (a house) and eliminate life's biggest expense and pocket the difference. You can take that difference and reinvest it. 

I'm 26 now, and If I could go back I would hands down do a house hack. I'm trying to convince my wife that we should sell our house and get into it, but once you have all your own walls its tough to go back. Take advantage while you're younger, get a 2-4 unit building, live in one and rent out the others. You'll probably only have to put 3.5% down with an FHA loan. Bonus Points: After you've been living in the property for 2 years (might be only 1 year), you can do it again with another FHA loan.

So imagine with me:

Year 1: Buy a 4 unit with 3.5% down. You now have 3 units.

Year 2: Collect Stacks of cash, or invest more. Up to you.

Year 3: Buy another 4 unit with 3.5% down, live in the new building. Now you have 7 units rented. 

Repeat that for as long as you want.

@Nathan Caffero In that case, I would side with @Stewart Beal and say before you do any investing, fix your credit. Maybe use the $50k to pay off a car or trade in your car, pay off the credit cards, put yourself in a position where your only debt is your primary residence (if you're a homeowner, bonus points if you're house hacking). Once you're clear of debt, set aside 3-6 months emergency savings in a high interest bank account and NEVER TOUCH IT. It's only for emergencies - think medical emergencies, huge expenses or deductibles that come up. Get a 0 interest credit card and start using that to build credit, pay for everything on it, pay it off the next day. Only buy what you normally would buy, don't start blowing it out thinking you only have to meet the minimum - that's dumb. 

So at this point:

1. Zero Debt - minus primary residence

2. 3-6 months emergency saved up in high interest savings (I use Vio Bank)

3. Get a credit card you put your expenses on to repair credit. Just pay it off daily. (Chase Freedom Unlimited is a great starter card)

4. Through points 1-3 get your goals and education established. Only after you've done 1-3 would I start thinking about real estate. 

Might seem super basic, but you need to have a solid foundation before your build a house on it. 

@Nathan Caffero I would reiterate 2 things I've noticed in this thread: 1) Education and 2) Your personal goals. Neither is more important than the other, I think they need to happen simultaneously. 

There are so many ways to invest in real estate its hard to answer what the best way to go is. If you're trying to replace your income, maybe you do something more aggressive. If you're just trying to supplement your income, do something a little more hands off. You'll need to define your goals before you really take any next step. 

As an example: My goal is to have enough rental income that I can first replace my wife's income, then my income, then if we so choose we can leave our jobs so that we can spend our time pursuing each other, our family and our interests more deeply and intentionally. 

For education, I recommend reading books, listening to podcasts, getting on these forums, etc. You won't know what's possible (like @Stewart Beal, what an amazing story) until you get educated and hear about these stories, and all the different paths you can take.

Set a goal, figure out how you're going to get there through education, use education to adjust goals, further educate, adjust goal, rinse, repeat.

Good luck brother. 

@Brian Geiger thank you for sharing. That's highly valuable and I'm definitely copying that into my notes for future reference. I haven't done any deals with OPM yet, but I feel that much more equipped for when I'd be ready to take that on. First step will be to build my track record!

@Adam Schneider I'm not familiar with any kind of subscription models, so I suppose I'm referencing either lending on a flip or rehab property. Although I'd like to hear the definition of what it means to be a subscriber. 

P.S. I think I've seen you at TREIA before. Maybe whenever we're allowed to meet in person again we can shake hands (or elbow bump?) at the next meeting.

I was reading one of the trending posts this morning where a user was discussing unfortunate circumstances where they were taken advantage of by somebody she lent money to. Unfortunately, it looks like that forum is turning into a "can't believe you would do that, you should've known better, you should've done this or that or XYZ." Maybe its just me, but I'd love to know how these investors we're able to get to where they are today without making any mistakes.

Anyway, I thought we could open up a discussion here about how one would go about vetting an investor they are going to lend money to. I'm new, haven't done anything with private money before, so would love to know what someone on the other side of the table would want to see in me before lending money. 

So, "What processes do you have for qualifying someone before lending to them?"