All Forum Posts by: Brett Mach

I started working with Rachel Horvath, and her startup Maxwell Accounting. Don't think she personally invests in RE, but seems to have a lot of experience with investor clients for years at a larger firm. She quoted a very reasonable flat fee for all my taxes this year, and I also hired her for a couple hours to consult on LLC formation and lots of REI tax questions. She's very knowledgeable. Based in Brookside, I think.

I'm learning a lot from your answers to your own question, @Shiloh Lundahl! Sounds like the seller credit technique to keep purchase close to market value can be good idea, though keeping taxes on radar is good point. I just completed my first (partial) BRRR and appraised $5k over my projected ARV, so am a newbie here...

Minor interpersonal tip, but a piece of advice I heard online that maybe(?) worked for me, was to intentionally listen and posture myself as newbie "learner" when walking through w appraiser (I also sent him a renovation binder w expenses, details, and a few of the more dramatic before/after pics). 

That posture's probably not for a 200+ property veteran like you, but the appraiser seemed to get a kick out of being the expert (he was an older ex-builder), and spent waaaaay more time than necessary just downloading all his tips and wisdom to "help" me out. I suppose this could back-fire and he could think I have no idea what I'm doing, but seemed like another good way to leave a good impression. Appraisers are people, and you want them to leave with a good feeling about you and your property with nothing annoying or confrontational, right?

I will also always ask at the outset if they "want space," or initially apologize for hovering over their shoulder. Take a cue from their response: if they seem to like having you around, they may be like my guy, and want to just talk forever and be an expert "tour guide" as they work. If they hesitate, maybe it's better to get busy with other things in other rooms and let them do their thing.

@David M.Yes, that's all good perspective to remember. Your vocabulary of worker vs investor makes sense. I guess it's all dependent on the deal and specifics. While I recognize the investor is taking more up-front risk, it would also be true that the distribution of value evens out, and tips the other direction over time (right?). If the deal falls apart earlier in the life of the investment, yes, the capital investor stands to lose much more (and yes--the financial scale of deal matters, as you indicate too).

I'm assuming that the "worker" probably has a little financial contribution for skin in the game (say, 5k of a 50k down payment), is also sourcing the deal, swinging the hammer, and listing/property managing for as long as the property is held. If it's a long-term buy-and-hold, there comes a point when the worker adds more value to the deal than most of the initial down-payment.

I'm not trying to defend a blanket 50-50 assumption on most deals. Especially w first few deals, the sweat-equity partner may only contribute 30% of value, so 30-70 is the arrangement, especially if it's a short-term JV...I think we hear the 50-50 talk from established investors who have built a long-term relationship w investor-partners.

Yes, we could get into the minutiae of tracking the dollar-value the "worker" brings to the table over time, which I guess is the spirit of the "mini-mortgage" approach: Estimate the value of their sourced-deal if wholesaled; set an hourly wage for office-work/time spent renovating; charge a leasing fee for tenant placement and 10% of rent or whatever each month for PM moving forward... 

That's doable, BUT it can get tricky fast: in a situation like a refinance-step of a BRRRR, the equity is depleted as part of larger plan led by the "worker"--yes, it may not appraise well--there are risks--but, if successful, the harder-to-calculate value contributed by the worker suddenly yields a large downpayment for the next property. And, of course, there wouldn't be the knowledge or investment without the worker in the first place, so people are always wanting to assign value to these less calculable items (like you, the investor, wants to assign value to the less calculable risks involved).

At some point w complicating factors, and without degrees in actuarial science, most of us throw up our hands and decide it's easier to just split 50-50, 60-40, or whatever, assuming both parties are educated and comfortable with the risks and values over the life of the investment.

I think the difference in the two approaches is that the one you describe is a capital investor who is not much more than a private lender (functions for JVs and flips more clearly), vs a capital investor who is an involved and long-term member-partner in establishing a portfolio together with the worker (managing partner) within an LLC for the life of a long-term investment (or two or three...).

