"Please Sir, May I have some more" Opinions?

Question

I'm working on building my business plan. By which I mean I've been mulling it over for a few weeks now and I've decided it would be wise to seek the council of those more experienced than myself. Enter the BP forums [Hey everyone!].

My main goal is passive income, enough to support myself and my theoretical future family. I'm estimating that at around $10k/mo. I understand I will spend time, lots of it, getting things setup and running properly. However my long term plan is to minimize the hours I need to spend once I reach my monthly goal via automation and outsourcing.

Flipping isn't particularly appealing to me if only because of how involved I would have to be to stay on-top of contractors. I don't think i would have the time and attention to take this approach and be successful at it. This is also why I am avoiding the BRRRR approach.

I currently have a full time "Job" [sorry for my foul mouth] in cybersecurity which limits the time that I can invest in real estate, but also provides me additional funds that I can direct towards investment projects. Along with this I will soon inherit around $180k (Likely June due to the estate holding the funds until all expenses are paid), and already have around $150k in a Beneficiary IRA account which I have 10 years to drain. I am also currently working on a house hack where by I will rent out my basement to help subsidize my mortgage (this will take a few months due to the lead time for contractors, designers, and permits in this area - all of which are another reason why fix/flip is not an approach I want to take).

I also live in Bremerton Washington, a quick ferry ride to Seattle, and home of the naval shipyard (I get to hear Reveille every morning haha). People are moving into the area pretty quickly as they realize they have been priced out of the Seattle market, plus there are always military personal moving in and out, going on deployment, etc.

I'm considering Buy, Hold, and Rent as my primary strategy. However I am somewhat dubious due to the high cost of real-estate in the area. There are certainly deals to be found that will cashflow, but the entrance cost is pretty high compared to many markets. I'm thinking if I take this approach I would go for the tax lien approach to obtaining the properties. This way I could minimize my purchase price and if Ive done my homework right see immediate appreciation. But I am pretty uncertain as to the best approach here, and I am also concerned that we are going to see some kind of major market event in the next 3-6 months which makes me think this is a good time to spend planning, prepping, and educating myself.

Given the above information I am curious what approach others would take. I understand that this is a totally subjective question with a different answer for each person but I am hoping that the wizened and battle hardened members of BP will help me think though the options here and provide insight to help me build out my business plan.

Thanks in advance!

Jesse Munos

Michael Haas · Answer

Great advice from @Steve Vaughan. Correct me if I'm wrong @Jesse Munos, but based on your financials I'd guess that you rake in 6 figures at your day job. Since your W-2 hourly rate is likely above $50 an hour, its worth thinking hard about how much of a "deal" you really need. Steve mentioned some great ways to find deals, but all of this takes time and patience. If you don't have that there's nothing wrong with buying smart deals off the MLS, Wholesalers, or other Rental Property owners you know in the community. They may be closer to retail than the off market or foreclosure leads, but they will take a lot less time and friction to get under contract.

With a strong W-2 you don't necessarily need a home-run to get to financial independence  - a couple of consistent doubles should cover you. If I had a dollar for every "investor" who never buys because prices are "too high" or stops buying for decades because "there's no longer any deals" I'd have a lot of dollars... and I'd probably invest them in another rental property :). Lots of ways to skin a cat my friend, but the trick is to start skinning. Best of luck!

Jesse Munos · Answer

Thank you all for your responses! I find this kind of info gathering particularly helpful in charting a path forward and as such I appreciate your involvement.

@Steve Vaughan I'm not sure what additional questions I should be asking myself when setting my goal. Can you provide some additional context? I appreciate your views on Tax liens and thoughts on how to identify available properties. I've been refining my own thinking and I believe I would like to focus on quadplex properties and above, but a couple of smaller single or duplex style units would probably be a good idea if only to round out my initial portfolio.

@Michael Haas It is an interesting point when evaluating deals, perhaps I can loosen my criteria a bit to work within the existing market. It is certainly something to consider, I will run the numbers and do some projections.

