More Success or More of What-Not-To-Do

[Daniel Cruz]

Hey Everyone,

More Success or More of What-Not-To-Do

Below is my first post in the Success Stories forums

https://www.biggerpockets.com/forums/223/topics/17...

I’m finally writing my 2nd “Success Story” post. I’ve been waiting to see if my new property would consistently produce cash flow as well as needing to finally finish my NRC exam to obtain a Reactor Operator’s license for the Watts Bar Nuclear Generating Station here in East Tennessee. I’m happy to announce that after a LONG 2.5 year process, as of July 25th, I passed my 2nd NRC Exam in my long career in nuclear power.

So here’s my story in purchasing my first duplex…

Around June or July 2015 I was trying to figure out how to buy a property outside of my SDIRA to increase my personal income. My goal was to have a steady flow of income that could be reinvest into future RE endeavors. I listened to BP podcast #89 several months earlier and after jumping into RE by buying turnkey properties, I kept Ohio Cashflow in the back of my mind as a potential Turnkey Operator. If you recall from my previous post, at this time I'm still in the middle of a Reactor Operator's training program, so I didn't have much time to pursue REI except through the turnkey route.

I made the decision to borrow from 2 of my properties in Dallas, TX. Unfortunately the only rentals that I own are in a SDIRA. I would then pull the borrowed money out of my SDIRA and purchase a property free and clear. Since Ohio Cashflow (OCF) was working in a less expensive market, I decided to do more research on them (them meaning Engelo Rumora) to see if there were any negative reviews / comments.

Now Engelo REALLY puts himself out there and is all over the internet; I figured if there were ANY negatives somebody would have said something. I did a BP search for Engelo and OCF. In general everyone seemed to have nothing but positive things to say, but nobody during my research on BP had actually purchased a property from OCF. I did listen to several interviews with Engelo such as:

The one with Lisa Phillips (https://www.youtube.com/watch?v=pv7wohQTKls )

The Mark Podolsky interview (http://www.thelandgeek.com/?s=engelo+rumora)

The Brock Collins interview (http://www.freedomrealestateinvesting.com/engelo-rumora-turnkey-ohio-cashflow-investor-rei-012/)

and a interview at growtheverywhere.com, which is more entrepreneurial and less REI (https://growtheverywhere.com/growth-everywhere-interview/engelo-rumora-real-estate/?cet=33)

As well as investor testimonials on youtube

I also did a BBB search and Ohio Cashflow has an ‘A’ rating and there was a Toledo, OH business news article / interview I read (unfortunately I did not keep the link)

After my initial search, in July 2016 I made a decision to call OCF / Engelo to see about investing. Engelo and I ended up talking on the phone and he has as much enthusiasm in the day to day as he does in his interviews (a lot of energy that dude has). Engelo asked me to fill out a questionnaire about my personal REI experience and informed me that he only deals with investors that can buy free and clear. I told him that would not be a problem and that I had the money but it would take a little time for me to get it.

I also asked Engelo for a couple references which he gladly provided me. I contacted these references and both had positive experiences w/ Engelo and OCF. After all this I was set to buy a rental property from Ohio Cashflow, I just needed to get a hold of some money.

After speaking with Engelo and feeling more comfortable, I contacted First Western to start the process for non-recourse loans against my properties within my SDIRA. The process is very similar to a normal loan and I decided on $50,000 on 2 properties ($100,000 total). The prices for rentals in the Toledo, OH area (as seen on the ohiocashflow.com website) were ranging from $50,000 to $80,000 and I needed to plan for the taxes and penalties I was going to incur pulling money out of the SDIRA.

About late August to early September 2015, while waiting for my loans to close, Engelo posted on ohiocashflow.com a duplex in Middletown, OH. The numbers were:

$74,900 and $1350 rent, after expenses it was going to be about 15% ROI

I contacted Engelo and told him that I wanted the duplex in Middletown; I told him I did not have the money, but was in the process of obtaining loans on properties that I already owned. Engelo essentially said, “no problem, though we want to close early October”. Engelo was very flexible on the terms to purchase the property.

Mid-September my non-recourse loans closed and was able to close on my new / rehabbed dublex the first week of October. I was hoping that the close was early enough in the season that the PM would be able to find renters before late fall or winter. I had plenty of reserves and Engelo’s partner, Bryan, briefly mentioned in one email that OCF had motivation to ensure the duplex was rented because it would cost them money. Engelo has also mentioned in his interviews that the rentals would be tenanted to the buyer’s satisfaction. Well, I looked over the purchase agreement I signed and I couldn’t find any promise for back rent. So instead of relying on any money for back rent I patiently waited HALF THE WINTER for a tenant. FINALLY, in February I got news of 2 new tenants moving in AND TO MY SURPRISE – I GOT BACK RENT from October 2015 to February 2016 ($1350 for each month of vacancy).

