All Forum Posts by: Matthew Williams

@Steve Tran you can get something done for 250K that can cashflow in those areas Lauren mentioned. The rental market is a little slower out here this time of year, so worth keeping that in mind. Houses are sitting longer than a few months ago, but the deals you'll want still move super quick. 

Move quickly when you find one you want.

Watch your tax zones; the difference is big here. Use HAR to get tax rates for your target house, then calculate the rate based on the purchase price, not the previous value from the current owner's last assessment. A big jump in assessed value at 3% tax can eat all your theoretical returns - don't let it sneak up on you.

A good local agent or mentor will have these and other market specific details on lockdown.
 

@Tamer Almasri The one thing that I would add to what Ian said is if you're planning on buying a value-add property that needs significant sweat equity, depending on what state it is in, the FHA is less likely to be an effective lending option.

If you have to buy the property with hard money because it is in disrepair, you're dealing with a different situation. If you're buying something on the MLS, generally speaking, you'll be okay.

The big value add will always come from buying a property that's in disrepair to the point where you won't be able to use FHA money. If it's your first deal, you're probably better finding something that is a slight value add than a major remodel, but it's just something to keep in mind.

If your goal is to find yourself with lots of money to pull out after rehab, you may find that the slight fixer-upper FHA loan property isn't going to get you there unless appreciation continues to spike.

Not to throw shade at any realtors on here (they all might be amazing for all I know), but I do recommend that you find somebody who is a realtor and also an investor. It's a different mindset with different constraints.

There are things that you learn by having your hands in the game, and if you can leverage those learnings you're more likely to have a favorable initial outcome

Remote management is tough. It seemed difficult enough for me that I moved to a good real estate market specifically to take advantage of being on the ground. It can be done, their books on it etc., but it does require a trusted network.

I'm inherently cautious and circumspect about the interests of the people I work with, and I suggest you are as well – they aren't bad people most of the time, but self-interest is a powerful driver. Getting the right contract help, getting the right people in place in case of emergency, having the right plumber, HVAC, and making sure your realtor points you in the right neighborhoods – these sorts of things have complexities that can be more difficult to manage remotely. It can be done, but I think it's safe to say that it is not trivial.

Irka - finding the right person to work with is tough, particularly remotely. You want somebody that's both knowledgeable and not commission hungry enough to lead you astray for quick money. Typically I try to leverage somebody on the ground who has a ongoing relationship. I do this in all novel areas of real estate if possible, just because it builds in some quality control. If you find somebody who is successful and they recommend somebody you're more likely to be in the clear.

The referral I got was from someone who owned I believe six properties at the time and had worked with the same person for something like four years. Apart from very direct advice, it was great having someone with high-volume flipping experience walk each property with me because they could scope out what needed to happen and typically were aware of recent pricing. 

I'm not sure if he is working with real estate clients as I know business is hot and he's busy with his regular work. That said, shoot me a PM if you want the contact info.

Having been in Houston for about a year now working full time property investing, I can say that multifamily investing is an unusual game out here. Particularly if you're use to a more metropolitan area like you find in New York or in the Bay Area where I'm coming from. In Houston, typically building "out" is more common than building "up", and while you do get large multifamily commercial buildings duplexes and quads are far less common than anywhere I've lived. 

In areas closer to the city center I've seen some multiunit buildings, but as you get further out into the suburbs unless you're looking at 10+ unit commercial rentals, small multiunit are harder to find. It's also important to realize, as a previous poster mentioned, you're dealing with a large sprawling metropolis with small ecosystems within it. Think kind of like Los Angeles Metropolitan. 

It's also important to think about the unit mix around you – if you buy one of the rare duplexes, will that affect your rentability and resale value relative to SFR competitors? Perhaps not, but definitely something to take into consideration in a way that would be different than in an area where they're are more common.

If you want to do this remotely you need somebody on the ground who knows the microclimates. There are some danger neighborhoods around here that looks decent online. I created a small get together group when I first got into investing and I met someone who hooked me up with a full-time property flipper who is also an agent. He helped steer me clear the rocks. Finding something like that makes a difference.

How did it go?

If you purchase a home as a primary residence and immediately rent out the property in most cases you will be breaking the rules.

BUT

Let's get into the nitty-gritty...

There are definitely exceptions to this and it's not completely black and white. For example, if you were to buy a property as a residence and then have a major life event change (that you can document if it came down to it), it's possible that the circumstances would change and owner occupied property would no longer be one. This could be entirely legitimate. By way of example, if you buy a new primary residence and then immediately get laid off from your job and get another job across the country, renting out that primary residence within 12 months may be permissible.

If you end up occupying the property more than 50% of the time, you might meet the minimum qualification for considering something a primary residence. The way that breaks down might depend on whether or not it's FHA/VA versus conventional, or something else. This is something to explore the specific underwriting guidelines for a loan program. If you want to be extra cautious, ask your loan officer or banker to send you the underwriting guidelines for the loan program your considering and you can verify the documentation yourself.

Additionally, you will have to provide some sort of LOE to your underwriter to document your rationale for buying a new primary or even a secondary home within 50 miles of your current primary residence. This will be particularly scrutinized if the primary residence is not being sold.

Now that we got that out of the way let's talk about how things work in the real world: most banks don't care enough to review their books as long as they have performing loans. I am not under any circumstances endorsing questionable or fraudulent mortgage activity. I am going to, however, give you a related example of this occurring.