@John Barrett @Aubrey Tatarowicz I'm not familiar with investing via Syndication. Syndication in this context is a new term to me. Do you mean turn key remote investing using a 3rd party company? If so I haven't considered that yet, primarily that is because I want to try to focus on building a personal inventory and as I understand it the margins are not as wide as I would like. However this might be a good plan if I discover additional considerations in my area.

@Douglas Spence I would like to focus on local properties while I learn the ropes. But I admit there are better deals to be found in other places so depending on what level of difficulty I encounter identifying a deal that meets my criteria I may shift focus to markets in New Mexico or Houston (I have family in both these areas).

Account Closed This is really an interesting concept you bring up. I'll be checking out your profile to learn more. Thank you for the info!

@Sherief Elbassuoni I agree. I don't expect to walk away from my W-2 job in the next few years. I want to get to the point where I'm ready for that. Ideally I would like to be standing on my own within 5-7 years. I'm certainly not expecting overnight life changes haha.

@Kristel Knittel I agree with your thinking on looking for larger multi-family. I look forward to discussing this with you more in the near future.

@Brock Mogensen You bring up solid points. I hadn't considered the size of deal or the asset class that I wanted to look into. I have to think on this a bit more and perhaps run some numbers. My WAG at the moment would be C+ to B asset class focusing on unity quantity in a growth or renewal area. While I wouldn't expect to force appreciation as part of the calculous it never hurts to place myself well to benefit from the appreciation.

Thank you all for your responses. I really wasn't sure what to expect when I dropped my post and none of you disappointed.

--JM

Jay Hinrichs · Answer

@Steve Vaughan  Steve is correct tax Liens in WA is not avaliable its a tax deed state  IE one auction per year usually all cash you own the asset no title insurance.

as a post above talked about  AZ is a tax lien state as well as many of the states in the mid west and deep south.

the competition for the liens though can be brutal in certain counties buyers can bid down the returns.. in FLA is not uncommon for major hedge fund to bid down the returns into the 4 to 6%  range.

And as stated very very rare that you get to take title on one that is not bare land.

AS Account Closed  mentions being the bank has some advantage of higher returns with not a ton of work on your part..

Starting out you can invest with a broker who is local there in WA  there is no state license required for loans in WA that are commercial purpose 1 to 4 units ( the large bulk of the loans available).. Gap funding or seconds as Joe was talking about you want to make sure you know the borrower very very well.. as there is always risk in junior position IE you maybe forced to take over the senior position in a default situation.  But all in all I think its a very good option and for sure a lot less work than trying to chase Tax liens also keep in mind many tax liens never pay.. and you just lose your money.

John Barrett · Answer

@Jesse Munos If you are really busy with your day job and making a good salary, you might want to look into investing via a syndication.  This would allow you to participate in the appreciation and tax benefits without any of the responsibility to manage the project or book keeping.  While your returns will generally be lower than what you could generate if you were to take on the work yourself, investing via a syndication is generally the least amount of work on your part.  I don't invest via syndication as I like to do the work but many others on BP do and have success with this strategy.

Best of luck,

John

Steve Vaughan · Answer

Good to have a goal, Jesse.  I would encourage you to go deeper into your why than $10k/mo.  On the surface it's obvious, but a true why does not reveal itself until you've asked it 7 times.  $x per month is only about 3 in.

As far as tax liens in WA, my guess is it won't fly, but check your county's process.  In my 2 counties in central WA, they have a tax sale every Dec for delinquency of taxes 3 yrs old.  Contact the treasurers office after looking online under the t dept.

I've attended these tax sales. Most are vacant land or trailers on leased lots.  Most of the people are clueless and think liens are wiped out if a home does come up.  They're not.

Keep thinking creatively.  As I'm out and about I take note of disstress and send absentee owners a simple postcard.  I also send this to garage and moving sale folks.  Moving truck or plumbing truck in the driveway?  Like that.

This feeds me about 3 deals a year and i don't d4d on purpose.  I do take alternate routes on purpose and often return with my best lists after riding my bicycle.

With the eviction moratorium, my response rate has climbed a lot.  Renters aren't paying and small mom and pop owners are frustrated, especially boomer+ that recently went to a PM.