I know we're rehashing an ongoing discussion (I mean it, David M.: yours is a really good reminder), but does anybody also have any experience doing this "mini-mortgage" scheme that Avery Carl depicts as relatively common? 

Reading Avery Carl's recent STR book and came across a partnership structure I'd like to hear more about in ch. 3, if anyone has details or experience. It could be for any strategy--not just STR...

There's a money partner and sweat-equity partner (I'd say "managing" partner in LLC lingo): the money partner initially collects all profits in a scheme where the sweat-equity partner works off his or her half of the initial downpayment in what Carl calls a "mini-mortgage." Her term might be a little confusing, but it's functional enough (coin something better, anyone?). Once the sweat-equity pays off their half, they split cash-flow, profits, 50/50 like normal.

I have mostly seen much simpler info where both are equity partners from the jump--maybe 40/60, 50/50, or whatever they think is fair in terms of value brought to the partnership. Is this structure as common as she makes it out to be? 

At a glance, it skews as a better deal for the money partner, because once the sweat-equity has "paid off" their half, they are (likely) continuing some level of management responsibilities that the money partner isn't worried about. Perhaps it's fair, just because the money-partner made the deal happen in the first place, or there's some other factor that I'm missing.

I know there are a zillion posts about partnership structure and the details...yes, I know "whatever you and your partner decide between you" is true. But as I create a multi-member LLC, I'm wondering if I should use (or feel some obligation to consider) this "mini-mortgage" strategy as the sweat equity partner.

Thanks for your thoughts!

A month ago, I hunted and compared Lowe's, HD, and Menard's for LVP. Lowe's was actually the best bet for the cheaper (still great!) LVP, and had four options w plenty in-stock, then several more to order. Menard's didn't carry the product I think you're referring to. This is the click-plank foam-backed LVP--not peel-stick (I do HD, for that, just bc I'm there a lot more)

I think HD is always trying to funnel you into the higher-end stuff when it comes to vinyl flooring. 

W/a few exceptions, I agree w @Joe Splitrock : Lowe's is over-priced and under-stocked. LVP is apparently an exception.

Lumber Liquidators may be an option--haven't ordered from them in years, but if you've got a smaller footprint, or just a few rooms, you can probably get everything you need same-day at Lowe's.  

Thanks to both of you for the assurance and perspective. All makes sense--I really appreciate it! My realtor will feel vindicated too:)

I will be more open to KCMO, look into the licensing, and not rule it out in the future.  

@Andrew Syrios 

I'm only one property in, but believe buy-and-hold will always be the way to go (I've been listening to your dad on podcasts). Concerns on LTR, however, are real, but I don't see them as apocalyptic. 

I've been asking a few people to get a feel for this around Kansas City, as KCMO is certainly increasingly tenant friendly. Here's the dilemma: there are PLENTY of other municipalities in KC metro to shop, and so far, my strategy is to avoid KCMO proper (it's always been tenant friendly since I started following a decade ago, but created a whole new dept in the wake of affordability crisis-- see this press release from earlier this year). I figure there will always be more red tape down the road w KCMO properties, so I should stay in other burbs. But my realtor and some other friends think I'm undercutting access to deals because if I would just analyze KCMO properties (focusing north of river), numbers are so much better, and I could scale more quickly. 

It seems like the mom and pops who I know don't think twice about purchasing KCMO addresses, and threat of regulation from City Hall isn't on their radar--they'll probably be just fine. I would be surprised if City Hall even knows about the existence of many mom and pops' w tiny portfolios--and I certainly think they'd enforce any license requirements, etc, w bigger shops like Stewardship anyway, if at all. Wondering if you've run into any compliance hurdles... 

