All Forum Posts by: Bradley Chiakas

Originally posted by @Chris Mason:

Originally posted by @Bradley Chiakas:

Originally posted by @Chris Mason:

Originally posted by @Bradley Chiakas:

@Chris Mason - Good advice. I'm in a similar situation.

-Property Value $275k -Remaining Mortgage $130k -15 yr/ 3% interest rate -Rent $2375 -Cash Flow $50/month

Problem is, I tried to work with my mortgage lender to work out a re-fi and pull equity out. However since I only have passive income he could not get me qualified due to no W2 income.

If i re-fied to a 30 yr and bought another property, my cash flow would increase by $1,000/month.

Not sure what to do though since rates have increased and I can't get approved. Whats your opinion?

Hi Bradley,

 There's no rule saying that "passive income doesn't count." About a year ago I helped a woman buy a home based solely on alimony and child support (before anyone tears my head off, please familiarize yourself with the the Equal Credit Opportunity Act).

You didn't say what form of passive income you had, but this may be useful to you: Other Source of Income (7/25/2017). This topic provides information on documenting and qualifying a borrower's income from including: [long list follows].

Honey goes farther than salt, so please don't go calling up lenders screaming about the ECOA thing linked above, but take a look and see if it might be worth doing a little more "dialing for dollars" to find a lender local to where the real estate is that's open to non-canonical income sources. 

 Awesome info! I had no idea there are government guidelines. I have $122k of annual passive income. However, I am extrenely thorough in my expense tracking, and also take depreciation, etc. I end up offsetting nearly all of my tax liability with deductions. Therefore, my "qualifying" income is nearly $0. My next step is to speak to local lenders. I have done some research online, and its seems a bit sketchy for some of local reviews for smaller lenders. 

 No way to know if this is applicable to you without seeing your tax returns, but depending on how badly you are shorting Uncle Sam of his cut (& in which specific ways you are doing it on the tax paperwork), it's also true that, to quote myself, "you've often got to be right with Uncle Sam before Aunt Fannie Mae is going to lend you any of her cheap money."

 I'm not shorting Uncle Sam at all. I am following the tax code and the way it is written. Some examples, I own about $900k in assets, and depreciation alone allows me to deduct over $30k.  Also, there is a foreign income exclusion act that allows any international income to be tax free up to about $100k (2016 figure).  

I don't think I'll take the approach of giving away money to the government so that big banks can lend me money.  I'll stick with my low rates and follow Dave Ramsey's advice. 

Originally posted by @Chris Mason:

Originally posted by @Bradley Chiakas:

@Chris Mason - Good advice. I'm in a similar situation.

-Property Value $275k -Remaining Mortgage $130k -15 yr/ 3% interest rate -Rent $2375 -Cash Flow $50/month

Problem is, I tried to work with my mortgage lender to work out a re-fi and pull equity out. However since I only have passive income he could not get me qualified due to no W2 income.

If i re-fied to a 30 yr and bought another property, my cash flow would increase by $1,000/month.

Not sure what to do though since rates have increased and I can't get approved. Whats your opinion?

Hi Bradley,

 There's no rule saying that "passive income doesn't count." About a year ago I helped a woman buy a home based solely on alimony and child support (before anyone tears my head off, please familiarize yourself with the the Equal Credit Opportunity Act).

You didn't say what form of passive income you had, but this may be useful to you: Other Source of Income (7/25/2017). This topic provides information on documenting and qualifying a borrower's income from including: [long list follows].

Honey goes farther than salt, so please don't go calling up lenders screaming about the ECOA thing linked above, but take a look and see if it might be worth doing a little more "dialing for dollars" to find a lender local to where the real estate is that's open to non-canonical income sources. 

 Awesome info! I had no idea there are government guidelines. I have $122k of annual passive income. However, I am extrenely thorough in my expense tracking, and also take depreciation, etc. I end up offsetting nearly all of my tax liability with deductions. Therefore, my "qualifying" income is nearly $0. My next step is to speak to local lenders. I have done some research online, and its seems a bit sketchy for some of local reviews for smaller lenders. 

@Chris Mason - Good advice. I'm in a similar situation. -Property Value $275k -Remaining Mortgage $130k -15 yr/ 3% interest rate -Rent $2375 -Cash Flow $50/month Problem is, I tried to work with my mortgage lender to work out a re-fi and pull equity out. However since I only have passive income he could not get me qualified due to no W2 income. If i re-fied to a 30 yr and bought another property, my cash flow would increase by $1,000/month. Not sure what to do though since rates have increased and I can't get approved. Whats your opinion?

Originally posted by @Michael Rutkowski:

1. 30% commission in my market. 15% just to schedule cleaning and basic customer service. Charge for each service call. Set your own rates.

2. In my state, you do not need a PM license for STR's, unless the rental contract extends longer than 30 days and you are managing 4 or more units... As for insurance, the BEST thing to do for your properties is to pass that cost on to your owners, and a 3 bed home will run about $1k/yr from CBIZ. For your own business, of course you will need insurance. To add to what Jason said, I would make sure some of your employees are bondable if you have any high end property/art/vehicles laying around.

3. Get  RE license. It's expensive to maintain, but many property management companies are started by Realtors.

4. If you're going to switch it up, are you going to store the furniture, or rent it out furnished? Once I went STR, I never turned back, but I couldn't imagine it being difficult to switch again like tomorrow...