Anyway I am very happy with OCF and their customer service is top notch. Engelo help me find a GREAT lender to refi the duplex (about $49,500 @ $450 monthly, PITI), and Engelo's other partner Dominique helped me find an insurance company

Here’s my first duplex on youtube: (Engelo is a little hyper – I think to prevent hyperthermia, video was shot in January)

https://www.youtube.com/watch?v=432udm1Cy20

[Michael Seeker]

Nice to hear a success story and to hear somebody owning up to verbal commitments even if they might not have been legally obligated to do so.  Doing the right thing is a long-term play but the return is much better than a few extra bucks from screwing somebody over!

[Daniel Cruz]

So far I've spent more time researching my 2 turnkey providers rather than researching the markets I'm investing in. Now that I'm done w/ class I can focus more on my home town, though I do have a long term plan which includes getting to know Toledo's market better.

[Lisa Phillips]

@Daniel Cruz Im sure Engelo appreciates such an indepth and thoughtful review! I wish everyone could sum up their successes in this much detail. Congratulations, and I love the back rent :-) $1350 a month, hello! Nicely done!

[Adam A.]

@Daniel Cruz It's nice to hear a positive feedback on my home town boy Engelo even though we keep crossing each other in a parallel way.  

Can you shed some more light on the ROI numbers after your non-resource loan? How long have you had your rental properties in SDRIA?

[Daniel Cruz]

@Adam A.

Adam, are you asking my ROI for my Dallas properties after getting non-recourse loans? Or are you asking the ROI for the Middletown duplex after the cash out refi?

[Adam A.]

@Daniel Cruz - Middletown.

[Daniel Cruz]

@Adam A.

Adam,

My post is lllooooonnnnggggg

Here's the short version

- I obtained 2 non-recourse loans against my Dallas properties. SDIRAs can only obtain non-recourse loans (total = $100,000)

- After closing on the 2 loans, I pulled the money out (aware of my taxes and penalties that will be required) and purchased the Middletown duplex for $74,900.

- I cashed out refi'd the Middletown duplex (using conventional financing). The balance =

~$49,500 with payments of ~$450 per month (PITI)

- Current rent roll = $1325 per month; PM = 130 per month

- Current ROI for the Middletown duplex =

[($1325 x 12) - ($450 x 12) - (130 x 12)] / $25,400 = 35% ROI

[Daniel Cruz]

@Michael Seeker, @Lisa Phillips

Thanks Michael and Lisa for your kind words

[Michael Seeker]

Originally posted by @Daniel Cruz:

@Adam A.

- Current ROI for the Middletown duplex =

[($1325 x 12) - ($450 x 12) - (130 x 12)] / $25,400 = 35% ROI

Yikes...this formula is missing two huge pieces of the puzzle - OpEx and CapEx. I average around $200/unit/month for regular operating expenses (many of which might not show up in first few months of ownership) and use around $50/unit/month for CapEx. Your 35% ROI calculation assumes there are no regular expenses (ex. HVAC service call for no heat/air or plumber to fix leak or regular grass cutting) and it also assumes there are no capital expenses ever (ex. need to replace water heater or furnace).

Looks like there's plenty of a cushion to account for those things, but 35% is if everything runs perfectly forever which isn't going to happen!

[Daniel Cruz]

Yes Michael true statement. 95% of the income is currently building reserves. I've got only $7500 in reserves and that doesn't feel comfortable to me at all

[Adam A.]

@Daniel Cruz - I know about SDRIA and non-resource as I have a Solo 401K trust which is similar but I can shelter up to $59,000 ( each spouse which goes up every year) vs. $24,000.  

I'm confused about the total investment number which is $74,900 but how did you come up to divided it over $25,400? 

[Daniel Cruz]

I purchased the duplex for $74,900 free and clear.

I refi'd the duplex using conventional financing and pulled out $49,500.

$74,900 - $49,500 = $25,400 in equity 

Maybe I'm I don't understand what ROI is

[Engelo Rumora]

Originally posted by @Daniel Cruz:

Hey Everyone,

More Success or More of What-Not-To-Do

Below is my first post in the Success Stories forums

https://www.biggerpockets.com/forums/223/topics/17...

