All Forum Posts by: Andy Brown

Team,

I'm interested in hearing how people have/might structure deals with family and friends for buy and hold. To add some detail, say I'm seeking 50k to go towards down payments on 2-4 unit midwest properties that bring in about 3-500 p/m cashflow. What terms/rates would you propose for a loan of 50k from a retired family member who wants steady income through retirement? What terms might you offer a friend in in their 30s for 50k who is just looking to diversify in a hot stock market? Assume both are actually looking for real returns and aren't lending simply as a favor. Also assume that there is proof of concept for the returns and this isn't a newbie scenario. Thanks for the help. 

15k can be enough depending on the type of loan and your market. Regardless of your loan, I would thoroughly acquaint yourself with closing costs in your area (likely $3k-5k) and leave at least 2-4k reserves for unexpected maintenance issues on top of any known repairs you'll have to make. 

@Ian Kirk

Tough call on the debt pay-down. I think there are probably dozens of threads on the forums on that very topic that could speak on the issue better than I can. Dave Ramsey would say to knock the debt out first-- but he tends to come more from a personal finance perspective of debt. I really, really, hate personal debt so I think I would be tempted just to pay off my loan if I were presented with the scenario you proposed. However, all things being equal, I suspect the smarter approach is to do a bit of both. It's amazing how you can listen to hundreds of hours of podcasts and books and it still falls drastically short of what you'll learn simply by buying your first property. So I would try to get into buying a home as soon as practical after the bar. But keep in mind, if you hate practicing law, which many, many lawyers do, you may be forced to keep practicing solely because of your personal debt-- which is why many miserable attorneys keep practicing. So there's that. Hopefully you find work you enjoy.

Something else to think about, especially if you're single, is to drastically watch your personal spending. That is where the battle is really won. I drove a 1990 Ford Tempo before and all through law school (2012-2015), split $650 rent with three other guys, ate frozen dinners, and was able to avoid taking out any student loans. When you do become an attorney, be very, very, cautious of the lifestyle creep that attorneys so often get sucked into. For a paradigm shifting read on this issue and personal finance generally I would HIGHLY suggest reading the Millionaire Next Door. 

Feel free to PM me for more info. 

Regards,

I know BP feels like a safe place to air grievances, but just a friendly reminder to the community not to draft any posts you don't want to be questioned about in a deposition or in front of a jury. Just some food for thought.

@Ian Kirk

I'm an attorney and there are a lot of attorneys on this site. I wont try to talk you out of the law but I would encourage you to think good and hard about any student loans you may be considering and the implications that may have on your ability to allocate funds towards your investments in the near future.

Generally, as you seem to understand, your 1L year is very demanding and will require much of your effort and attention. I would suggest in the first year minimizing your RE involvement to podcasts and occasional meetups with a focus on meeting RE attorneys that you can get plugged in with. Grades matter, who you know matters just as much or more. This will also help drive or better shape what type of law you practice (or if you even do). The better money is generally on the private sector transactional/business side so keep that in mind if money is your motivator. Look into joining or starting any clubs or journals related to real estate or where you could write about REI to get your name out there and build your resume.

Your 2L and 3L year would be a better time to invest though I would personally just recommend waiting until after the bar to start buying.

Lot more to say on this but I need to bill some hours....

Regards,

@Jackson Andrews

I don't think it should be a very weighty consideration in your home buying.

I really wanted full occupancy at first but as much as I love getting rent checks at closing I would now rather clean up the units and pick my own tenants. My first triplex came with an amazing first floor tenant, vacant second floor, and deadbeat third floor tenant. Cost me close to a grand in eviction and related fees just to get 3rd floor out before I could rehab. Vacant unit was filled within a month. If I were you, I would ask to see rent rolls and verify why any vacant unit is vacant. But I think you have more control with a vacant unit to pick and train the tenant.

@Lindsay Favazza

Hi Lindsay. Lot of good responses on here already. There's always a bit of a debate on the forums over self manage v. hire a property manager. For me, (brace yourself for sob story) I spent my whole childhood maintaining my father's rental properties and have vivid memories as a 7 year old and up of painting, sanding, mowing, laying carpet, and sitting in the courthouse lobby while my Dad went in to deal with evictions only to get a judgment for $25 a month. I remember watching the tenants' kids playing in the yard while I weeded the mulch bed and the late night service calls and the stress all of it put on our family. I was convinced that owning rentals was a fool's game until I learned of this crazy thing called a "property manager".

For me, I use a pm primarily because I'm out of state with my investments. But it's also because I have a decent W-2 and can get a better return there with a few extra hours than I could doing it all myself or micromanaging subcontractors. That being said, I would actually consider self managing if I ever pick up one or two B/B+ units locally. But I really think that there's no right or wrong on this and it's largely preferential if the numbers work.

@Jeff C.

I agree with @joe m.

OOS investing lives and dies with the property manager. Can't stress this enough. I have about 6 units in Erie and am recovering from a brutal 7 month experience with a shady pm up there. The pm is as critical as the deal itself. Pay close attention to the contract fees and be sure to shop multiple pms.

And I'll add on to what @Karl. B said. Be cautious about the towns that are based around the state colleges there (Edinboro, clarion, Indiana, etc.). The whole liberal arts game is being shaken up right now and in 2017/2018 they were looking at closing a number of the aforementioned state schools due to enrollment issues. You would really need to heavily evaluate the viability and long term health of the local economies you're looking into. Also be sure to check zoning/occupancy issues in those towns as some of the schools have successfully changed the local laws to favor on campus housing.

If someone has a legitimate concern, explore if it has any validity-- like you're doing here.

Expect the naysayers. Believe it or not, their comments are not as much criticisms of your plans but their own excuses as to why they should stay complacent with the status quo in their own lives.

And use the naysaying and doubt as fuel to excel. 

@Karl B.

Thanks for sharing this, Karl. Just evicted a tenant in Erie this week and it felt like conquering a city after a long siege. Shortening the process would make a huge difference. All for it.