Anyway, get a good bead on your why and get some postcards made.  I used vistaprint back in the day.

Doug Spence · Answer

@Jesse Munos Congrats on taking action to achieve your long term goals! This is a huge first step that most people never take.

Why limit yourself to the Bremerton area? The high cost of real estate there is a barrier to entry for many investors starting out like yourself. I recommend continuing to do your house hack, but maybe consider other markets around the country. I live in San Diego but invest in Milwaukee and Oklahoma City! Best of luck with your journey and keep us updated!

Will Fraser · Answer

As many wise people have said above:  open up your locational thoughts.  Be location agnostic and invest where it is best to invest.

I'll also suggest this mental bit of self-deprecating gymnastics I'm doing of late:  consider foregoing buy-and-hold investments as a whole in favor of REIT and syndication investing.  This in some studies has been shown to outperform or at worst break even with buy-and-hold investing and is WAY WAY WAY WAY less involved, gut-wrenchingly exhausting, and fraught with those inevitable bad apple tenants.

Account Closed · Answer

@Jesse Munos

I don't have experience with tax liens, however, you may look into promissory notes via trust deed.  I sold my SFR rentals making around $1k a month and rolled the funds (trapped equity) in a note backed by real estate, instead of buying a bigger rental (can't sell high and buy low very easily), and now netting $60k a year.   The collateral is an RV park in Vancouver WA.  I have more details on that in my profile along with several smaller note I've done.  I also have notes in my self-directed ROTH and IRA making a minimum of 15% a year.

The due diligence mainly focuses on assigning a conservative value on the collateral and doing a rough estimate of your investment coverage, e.g. ARV of $500k - $200k (1st position) - $60k (2nd position - your note) = $240k (post-foreclosure potential surplus).  We don't plan to foreclosure but that is our legal means of security.  In this simple example, I would suspect you would sleep well knowing you were making 8-15% and your principal is covered by over 4 times your principal.  I do this locally so I am more familiar with market trends and collateral values, however, doing remotely you could hire local experts to weigh in.  I use a local real estate agent and a title company to confirm project assumptions and takes a few hours for me at this point.

A common question I receive is "why would a flipper use such expensive hard money?"  The answer requires to switch rolls with the flipper.  Say you are starting 1-2 flips a month.  At some point, you run low on funds/credit.  For me, that would be month 1, others may take years.  Now if you were in a position to buy another property but your funds/credit was tied up, would you pass on the deal?  Wholesale it? Or use other people's money?  The acquisition requires fast and reliable funding to seal the deal in all markets at this point in the mania.  This is where a reliable capital partner with the direct means to fund a note within a few days is more than worth a higher rate versus leaving profits on the table.  Conventional or more institutional HML have too much internal red-tape and too many levels of approval.  Not saying these sources aren't used, however, adding a capital partner to the mix greatly improves business stability.

Sherief Elbassuoni · Answer

@Jesse Munos, if you have a decent W-2 Job, it might be better to keep it till you see the cash flow from your rental properties that replaces your W-2 paychecks.

In the past, I used to think that I need a lot of properties to get a decent cash flow, but now, I can tell you that all you really need is a few good deals.

Feel free to reach out if you got questions and I can share with you my situation.

Aubrey Tatarowicz · Answer

@Jesse Munos Real estate syndication is done by bringing together a group of investors to buy an asset.  Generally, there are 2 groups, the General Partner (GP or Syndicator) and the Limited Partners (LP or passive investors).  The GP puts a deal together and the passive investors can invest and become partial owners of the underlying asset.  Generally, the returns are a bit lower (for the passive investors) than buying and holding a single family home for example, but there are benefits to syndication and economies of scale that come from larger multifamily.  The GP does all the work and the passive investors are responsible for capital and then share in the returns as outlined in the agreement between them and the GP.

Each syndicator is going to have their own set of target returns they aim to get for their investors.  You'll want to figure out what is the right fit for you.  I do think learning more about syndication to see if it fits your goals would be useful for you.  Happy to chat more via DM or hop on a call sometime.

"Please Sir, May I have some more" Opinions?

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