All Forum Posts by: Joe Kim

I'm sorry David.   Biggerpockets has become less friendly and even less helpful comments on the forums to legitimate questions.

Some people seem way too "smart" for their own good.

Income from the property can be done easily - if you are marketing on airbnb - Airbnb has this nice feature called "proof of income" that is acceptable to mortgage lenders as proof of income.    Also, if you keep your own good bookkeeping with separate business checking account showing income/expenses.   You could even do a simple profit and loss (per month) bookkeeping on Excel.  You don't need anything fancy like quickbooks (at least not yet).

Lease agreements - I take a standard lease agreement for each state you belong to - you can find standard lease on biggerpockets here -  

https://www.biggerpockets.com/landlord-forms

or you could even just google one for your state.   

You can easily modify a lease with a "special stipulation" section:   "the following special stipulations for leasing the property (address) if conflicting with any exhibit, addendum or preceding paragraph (including any changes thereto made by the parties), shall control:

1)  state whatever terms you want to clearly outline here. "  

Targeting flight attendants, students - I think you are talking about "niche marketing".    if you have an unfair advantage (you are a flight attendant or have family/friends who are), then you can use that advantage to go after that market.  

Ignore the negativity.   Move forward!

Joe

Wait a second...is this forum for investors?   I thought it was called biggerpockets, not "smallpockets" or "equalpockets".  

There is a different forum for people who want to talk about the inequalities in our society.

But this is a forum for real estate investors - aka the Elite.  

Webster dictionary online gives the definition of Elite as 

"a group of persons who by virtue of position or education exercise much power or influence"

I think that describes real estate investors quite well (especially ""education" to exercise power or influence).

We are wholesalers, landlords, lenders, etc..   all "Elite".   

You are right recession sucks for many people.   Hopefully for those of us who are investors (aka elitists - by definition investors are elite because we have to work harder, save more, make wise decisions that the average person).

But I agree with many of you.   in 2009,  my personal home was underwater like millions of Americans.  I was forced to move to a new job and instead of foreclosing, I rented my home.   Even after 10 years I could not sell the home for more than what I bought it for because I bought the home at an inflated price in 2005.  

I agree that what happened in 2008-2009 was a landmark recession that is unlikely to happen with equal severity this time around.   It may be a once a life (every 70 year event?  maybe maybe not, nobody knows)

But the reality is recession does happens every 10 years (+/-).    What are you doing as INVESTORS to get ready?

WE are not here to discuss economic inequality, social inequality.    This is BIGGERPOCKETS, right?

There is a different forum for people who want to talk about the inequalities in our society.

Anyone out there just salivating for recession to come?  

+  Cheap/discounted prices!

+  Incredible low mortgage/lending rates! (already started?)

+ Cheap and excellent staff and partners (I'm especially excited about this one.   Finding good help is tough in this low unemployment economy)!

+ Recession is a sort of a death and rebirth for many people for lots of reasons and taking many different but  similar paths.

Questions:

1)  What are you doing right now to prepare for recession?  (Defense)

My answer:

I'm selling 3 homes in 2019 and 2 homes in 2020 not just because I believe we are at peak or near peak or just beyond peak market values, but also because I am consolidating my equity.  I like to call my portfolio of SFR rentals as little piggy banks.  I'm breaking them open (selling the homes).  Also, I'm running out of time so I don't want any distractions from my goals (see #2)

Once I pay down my primary mortgage, I plan to get the largest HELOC I can get so I have sufficient "debt capital"  (money can use but it's also in the form of a debt in a HELOC line of credit) - big tax savings using your HELOC for REI.   Having capital is a HUGE asset when recession comes.

2) What are you doing right now to prepare for recession?  (OFFENSE)

Answer:

I'm focusing on what produces the maximum profits with minimum time commitment.   For me that is buying another home in Atlanta to continue increasing my Airbnb portfolio to #7.   I'm also buying in 2019 with "defense" in mind - considering my exit strategies or pivoting if serious recession hits or sweeping regulations turn the STR/Airbnb business upside down.   Also, I am confident I can weather the storms based on reserves and diversified portfolio in 3 different markets - California, Indianapolis, Atlanta

3)  What  NEXT LEVEL plans or CHANGE would you like to accomplish in your REI when deep recession hits?