I’m finally writing my 2nd “Success Story” post. I’ve been waiting to see if my new property would consistently produce cash flow as well as needing to finally finish my NRC exam to obtain a Reactor Operator’s license for the Watts Bar Nuclear Generating Station here in East Tennessee. I’m happy to announce that after a LONG 2.5 year process, as of July 25th, I passed my 2nd NRC Exam in my long career in nuclear power.

So here’s my story in purchasing my first duplex…

Around June or July 2015 I was trying to figure out how to buy a property outside of my SDIRA to increase my personal income. My goal was to have a steady flow of income that could be reinvest into future RE endeavors. I listened to BP podcast #89 several months earlier and after jumping into RE by buying turnkey properties, I kept Ohio Cashflow in the back of my mind as a potential Turnkey Operator. If you recall from my previous post, at this time I'm still in the middle of a Reactor Operator's training program, so I didn't have much time to pursue REI except through the turnkey route.

I made the decision to borrow from 2 of my properties in Dallas, TX. Unfortunately the only rentals that I own are in a SDIRA. I would then pull the borrowed money out of my SDIRA and purchase a property free and clear. Since Ohio Cashflow (OCF) was working in a less expensive market, I decided to do more research on them (them meaning Engelo Rumora) to see if there were any negative reviews / comments.

Now Engelo REALLY puts himself out there and is all over the internet; I figured if there were ANY negatives somebody would have said something. I did a BP search for Engelo and OCF. In general everyone seemed to have nothing but positive things to say, but nobody during my research on BP had actually purchased a property from OCF. I did listen to several interviews with Engelo such as:

The one with Lisa Phillips (https://www.youtube.com/watch?v=pv7wohQTKls )

The Mark Podolsky interview (http://www.thelandgeek.com/?s=engelo+rumora)

The Brock Collins interview (http://www.freedomrealestateinvesting.com/engelo-rumora-turnkey-ohio-cashflow-investor-rei-012/)

and a interview at growtheverywhere.com, which is more entrepreneurial and less REI (https://growtheverywhere.com/growth-everywhere-interview/engelo-rumora-real-estate/?cet=33)

As well as investor testimonials on youtube

I also did a BBB search and Ohio Cashflow has an ‘A’ rating and there was a Toledo, OH business news article / interview I read (unfortunately I did not keep the link)

After my initial search, in July 2016 I made a decision to call OCF / Engelo to see about investing. Engelo and I ended up talking on the phone and he has as much enthusiasm in the day to day as he does in his interviews (a lot of energy that dude has). Engelo asked me to fill out a questionnaire about my personal REI experience and informed me that he only deals with investors that can buy free and clear. I told him that would not be a problem and that I had the money but it would take a little time for me to get it.

I also asked Engelo for a couple references which he gladly provided me. I contacted these references and both had positive experiences w/ Engelo and OCF. After all this I was set to buy a rental property from Ohio Cashflow, I just needed to get a hold of some money.

After speaking with Engelo and feeling more comfortable, I contacted First Western to start the process for non-recourse loans against my properties within my SDIRA. The process is very similar to a normal loan and I decided on $50,000 on 2 properties ($100,000 total). The prices for rentals in the Toledo, OH area (as seen on the ohiocashflow.com website) were ranging from $50,000 to $80,000 and I needed to plan for the taxes and penalties I was going to incur pulling money out of the SDIRA.

About late August to early September 2015, while waiting for my loans to close, Engelo posted on ohiocashflow.com a duplex in Middletown, OH. The numbers were:

$74,900 and $1350 rent, after expenses it was going to be about 15% ROI

I contacted Engelo and told him that I wanted the duplex in Middletown; I told him I did not have the money, but was in the process of obtaining loans on properties that I already owned. Engelo essentially said, “no problem, though we want to close early October”. Engelo was very flexible on the terms to purchase the property.

Mid-September my non-recourse loans closed and was able to close on my new / rehabbed dublex the first week of October. I was hoping that the close was early enough in the season that the PM would be able to find renters before late fall or winter. I had plenty of reserves and Engelo’s partner, Bryan, briefly mentioned in one email that OCF had motivation to ensure the duplex was rented because it would cost them money. Engelo has also mentioned in his interviews that the rentals would be tenanted to the buyer’s satisfaction. Well, I looked over the purchase agreement I signed and I couldn’t find any promise for back rent. So instead of relying on any money for back rent I patiently waited HALF THE WINTER for a tenant. FINALLY, in February I got news of 2 new tenants moving in AND TO MY SURPRISE – I GOT BACK RENT from October 2015 to February 2016 ($1350 for each month of vacancy).