And wasn't City Hall (and many state/non-profit agencies, and REIAs) focusing on connecting people to CARES money in order to pay their landlords? Not all tenant advocacy is anti-landlord by default. Seems like, as said above, the point is to screen super carefully, or go for Section 8 compliance--either way, I think LTR, even in a place like KCMO could be navigable and profitable for decades...right?

I'm under contract on my first property in Smithville, north of KC. I'm an investor newbie for sure, but lived in several corners of the metro my whole life. I really see the Northland (MO side) as having the most long-term potential for the sort of B class buy-and-holds that I would love to invest in long-term.

Sounds like the JoCo/Jackson County analysis makes sense-- 

@LeeRipma I love that "Johnson County is the California of KC." ...which does mean flip-town, or CA long term appreciation strategies make sense. There are some older pockets of Shawnee (where I grew up) and Merriam that could have some off-market potential for those willing to do the work of finding them, or gut-job BRRRs or something (some of the oldest parts of JoCo still have 1920s/30s bungalows, and there's plenty of distressed post-war homes throughout the country--though less outside the untouchable Prairie Village-Leawood-OP gold coast that are retail tear-downs). But I'm focusing on the MO side, particularly north of the river in Platte and Clay counties. 

@Neel P. I'm interested in knowing more about what makes MO more favorable (I can see that maybe the unified govt. of KCK/Wyandotte County is not landlord friendly, but not sure about whole KS side. Does anyone have any insight on whether the new KCMO Department of Housing should be an increasing consideration for properties in KCMO itself? They've been increasingly pro-tenant, for years (I interned at City Hall years ago when they mapped out what has morphed into tenant-landlord university). This spring, they created a whole new department (pretty big deal) for housing--esp. affordable housing and tenant advocacy. Not sure if they will focus energies on fighting slum-lords (good thing), or casting wider nets, but I'm sure there will be some more red tape within the municipality itself. 

@Joe Doran Even if you were to look beyond KCMO itself to avoid red tape on the first few deals, there is such a wide patchwork of municipalities (just north of the river, say), and in eastern Jackson Co, south toward Belton, Raymore, Peculiar, and on and on... Not sure what part of town you're based in, but I feel like you could find pockets of potential and models that work in many directions.  

@Lauren Kormylo Thanks so much for that article. It does look pretty foreboding. I should read around some more, but it seems like those huge rate hikes will be for the NFIP (govt. program), and not w private insurers. I've shopped around, and while nothing's pretty, there are a few viable prices for private flood insurance companies. They are staying solvent somehow, and while there is absolutely nothing to guarantee that they won't see commensurate increases, I don't think that it's going to be a deal breaker in my case. I am planning for rates to increase incrementally over time, though I admit a 2-yr. 3-fold increase would reduce my cash flow by a lot, which would be too bad (still positive, though). 

Not sure what sorts of possibilities there are in FL--seems like a whole new world, and I would get some feedback from several insurance professionals--seems like BP network could at least get you started before you totally rule it all out. You could also narrow your filter to properties that are elevated, or have FEMA approved mitigation measures (flood vents; filled-in basements, etc), which can all decrease premiums w some private carriers, it seems.

Thanks for all the input! I thin it really just has to be a personal-risk calculation. To follow up, we went ahead with everything and are now under contract (excited!). I guess the verdict will be out until the next flood... 

Talking to my lender, she said that she has done mortgages on tons of floodplain homes (many older parts of the small towns along Missouri River here NW of Kansas City). She was pretty confident that most appraisers will only use flood plain comps--that is, factor the flood plain at all--if half the town, and most available comps, are also flood plain (makes no-duh sense w comp-method of appraisal, now that I think of it). She thought it shouldn't really be part of the appraisal, which would be great--ie. FP brought the price within my reach, but most of the comps in my area aren't in floodplains, and so prices will be higher. 

If anyone has a different take on the appraisal factor, let me know. I think I've got a pretty reachable ARV determined even if it appraises a little lower because of FP.

Thanks again!