I promise this story ties in:

My parents lost a property in foreclosure. The property was underwater and the second mortgage wanted to a full payoff amount and foreclosed on the first mortgage. I'll skip over the details of how this works but you can DM me if you want specifics. The second lien holder then proceeded to pay the first mortgage in my father's name which is loan fraud in that A) the loan was not assumable and B) my father no longer had interest in the property. We called the servicer weekly and sent threatening letters for years... YEARS... And they continue to this day to accept payments in my father's name even after loan fraud has been reported directly to them (we reported it HUD as well to no avail).

The similarity? Because they are continuing to get mortgage payments they simply are not interested in enforcement.

Back to your situation, for most conventional loan servicers as long as they are getting paid they likely don't care. Personally I consider this a problem with the incentive structure and enforcement and I encourage you to not engage in questionable activity. There's a high probability that you would get away with it if you did so.

Congrats on getting started @Robert Williams! Anyone with a last name of Williams has luck on their side ;)

There are lots of great tips in this thread. In addition to the areas already mentioned: mentorship, education, investing capital, and mindset, I would put forth creating a detailed and actionable system of regular discipline.

It's overwhelming when looking down the barrel of a thousand strategies. For me when this happens I go back to the old adage "how do you eat an elephant? One bite at a time!"

A lifetime ago when I was a martial arts instructor, I realized that for myself and for my students those that were most successful always were those that focused on consistent discipline rather than heroics. They stretched in advance, they put in the reps, they were open to feedback, and they always kept a growth mindset.

I apply that methodology to my efforts in the form of lists. I create daily, weekly, and monthly "quests" in a list manager that repeat continuously, and I find it helpful in getting me out of my head and into the real world. When I first started this practice was critical to my success. Sure, maybe you're still saving up capital, but that doesn't stop you from analyzing five deals a day, going to one meet up a week, and reading one real estate book a month (or whatever makes sense for your situation).

Even if you ultimately use a different strategy, there's something that is motivating and encouraging about making steady progress by enforcing constraints on your activities. Think about where you want to be in 3, 6, 12 months from now. If you project yourself into the ideal version of you one year from today, looking back over the last year from that future time point what were the challenges you had to overcome? What was the work you had to put in?

If I were to open Zillow and sit down with you and point to a random property on a map in your area can you off the top of your head tell me what the COC would be? What the major economic centers in the area are? What the crime rate is? What the appreciation is over the last 12 months? If you can't no worries! I definitely couldn't do that when I started, but for my target areas I can ballpark any of those figures off the top of my head just because of the sheer volume of properties I've analyzed.

Create a roadmap and hold yourself accountable – let fate do the rest. Good Luck!

Hey George, congrats on getting started!

Purchasing a residential property through an LLC is a nontypical transaction. Because the lenders are not able to package the loan and sell it on the secondary market with more typical mortgages. The loan type you're considering is harder to find and the rates will be higher than if you find conventional financing and put the property in your name.

An alternative is to purchase the property in your own name and then quit claim it over to the LLC. This is fairly common and you'll hear of a lot of investors doing this. The issue is that most (virtually all) lenders will have what's called a due on sale clause. This means if the title is transferred to a new person or entity the lender can technically call the loan due. I have yet to hear of an instance in which a lender called a loan due as a result of this behavior, but it would be possible. If we enter a stage of high or hyperinflation, for example, lenders might look through their books for low interest loans that they can enact this clause upon.

While it is true that you can be sued regardless, having an LLC does afford some level of legal protection according to most attorneys that I've spoken with. Mostly I've heard lawyers claim it becomes more of a pain to come after you and decreases the likelihood someone's going to try.

For myself it makes more sense to put the properties in my own name and have an umbrella policy in place. I'm not interested in paying high interest rates for nonconventional financing, and I'm not interested in having a due on sale clause hanging out there that could jeopardize my current financing and dramatically alter my calculations on a rental's profitability.

The idea of leasing the property to an LLC with a master leaseholder agreement and then having the LLC sublease the property to the tenant is an interesting idea that I have not considered.

I get it’s hard and uncertain. Here’s the $.02 of an early stage investor who’s seen a little success.

It sounds boilerplate, but I think a lot of success in residential investing in my market comes down to resourcefulness, hustle, and willingness to take a certain amount of risk.

I did just that, and it’s worked out fairly well.

I came to Houston from the SF Bay Area about a year ago in the depths of Covid. I met some folks on BP and got to know them at a small meet up that I helped coordinate. Trailing behind the support of more experienced investors I was able to pick up 4 SFR 3/2s Each of which runs between 8 - 12% COC holding 10% for CapEx. I do my own property management.

The strategy no longer works in the same way as pricing has become even hotter than it was when I started, and some Fannie/Freddie rule changes have made investment money more expensive. That said, when I was perusing the forums at the time, I regularly heard people talking about how there's no deals out there and everything is overpriced.

8-12% COC isn't a "grand slam" but it's definitely a base hit. I pulled it off by putting in a ton of offers on properties that were priced a little bit incorrectly, every one of which was over the asking price. I was able to land about 1 out of 6 properties I put an offer on.

Everyone is different, but for myself, I picked target areas and I analyzed every single deal that came up, typically I did it within 30 minutes of it appearing on HAR. If the numbers made sense I went after it hard. I figured if people were going to go 5 over on that property I’d go 7 over. I figured if people were putting a $200 option fee I’d put a $400 option fee.

The same metrics do not work today in the same way. That said, there was no mainstream playbook for what I was doing and it most certainly required a lot of “on the ground” work, cash on hand, and was greatly aided by the guidance of more experienced investors.