Anyway I am very happy with OCF and their customer service is top notch. Engelo help me find a GREAT lender to refi the duplex (about $49,500 @ $450 monthly, PITI), and Engelo's other partner Dominique helped me find an insurance company

Here’s my first duplex on youtube: (Engelo is a little hyper – I think to prevent hyperthermia, video was shot in January)

https://www.youtube.com/watch?v=432udm1Cy20

Thanks mate,

Humbled by your post and looking forward in continuing to serve your vision.

See you soon :)

[Engelo Rumora]

Originally posted by @Adam A.:

@Daniel Cruz It's nice to hear a positive feedback on my home town boy Engelo even though we keep crossing each other in a parallel way.  

Can you shed some more light on the ROI numbers after your non-resource loan? How long have you had your rental properties in SDRIA?

Let's catch up Adam.

Don't worry, I'll leave all of my guns at the office hehe

We are taking over Toledo and looks like most brokerages in town will be out of business soon hehe

Thanks mate

[Engelo Rumora]

Originally posted by @Lisa Phillips:

@Daniel Cruz Im sure Engelo appreciates such an indepth and thoughtful review! I wish everyone could sum up their successes in this much detail. Congratulations, and I love the back rent :-) $1350 a month, hello! Nicely done!

Hey Lisa,

We need to do another podcast :)

Thanks

[Adam A.]

@Daniel Cruz - There is a very important point regarding leveraging in a SDRIA which will be subject to UBIT (Unrelated Business Income Tax). Here is more regarding this topic:

UBIT & SDRIA

The ROI equation is correct, however, the total investment of $25,400 is not. I set up my Solo 401K trust (Which is NOT subject to UBIT) through @Dmitriy Fomichenko at Sense Financial and he's very knowledgeable this subject.

[Daniel Cruz]

Hey Adam,

Yeah unfortunately I pay UBIT. I eventually want to rollover my stuff into a SD 401K to avoid the taxes. One of my future goals 

[Rob Badhorn]

Great info folks!  Thanks for sharing!

[Bryan C.]

Great info @Daniel Cruz.  Love hearing more details on stuff like this as I am getting into similar situations soon.  How difficult was it to get the Non-Recourse Loans?  

How difficult was the cashout refi?  How long did that process take?

[Daniel Cruz]

Originally posted by @Bryan C.:

Great info @Daniel Cruz.  Love hearing more details on stuff like this as I am getting into similar situations soon.  How difficult was it to get the Non-Recourse Loans?  

How difficult was the cashout refi?  How long did that process take?

 Bryan,

The non-recourse loan was just like any other except the interest rates are a little higher. An appraisal was required and was coordinated between the PM and the renters.

The cash out refi was like any other, but I had seasoning issues. Because I owned the duplex for less than 6 months, the credit union I went to originally would not give me a loan (they only offered me an expensive line of credit). Thanks to @Engelo Rumora who introduced me to @Jerry Padilla I got a 70% loan. I was not able to get an 80% loan also because I owned the duplex less than 6 months

[Bryan C.]

Thanks for the info!

[Bill Gulley]

Ah, another guru endorsement, good for you.

Congrats on passing your exam, I'm really glad you didn't learn that profession by similar means. :)

[Jay Hinrichs]

@Bill Gulley  Engelo is not a Guru he is just a hard working young man who is building a turn key business and PM business.. along with he just launched a real Estate brokerage in Ohio called list and sell which is a discount brokerage for high achieving agents in that market place..  I personally know him and can assure you he is not a Guru in the sense you are thinking. 

[Bill Gulley]

Originally posted by @Jay Hinrichs:

@Bill Gulley  Engelo is not a Guru he is just a hard working young man who is building a turn key business and PM business.. along with he just launched a real Estate brokerage in Ohio called list and sell which is a discount brokerage for high achieving agents in that market place..  I personally know him and can assure you he is not a Guru in the sense you are thinking. 

 My error, thanks Jay and apologies to Engelo too!  

Lots of threads are started by affiliates and this really looked like the same drawing assumptions......geeez, public forums! :)

[Jay Hinrichs]

@Bill Gulley  I hear you.. !!!s the folks who endorse a company .. .that just started a profile that day and have one post.. I get that  LOL.

I have known Engelo from day one when he came here from Australia.. and I would not say I mentored him that would not be the case.. but I have followed him and from what I can see he is a very hard working young man.. and pretty straight up really.. Strong ethics.

And beleive me in my 20 years of lending in the Turnkey space I can tell the difference between the low character guys and the guys that will stand up and do the right thing.