Answer:

Combination of large multifamily + Short-term rental + university market.    I'll leave it at that.   Don't want to spill all my secrets.

My Background:

I've been doing REI since 2013 when I bought my first "turnkey" rental property in Houston texas. I had some idea how special a time it was to be an investor back then. I knew that the "brave" and "prescient" investors who started scooping up properties in 2009-2013 were already seeing huge profits and I felt "late to the party". So I bought as fast as I was able without special financing (all conventional loans at 20% and 25% downpayments) and got to 13 total rental properties (going on 14th right now). I also sold 6 homes (selling 1 more this month).

In 2018, I made a dramatic change to STR (short term furnished rentals) via Airbnb (and VRBO) and it has altered my real estate investing dramatically. I grossed over 240K in my first year doing STR and I've already surpassed that amount for 2019. See my post about the first year in Airbnb : https://www.biggerpockets.com/forums/223/topics/632364-200-000-rents-in-1-year-10x-cash-flow?page=1

Paradoxically, I want to be MORE active and MORE passive at the same time. I got into REI with traditional turnkey rentals thinking it was a "passive" investment but honestly nothing that is worth anything is passive. So I went the complete opposite direction to a more active business- Airbnb. Now I'm selling off traditional rental properties that cannot be airbnb or does not make sense in my strategy.

I've also done several truly passive ventures in private lending (18%, 15%, 14%, 12% annualized returns) and participating in a syndication as well. I see that this passive part of REI is crucial as you mature in your porfolio.

Since I have a very busy full time day job, I'm juggling the time vs. money vs. excitement for REI strings and sometimes failing to find that right balance.

Hope to hear your stories and your recession related dreams!

TIP #1    Profit calculator - how do I know if the home I looking at will be profitable.

I would share a great resource to help figure out if a certain property is worth investing in for STR

http://www.propertyprofitscalculator.com

I would approximate the daily rate by looking at airbnb.com directly or using airdna.co  (this website's data is great but about 4-6 months delayed - how do I know?  my properties didn't show up for about 6 months on airdna.co )

I usually use the criteria - if I only get 50% occupancy rate, will I break even?     If I can break even at 40%-50% occupancy - that's a solid home.   

In some areas where the rents are very cheap or home values are a bargain, you may break even at even lower occupancy rates  (the assumption is that you are also picking reasonable daily rates that matches what others are charging for the same sized home bedroom/bathrooms/# of beds) 

@Sarah B.

I would start locally. If property values are high, then you may consider "rental arbitrage". This concept in a nutshell is renting as a tenant and then subleasing as a furnished short-term rental. You need to make sure you are cleared by the owner, HOA (avoid HOAs), city/county regulations.

The best way to get started is just look at www.airbnb.com  (the source itself)  and look at the successful homes (superhosts) and see what they are making or charging on their daily rates.   Do the daily rates (at 50% occupancy) cover all your expenses (rent, utilities, insurance, internet, etc.)

Use this calculator to help you to figure out your potential profits.   

http://www.propertyprofitscalculator.com

Once you get comfortable doing it locally and getting your hands dirty. Then I would look to buy a property that makes most sense - not necessary to buy locally. I have 6 STR homes - 3 locally (arbitrage) and 3 I own (3000 miles away). All of them doing well. www.sesamewaltz.com  (this is my STR company website)  not quite done yet.

Joe

UPDATE for 2019.   We are NOW just passing the halfway mark for 2019. 

In 2018, I did a little over $200K in gross rents (while growing from 1 to 6 properties).   

In 2019, I started with 5 properties (I lost one arbitrage but got a new one- I'll explain in another post) but now back up to 6 total units (3 arbitrage and 3 homes I own).  