Great responses. Thanks!

 1. Do you mean to say you pay your help 30% of any lease agreement/tenant turnover? And 15% additional if the help needs to make a service call?

2. I will get a RE license once I have an owner/investor interested in LTR. If I end up only managing STR, then I suppose it would be a waste to keep that up to date.

3. You make a good point, If I'm unable to build a client base with website, RE meetups, door knocking. Then I'll need to pick up a real estate license and offer brokerage as well. I'm not a huge fan of using a realtor to buy property actually. The last two condo's I bought were seller direct with Title Company.

4. When I left Houston to startup a PR business in Playa Del Carmen we used a large closet in the master bedroom to store most of our things. Changed the lock so the STR don't have access. We're renting in PDC, all units come fully furnished since it is a vacation oriented city. And when we make a move to Chi, we'll just close off part of one of our condo's and store our things inside.

Originally posted by @Jason Bott:

@Bradley Chiakas example;  PM sends someone over to fix something/anything, and the employee/handyman of the PM causes damage to the property, neighbors property or tenant.  Those parties can brign suit to you and the owner for damages.

 Thank you for clarifying.  Do you have any experience in this?  Does the tenant/neighbor win, and who is typically found liable for damages?  Example, 80% owner, 20% PM company? Does the PM split the cost of the insurance with the owner?  Or does the owner need to carry separate insurance?

Originally posted by @Jason Bott:

@Bradley Chiakas General Liability would protect you and your client against claims of property damage and /or Bodily injury.

Any claim involving a worker's injury would be handled by the workers comp policy.

Why would a PM company carry insurance for property damage or bodily injury by a tenant?  Shouldn't the owner carry that?  If a tenant sues, is the PM company or owner liable?  

Originally posted by @Jason Bott:

@Bradley Chiakas Regarding the insurance, an established PM company typically has,

General Liability of $1M. 

Work Comp

Errors and Omissions

Auto coverage for Hired and Non owned vehicles if the PM does not have any vehicles titled in it's name

There are several other coverage's you may choose to take, but the top 4 are the main ones.

As you grow, you will usually pick these coverage's up as needed.  Starting with the GL.

Good luck 

 Thanks Jason. What is the liability insurance for? If an employee is injured while performing maintenance? Or a tenant?

I created a real estate LLC a few years back. I am financially independent (still creating wealth and living purely with passive income). I am managing 6 properties currently, 4 of my own. 4 in Playa Del Carmen, Mexico, and 2 in Houston.

It has been a dream of mine for a while to move back to Chicago where I grew up. I now have some experience managing property, an LLC, company logo, and soon a website. I have a few questions about starting up a property management company. My ultimate goal is to create 8-10k worth of income and provide work for a couple of close family friends that are soon to graduate school.

My plan is to create the website, google ad words, rent a place in Chicago and get an owner base underneath me.  I'd like to have two rental markets with a couple employees in each and have the flexibility to work from either. I will also be advertising property management services in Playa through said website. 

I know this is a massive undertaking and I have a ton of work in front of me.  My wife has volunteered to stay in Playa while I do this to ensure the quality of our vacation rental service business does not suffer while I startup in Chicago. 

Before I do anything of the above, I am putting together a business plan.  And I would appreciate general advice from experienced PM professionals and also have the following questions:

1. How should I structure compensation for interested parties?  I listened to Podcast 30 something and heard a commission based structure based on each unit rented out.  Anyone know how that would work?  For example, say we screen and place a tenant in a condo that rents for $3k/month and 1 month cost to place a tenant. How much commission would said employee get?

2. Are there any regulations of certifications that need to be taken to be legal?  Does the company need insurance?  I don't foresee growing past maybe 80 or 90 properties, as I still value time.

3. How long does it typically take to get to 5 owners, 10, 20+? I plan on attending every real estate meetup I can, marketing online, and doing everything possible to grow. Any advice on how to increase the rate of meeting owners?

4. What sets my wife and I apart is that we are able to maximize operating efficiency and income with short term rental properties.  While I manage 1 long term rental. My "wheelhouse"  is in short term rentals.  We are able to remotely run a 3 bedroom town home in Houston, with little stress. That of course largely depends on the team we have helping us with maintenance, cleaning, laundry, etc. Do I market both short term, and long term rental services? It's a little more difficult although possible in Playa Del Carmen to remotely manage. 

Thank you for your expertise all!

"Whens the best time to sell an investment? Never." -Warren Buffet. Have you considered speaking to a bank and removing equity to continue expansion? The others are correct in that you have lost opportinity holding the equity in the property. However, if you sell the property you will no longer have a 680k asset that will continue to produce income and appreciation.

I primarily look at cap rates when evaluating property so my answer will be biased. 3.3% is quite low. Seems like the rental demand is not there in your area. Maybe look into some underlying factors there? I dont touch anything below 8%. As others have said, it could take a mental toll after time that you'll be managing a property with negative cash flow. Also, many ETFs will give you 8% adjusted for inflation. I admire your analysis and considerations, but would walk away. You will know when you find the property and you'll be excited to make an offer. If you're hesitant now, whats going to happen in 6 months when you have a large maintenance or repair cost? Either way, good luck.