All Forum Posts by: Brandon Hartman

I guess "scare" isn't really the best word, more that it "worries" me.  Patience and time could absolutely mitigate that worry because I could get in at a lower price when the market falls over time. I have the discipline to stick to my strict criteria, however, I also have very detailed goals and landmarks/times for hitting those goals that I want to meet.  I am "worried" that I won't be able to find deals that are good enough to meet my strict criteria frequently enough to stay on pace for my 5 year plan.  

Also, another reason is it is one thing that is out of my control...I can't force a buyer to accept 80% of market value. I can work hard enough to and try enough properties to offer on and hopefully a seller with accept, but I can never force it to happen.

If I can achieve my criteria for purchasing on the schedule I have set, I have zero things that  truly scare or worry me (i.e. I don't see anything that I can't react to or work out a solution to, if necessary, as it arises).  I don't expect everything to go perfectly, but I am confident that I can adjust, react, and develop a solution in the best possible way.

For me it's not being able to find a deal on a duplex in the market I want (downtown area) for 80% of market value that cash flows $200/door. 

In terms of analyzing the deal sufficiently I have no worries, it's just a matter of finding a way to find a good deal on a property in such a "hot market". 

$200-300 a door is considering to be pretty strong by most, some will go down to $100, and obviously some will hit a homerun and get higher cashflow.  You must also consider that you are paying the mortgage off (with the tenants rent each month), so it's not like you are only paying the down payment back with the positive cashflow you're receiving...you are gaining equity each month too, and optimally a some appreciation on the property each year.

Take a look through this http://www.biggerpockets.com/real-estate-investing/financing and run the numbers to see what your returns would be. Compare them to other investment avenues and make a decision on if REI is right for you or not.

Welcome!  I was born in raised in Canton (just a bit south of Akron), now living in Columbus.  I hear Cleveland is a pretty solid market right now, enjoy!

@Mike H.

 Makes perfect sense, man.  Partnering to learn the ropes on the first commercial deal is a great call.  I appreciate the response, and good luck with the continued growth!

@Mike H.

Great posts in this thread, very informative.  

In regards to your (paraphrased) "There is no way I would quit my job and receive income solely from Real Estate" thoughts, at some point in your growth couldn't you just 1031 exchange all of your properties to cover the 25% down payment on a large commercial property -- say, a 75 unit commercial property cash flowing $200 a door? You would cash flow $180K annually on that. On a $3M commercial investment, you would only need $750K to cover a 25% down payment by pulling the equity out of your 41 houses on sale with a 1031...many of these properties would presumably have appreciated decently since purchase, given the length you've held them for and paid the mortgage down. Additionally you could realize any of the forced appreciation you've been able to create through renovations/improvements as well as any appreciation gained at purchase by receiving a discount against market.  

This is not meant to be a prying question here.  I assume your answer will be a simple "That's not the business model I want to have" which I 100% respect and understand.  If that is the case, I guess I am just looking to spot check that my understanding of the proposed theoretical is accurate and feasible?

Great advice, Spencer!  Thanks for posting.

@Bill Exeter, thanks for the helpful response! This all makes sense now and I believe that we will be avoiding a LLC until we are scaled up enough to warrant it (and we will be sure to cover this with our tax team prior to ever making any moves).

All of the information from this thread will be great knowledge for me to have going into the discussions with our CPA and attorney on how to structure our business.

@Jesse T.

That is a great point. We were originally looking to size up after year 3 (i.e. after 2 years of holding the two FHA properties) but you make a great point that we may be better served to stay patient and continue holding them. We do intend to make significant renovations inside of the properties while occupying them since we plan to purchase discounted duplexes in the nicer area of downtown and can command higher future rents/appraisal with high quality finishes (how much we update will depend on the point of diminishing returns in terms of rent and property valuation). I think our decision will really come down to which scenarios numbers make the most sense -- as it is currently written in our goal statement, we would sell and size up, but that could very well change if the numbers say we are better off holding the properties for a few additional years. If we do hold there is always the opportunity to cash out refi it to pull some cash out for expansion in the acquisition of other properties. Lots of variables in play here.

When we move out of those first two FHA properties, regardless of if we continue to hold or we sell, we intend to do it once again with two new properties for two additional years. Our end goal is to be able to 1031 exchange all of our existing holdings and acquire a commercial property after year 5 (we would only be through one year in the new FHA properties, so they will not be exchanged)....but as I said above, that could change depending on a number of different things.

@Matt Devincenzo

Correct, I was referencing only conventional financing with all of my questions (I want to avoid commercial financing for as long as possible in our growth strategy). Thanks for the answer.