All Forum Posts by: Todd Dexheimer

@Marcus Auerbach how long have you been investing using this strategy? 

While I can understand your theory, it just doesn't work long term without solid cash flow or exiting properties. Buying properties that you can add value to and cash flow in good neighborhoods with a high DSCR is the most tried and true investment strategy.

Why does it not work to "build an equity portfolio, stabilize it and then start doing annual cash-out-refis in an amount that matches your annual equity appreciation?"

1. This is expensive. Each year, you'll spend thousands on refi fees. 

2. Interest rates can go up, which makes doing this annually impossible

3. Values can go down

4. No or little cash flow will cause issues with paying the bills. Eventually, the chickens will come home to roost!

If you want to directly own rental real estate, then buy in solid locations and purchase something you can add value to. Then put on debt that is fixed and provides you with a high DSCR (1.5+). This allows you to own a cash-flowing property that you have equity in. Over the course of 2-10+ years, strategically refinance it or sell and exchange into something bigger.

Turnkey, flip, BRRRR, OOS, STR, sub to, short sales, Auctions are all much more "dangerous" in my opinion. However, if you don't have direct knowledge and have gained expertise, then don't invest.

Your list is a bit odd to me, as it encompasses 3 very different types of investing. It includes 2 strategies (#4 and 5) that are very hands-on and need operational expertise, 2 strategies (#1 and 2) than need an in-depth knowledge of local and state laws and processes and 1 strategy (#3), that needs a general understanding or risk vs reward and underwriting knowledge. 

I would shy away from C class. It's higher cash flow on paper, but rarely turns out that way. If you must invest out of state (only do that if there is no other option), then going with B class is a better option. Value add B class would be my pick, as turnkey just doesn't give you much equity. I think you'd be better off investing in a syndication or as a hard money lender than investing out of state, especially turnkey. 

Invest in A or B locations, not D locations. Buying a house that is in a bad area for cash and thinking it will cash flow, because it looks good on a spreadsheet is the best way to go broke and hate real estate. Bad areas are tough to cash flow and provide very slow appreciation. 

If you're buying a SF/duplex, I would highly consider only buying in your back yard and not purchasing out of state. If that doesn't work for your area, then look at different ways to invest, like investing in a syndication, buying a NNN lease property, note investing, hard money lending, etc.

Don't be in a rush to buy. It sounds like you've still got a lot to learn still, so be diligent and soak up the information. 

Find the right property management company and hire them. 

 @Matt Menard what kind of experience do you have operating 400+ unit apartment buildings? You're soliciting on BP to the Ethan saying that your deal is better than him being a landlord, without context and a stated track record. This is Grandmas money at play here and she wants to help her grandson get started. 

I've done SF's, duplexes, house hacks, BRRRR, flips, wholesales, etc. These are all great paths to get started and learn the ropes. Ethan passively investing in your syndication, one of my syndications or anyone else's syndication doesn't teach him much and would be poor use of his resources. If his grandma wants to invest in your syndication, then solicit her directly.

A load bearing wall is often easy to spot. In most buildings 1980's or newer a load bearing wall is a 2x6 wall and the wall will carry down through the basement (walls stacked on top of each other or a post and beam system). The easiest way to tell, is if the joists above the wall is split and land on top of the wall, meaning the joist lands perpendicular to the wall and stops at or slightly after the wall. There is typically another joist that would go the other direction that is connected. If you take that wall out, then they would be floating. If the joists/rafter are running perpendicular to the wall and especially if there is a split in the joist/rafter, it may be load bearing. 

It's best to consult with a contractor or engineer if you're not sure. 

I personally would avoid out of state investing on your first deal (or even your 10th deal). Buy something local. This helps you understand the market and have more control over what is happening with your property. Financing will also be much easier. 

If you're set on going the OOS route, then invest passively in a syndication. 

Debt funds are great for a SDIRA since there are no tax benefits with them. A traditional equity syndication could also be a good option, but pay attention to the potential tax implication. A lot of people say to avoid the syndication because you can't utilize the depreciation losses, but the fact is, 90%+ of our investors can't take advantage of the depreciation loss due to them having a regular W2. 

I don't really think the issue is Section 8 vs Market rate. They are both different niches that require different skill sets. You can lose money or make money with either strategy. The real issue to me is that SF rentals just don't make much money and typically lose money. I used to own a hundred 1-4 family rentals and still own 23. I bought these for cheap 2008-2014 prices and have them leveraged at between 15-40% LTV. I cash flow each year, but not by much.

Here is the reality: on paper, they look good, but the reality of the new roof, furnace, water heater, appliances, flooring, sewer line, etc come to fruition and eat that cash flow up for the next 5 years. 

You can get lucky with a few of them. I have some homes that have made me $10k+/year for 10 years, but others that lose big money each year.

Now, as I compare neighborhood class, I have to side on the A class and B class side of the coin. Better neighborhoods appreciate faster than bad neighborhoods. Buying in the best neighborhood possible, to still cash flow (on paper at least), will create the most wealth possible.