All Forum Posts by: Brian Kantor

Hi, @Brandon DiOrio. As with most questions in this space, the answer is "it depends". There is no silver bullet solution and yes, @Taylor L. is right in that all of the info you need is readily available online for free.

The issue with the free info online is that it is not necessarily organized in a strategic way and as a newbie, you may not know where to begin. In addition, you'll find may equally valid competing strategies and you'll struggle with the question of which strategy is right for you. This can lead to analysis paralysis and a failure to even start or make any real progress.

The upside of a course is that it's structured, concise and can keep you more motivated.

I now have 4x rental units, and I started with Paula Pant's "Your First Rental Property" course. I found it extremely helpful and am not sure I would have bought that first property without it. Would definitely recommend at least looking into it, and found the ~$1k tuition more than fair.

With that said, to most people who ask me how to start, I typically suggest they begin by reading 2 Bigger Pockets books in this order: "The Book on Rental Property Investing" by Brandon Turner and then "Long Distance Real Estate Investing" by David Greene. Those two books alone should get you moving in the right direction and for ~$30 total between them. After your done, if you feel like you need a little more structure, try the Paula Pant course.

Good luck!

I agree with @Chris Seveney. Find out all of the details about what you'll need to fork over for this place above and beyond renovations.

As far as the foundation repair itself, just like any other repair or renovation, there's a wide range in the cost to address. Contractors and specialists vary in rate by market, so the same job in Idaho will likely be very different than in San Francisco. You'll want to get at least 3 if not closer to 10 estimates from different specialists on how to address the issue and the cost implications for doing so. You'll likely get quotes that are all over the map with some vendors telling you it NEEDS X, Y and Z, while others tell you it only needs X.

I had a cracked foundation in a Detroit property and got quotes from $5k up to $30k with some saying that the entire wall needed to be replaced and others saying that it simply needed drainage and reinforcement. I ended up going with one of the cheaper options when two specialists said that all the other stuff I was getting suggested by some was a waste of money.

The more estimates you get, the clearer of a picture you'll get on what work is essential and what work isn't. Many vendors will say you NEED to pay for things that in actuality aren't necessary. All of this will come into view once you speak with multiple vendors.

Good luck!

Really appreciate the help, everyone! Thank you.

Hi, there. Some partners and I are looking to acquire a run-down motel, renovate it and repurpose as more of a modern lodging experience.

For context, my background to date has been in buy/hold SFHs and a duplex STR.

When looking into legal entity structure, we came across SPVs/SPEs, which I was surprised not to have heard much about in the past here or in any of the books I've read.

Would love to hear some cons for this type of structure. The pros seem obvious—asset protection for the LLC member owners—but what's the catch? Does this only work in syndications (aka, does a property/investment need to go through SEC regs for this to work)? Do commercial lenders look at these more skeptically than a traditional LLC entity because it's harder for them to go after owner assets in the case of default?

Any stipulations, guidelines or red-flags?

Many thanks!

-Brian

Hey, James. I've split my 4 unit portfolio between 2 low-income long-term rentals in Detroit and 2 high-en STRs in Vermont.

All in all, I have been happy with my 2x long-terms in Detroit, but the headaches are real and definitely eat into your cashflow. The key thing to consider is that your projected returns in your pro forma are always going to be too high for low-income, so while it seems like you're getting great returns for low cost to acquire, they never net out so well because of high repairs and maintenance and lost rent.

In one property, I bought it vacant and put brand new builder-grade everything in it. This place was by no means fancy, but was on the nicer-end of what most tenants are used to in the area. I was able to get a Section 8 tenant in there who has never missed her portion of the rent, but once a month, my PM has to go in there to repair something for at least $85. Things are always breaking there because she and her family are just harder on the house than a B-Class tenant would be. I put a brand new range/oven in there right before she moved in, and I walked the property 10 months into her lease. The oven door was split down the middle like she peeled the outer door away from the inner door. How does that even happen? I had to replace it because it's a safety hazard, and she agreed to pay for it incrementally over time, but it's going to take me 3 years to recoup that cost. A fugitive ran through her backyard and while nothing happened, she asked for a flood light to be installed; a reasonable request, which I did at ~$300. The rent at the time of both of these was $850, so all in, those two things were well over 1 month's rent.

My other Detroit property, my tenant just stopped paying and stopped returning calls and messages from the PM. We took her to court and she didnt show up. The case got postponed by the judge for 3 months. Then one day, she just up-and-left in the dead of night without a word. The ironic part was that she would have qualified for Section 8 and we would have done all the paperwork for her, but nope, she'd rather just not pay anything and not get the State to cover it for her. I lost 8 months of rent before she left. Now I am renovating for 7 weeks. I will have ultimately lost about 10 months of rent with little recourse.

Net-net, these properties have appreciated a ton and when my new tenant is in, I will be grossing $2250/month total for the two, but dang. Not a day goes by I dont wonder if I'd prefer half the net income for friendly nice tenants that pay on time, and dont rip the oven door like a tin of sardines...

Thanks, Jack! Will do.

Thanks so much @H. Jack Miller. Super helpful! Does this mean that we would need to register as a 506(b)? Or is there a workaround if we are only going after F&F?

Thanks again!

Thanks, @H. Jack Miller! Can you confirm how that would work? Are you saying that they'd get a guaranteed straight 6% return of their invested capital annually regardless of the profitability of the project plus a pro-rata piece of 30% of the actual profits?

Forgive me as I am the opposite of a finance wiz. 

Hi there. We're about to make an offer on a property and I have some questions about a good way to compensate equity partners and also any sort of legal/financial issues around the idea.

Long story short, we're about to put an offer in on a commercial property that's about $500k + $500k needed in renovations. With a 75% LTV commercial loan, we'd roughly need to come up with about $250k down. My wife and I would look to put in about $125k of our own capital and raise the other $125k from Friends and Family.

Question 1:

Our underwriting has the property taking a small loss in 2022, generating about $100k in cash-flow in 2023 and then building up nicely over time. By 2032, we're looking at around $600k in cash-flow. (That's reflective of additional renovations we'd execute over time.) Our thought is to offer our friends and family investors somewhere between 0.5% to 1% equity ownership for every $10k they invest (and giving them between 6.25% and 12.5% in aggregate). At $100k in cash-flow in 2023, that's between a 5% and 10% cash-on-cash return for investors, that scales up to about a 30% to 60% annual COC return in 2032 and even more from there.

Question—Is that a fair deal for both us and them?

Question 2:  Keeping in mind that this is friends and family and not investors outside our our first-degree contacts, what sort of financial and legal issues do we need to keep in mind, if any? Do we need to treat this like a syndication? Or can we just package in their capital with ours to fund the down payment and draft an agreement with an attorney that outlines roles, rules and returns?

Really appreciate the kind words, @Sean Bramble. And we'll actually be in Santa Fe later this year, but with a group and already booked an Airbnb. I really like their vibe, though, and would definitely consider on a future trip.

@Nikki Yankowski 100%. First, it's worth noting that this motel is in a vacation destination and not a city or thoroughfare, so less of a place for illicit rendezvous than if in a different area. With that said, we would totally rebrand. "Motel" would be be in the name or anywhere. We'd position as "Modern Boutique Lodging", lean more into the suites than the rooms, and position as more of a destination than just a place to sleep with on-premise activities and a build-out of the bar/restaurant. Over time, if we're able to build A-Frame tiny homes on the property, we think that would add to it as well.

More to come. We just went through a second time with our contractor and hope to make an offer next week.