All Forum Posts by: Brian Kloft

Just by doing a simple cap rate (capitalization rate) (what interest rate you are earning on the money if you own it free and clear) it would take a 6cap (6%) to get $10k a month and a 9 cap (9%) to get $15k / month. I don't know anywhere that you can get 9% without a lot of risk or a lot of work. You might be able to get 6% but I don't know LA market. Sorry for not having any better ideas, other than trying to grow your portfolio so that it get you where you want by buying a value ad and then adding the value. However hopefully my explanation of cap rates will be helpful to you.

From your answers that you say they are giving you I would say run away. It is fine if a property doesn't cash flow but if it doesn't they should say why that is fine and not give you some magical answer. If they are getting higher than comps then they should be able to tell you why, not just some hypothetical that their pm does some daily complex algorithm. I get higher rent than many others but I can tell you why I do. It sounds like they are telling you to trust them, but not willing to show you the details on why you should trust them but that it is their 'magical sauce' that makes things work. When people tell you that they are smarter than you and that you can't understand it and they won't take the time to walk you thru it line by line; you should not trust them. There are others that will be able to show you the numbers and explain why something works the way it does.

First unlike others here I don't think getting your owner draw in the following month is odd at all. That is the way my property management companies did and do it. My background is commercial real estate and that is a normal way of doing it there. It took explaining it to some residential clients at first but there are lots of benefits to it. 

As far as the book keeping on your end, just keep it simple. Since you are splitting up your property books, (your property manager doing part and you doing part) it will be a little messy and require adjustments at the end of the year. When you get your owner draw input it in the books at that time and don't worry about back dating it. Make sure to ask your accountant how they want you to input it. It shouldn't be input as income as it is not income, your property managers already input it as income so that would be counting it twice. It is an owner draw so that means it goes on the balance sheet and not the income sheet. Your accountant will need to merge the two reports together at the end of the year for taxes, thus you should check how they want it input, so that it takes them less time and thus costs you less money. There is a chance they will say just to send them the P&L from your property manager and the expenses that you also paid and completely ignore the rest of your books so it doesn't matter. 

Recording it in September or October will not make any difference on your trying to get a feel for your monthly cash flow, as long as you are consistent in the way you do it. If your owner draw coming in every month is $1000 and your mortgage going out is $700 and that goes on for 6 months, it doesn't matter if you show it in the prior month or this month; it will still show $1000 in and $700 out, thus you will be able to see and understand your cashflow. Hopefully this makes sense. BTW one of the benefits of the paid in arrears is the consistency. You should be getting your owner draw at the same time every month regardless of if your tenant paid 5 or 10 days late or not.  

 Yes I do.

@Cosette Trantow Sounds like you are getting some good info from some experienced people. I would talk to some of the referrals that Bob offered to send you. Start talking to contractors and property managers. Within a week you should know who you want to go with and if your current pm has not started communicating with you again then move on. If you know anyone in the area have them drive by the place and see if they can tell if any work has been done. This even could be an existing tenant that you have, if you know them at all. 

It looks like you live in Phoenix. I am in North Phoenix so if you want to meet up to discuss things or something, please feel free to reach out. I have been doing pm for more than 20 years. Although I know next to nothing about Ohio, which is where it looks like your properties are located. 

@Michael Gonda It sounds like we were/are in a very similar position to you. We sold our business back in 2010 and put all of that money into buying houses. We then stopped buying and worked more part time and lived off of our rental house income as it was all free and clear. A few years ago we decided that we needed to, and should have sooner, grow. We sold some of the houses and 1031'd them into small muti unit (2-5 unit) properties. These properties had good value add options as they were all ugly and still looked like the 70's inside. Like you, we fix up our units to be very nice inside to get the better tenants. Even with the properties having a low cap rate they still immediately were generating a higher income than we were getting from the single family rentals, plus once we renovated the units it was even better. The first one we did 3 years ago was a triplex and it is now generating 3 times the income that the house was. It was a straight swap $ for $. We are currently looking to expand again and are planning to tap into that equity that we have (similar to your equity ratio it sounds like) and buy some more small multi family properties as we find them. We want to keep our portfolio loan to value ratio small as we also like the safety of it. You could also sell some of the houses and do 1031 exchanges into multi tenant properties. If you found a larger property, say a 20-30 unit property, you could sell multiple houses and 1031 them into it or do a mix of houses and a loan. The beauty of the houses for a multi tenant property is that often the numbers do not have to be great on what you are buying, but you will still see a bump in income. I will send you a pm so that we can chat in more detail about what we are doing and actual numbers. 

@Scott Trench I will say that on the pod casts, over the last year, I have seen a shift to a more conservative approach to investing from the refi to the max all the time and keep buying. I have heard several guests on the podcast that are more in the line of Coach Carson that was recently on. (I remember his name more than the other guests because I already was listening to his podcast as well.) From my point of view, as an investor that prefers lower leverage and not needing to have 1000 properties, it has been nice to hear that compared to what used to be a steady diet of keep BRRRRing and never stop. Now here on the forum it is a different story. While with the show you have control, on the forums you don't really have control over what the members say. On the forums I have met others that have low LTV, but there are not as many of them; plus those that like to keep everything highly leveraged are much louder. When I have injected my ideas of lower leverage to those that are worried about high leverage, I have had a number of people insisting and trying to convince me that being leveraged at 80+% on all of their properties is less risky than my having a lot of my properties paid off. That is some of what you are fighting against to change perceptions. (I understand that I am in a different phase of my investing journey where I can be safer and younger newer investors will be doing much higher LTV and trying to grow their empire.) The sheer volume of those on the forums that talk about high leverage dwarfs those that talk about low LTV. However that is also just natural in that more active members are going to be those younger investors that are in the high leverage growth phase and are asking questions and seeking help because they are new at it, vs many of the investors that have already built their larger portfolio and have consolidated it, now have low leverage and are just enjoying the fruits of their labor don't come on as much other than to help others since they don't need to ask questions as much.

 Sending you a pm to talk more about loans.

@Shelly Glennon  It is not unusual for large corporate tenants to have agents do their lease renewals and get pad a commission for it. Often Landlords pay their property managers, or their own leasing agents, a lease renewal fee to negotiate the the renewals with tenants. To you the commission may largely be about finding a tenant, but to the tenant they want an expert to make sure that they are getting the right terms and rate that they should be paying and not overpaying for a space.  I am not sure what commission rates are in your area for your type of building. If you don't like the amount they are asking to get paid you can negotiate it as well. Say for example the standard commission for a new tenant is 6% with half going to your agent and half the tenants agent then that would be 3% going to the tenant agent. You can always tell them that you only pay renewal commissions at 1/2 the new tenant rate so you will only pay them 1.5%. 

Remember you can tell them yes, no or half rate but in the end it comes down to a numbers game. How much are you willing to risk or are you willing to lose a tenant over that commission amount? How long will the space sit vacant if they leave before you find a new tenant? How much in TI work are you going to have to pay for a new tenant to move in? How many months of free rent are you going to have to give a new tenant moving in? What are the odds that you will get a new tenant as stable and long term as this tenant is? All negotiations is a form of playing chicken in who will blink first and who is willing to walk away. 

 Yup, I know I am not the typical person in my approach, but I would like to see more people consider this which is part of why I say it. People mostly hear the high leverage people so that is the only idea they know and I want them to hear an alternate idea. You are starting to hear the more conservative approach more often with the current economic conditions.