I definitely prefer to OWN the properties (if the numbers make sense) than arbitrage.   Arbitrage is a good way to scale.  But my difficulty is not having enough TIME and the help to scale my business.   Also, the nightmare of paperwork/tax prep also is a limiting factor.  I've hired a bookkeeper which is helping it's still a challenge.

So for the first half of 2019,  I've already hit PAST $200K in rents just on Airbnb alone.  I have smaller revenue from VRBO $20K+ thus far as well.  And even smaller outside bookings at $7200 for the first half of the year.   I'm on my way to $400K in rents for 2019 which totally shatters the initial goal of $300-350K I had at the start of 2019

I'll post a screenshot of my airbnb earnings in the next post (my work computer is restricting uploads!)

I just found out that by July 1st, 2019 it's mandatory to collect sales/occupancy tax for STR in Indiana.

It's unclear to me if there are two taxes - sales tax (state) and EXTRA occupancy/hotel tax for each county. 

My properties are in Marion county (Indianapolis).    I believe it's a 7% sales tax.  

There is also a Innkeeper's tax for each county.   

https://www.in.gov/dor/3469.htm

Marion county is 10%.     So is it 10+7 = 17 % total tax?   

Has anyone tried adding the tax on Airbnb?

Follow up question is who pays the tax?   Does Airbnb send the tax directly to the State/County or do we have to do that separately?

I have done both rental arbitrage and converted properties I own to STR.

I did arbitrage near where I live in California which was great for learning because I did everything myself. It helped to learn the skills I needed to then apply those skills/experiences to do STR in my properties I own thousands of miles away.

So I have 3 rental arbitrages and 3 owned homes.

If I had a choice, I would ONLY do STR on homes I own. Why? Better control, less headaches.

Why does rental arbitrage work?  What are the pros?

#1  Better way to scale.   You don't need a lot of money upfront.   This is especially the case in places like California where the real estate is expensive.   a $800,000  2 bedroom/2bath home will rent for $3000/month.    You need $160,000 downpayment to buy the home plus startup costs(furniture).      If you do arbitrage you need $3000 rent + deposit ($3000+) plus startup costs.     compare  $160,000 downpayment vs. $6000 (1st month rent+ deposit)

Other than that the biggest drawback is lack of control and risks

I've been doing arbitrage for 1.5 years now and so far I have shutdown TWO arbitrages

#1 HOA rules shut my first condo after 1 year. I made very good money ($3000/month positive cash flow) but no longer go operate and so I moved out.

#2 Shutdown my original rental arbitrage after 1.5 years. I made very good money ($3000/month positive cash flow!). A neighbor reported the home to city. The city had no regulations again Airbnb/STR. But they used old existing laws to say anything less than 30day rental is illegal. I tried to move towards the 30day rentals but found it too difficult and too much work. I work a full-time job so I don't have the time resources to do more of my own marketing outside of airbnb/VRBO. It takes time to adjust.

It depends on your current situation. Do you own homes that would work well for STR? Do you want to start in your own neighborhood but home prices are too high but still profitable for STR with arbitrage- then go for it. But I would not do too many arbitrage before you get a good handle on it.

Thanks for the tips!    Experiment in Scaling.....there are limits and challenges that offset a lot of the benefits.    

Bottom line:  best way to make money in real estate 

#1 long term tenants, low turnover, low vacancy (difficult to do at high rents)   

#2 Buy super cheap (BRRR if you have the time/skills) or under market value (difficult to do without a lot time and BRRR)

#3 sell with great appreciation  (that's why all these "buy California mantra")

......way down the list #4   Good cash flow ( good cash flow on paper gets destroyed if you have high turnover, evictions, terrible tenants)

     Really?  its in a private new construction community and I specifically bought the home to face the opposite the freeway and there is no exposure to the freeway noise.   The home is in one of the best school districts -  Buford High School -is the rare combination of great academics and sports with a brand new high school being finished construction for 2019.   It's a public high school but people want to send their kids to this school so badly, they pay EXTRA tuition to send their kids to this PUBLIC (non-magnet) high school.