All Forum Posts by: Brian Wilson

@Kenny Tran Do some research on the benefits of an LLC or S-Corp holding your properties. Many investors don't utilize these strategies until they get a little larger (due to cost), many just prefer umbrella insurance to protect themselves. That being said, your dad likely has several investors in your local market that he works with, I'd talk to him about connecting you with 1 or 2 of the ones he likes working with and are in the direction you want to go. Then, they can provide you with some feedback and maybe even an attorney to consult in your local area should you need one.

Best of luck!

Seller financed doesn't mean there isn't a mortgage in place at all. This is where strategies like "subject to" come in. You can write up a land contract and assume responsibility of the existing mortgage obligation, then you would have the seller cut a note for whatever the balance is of the agreed upon purchase price. It in theory could be "100% seller financed" or a small down payment on your end. Ultimately there are risks for both you and the seller with sub2 deal structures so do some research before pursuing this strategy.

Quote from @V.G Jason:

Quote from @Brian Wilson:

I think we are seeing a clash of investing philosophy. While I don't currently invest solely for growth in RE, I do only invest in strong markets that hit my CF goals but also have stronger economies (MCOL to HCOL markets) this results in better appreciation over the long term. Fully paid off properties carry risk. Leverage carries risk. Running a risk profile on an investment is an important skill especially if you plan to invest in this manner long term. Many RE investors write off RE debt as carrying no risk but it is 100% a risk and should be evaluated (many deals wouldn't be deals without it; making them too risky for me).

Joe's approach is the safest approach as it takes the approach of focusing on net cashflow which drives successful businesses (RE investing is a business), and therefore is often critical to sustaining operations or growing.

In summary both are right both have there places. But from a pure risk perspective an an RE asset not CF posses more risk than one CF. Additionally, sheltering your capital from law suits, foreclosure, etc. is possible via leverage. There are reasons why large developers use debt and it's not always to increase returns, it's to hedge risk. Yes debt carries risk, but that's when it's over applied. So maybe a 50% LTV makes sense for you, just has to go into your evaluations.

Congrats on your investment, hope it performs to your expectations! 

 I get your point. Large developers use debt for a myriad of reasons, sure one's being lawsuits, but the primary reason is always scaling. Almost always. I will scale in certain areas for sure. I already have identified about four, one I've gone to work on the other three--it takes time. 

I don't know a single house that's been in foreclosure that's fully paid off, so I don't get how that works. This will be CF positive, just trash cash on cash.

edit: I don't know anybody, anybody, that has a dozen + properties that they are all fully leveraged on that hasn't been beaten up by a recession. Not one. They all are quick to scale up, and it gets taken from under them. If there's any place to find one, this will be the one. And the goal post can move, find me someone with 20+ properties, and 30+. I intend to buy a ton of properties, could be well over 50 but probably close to 75.

 I work for a massive utility developer. We do about $55B in new projects annually. I work in the estimating division. That being said I'm very familiar with costs, risk, etc. I work with our valuation team which handles the investment side (I'm a construction professional), and the #1 reason that we use debt and many other developers use debt is because it is the best capital allocation strategy to minimize risk. You're taking your capital and reducing your personal exposure. Sure this means you can scale because you have more of your capital available but many smart and successful developers have a cash balance requirement that they keep on hand. 

My point is, everything I've learned at this company can be applied to RE. Same model just a different asset class. I do know a couple RE investors with 20+ properties that were just fine through 08'. Everything is market and investing strategy dependent. Some markets (like most in the midwest) only saw a 10% drop in prop values, while others (like Florida) saw 23%. That being said, reserves, solid CF fundamentals, mitigating risk exposure, and running it like a business will allow you to weather the storm.

I think we are seeing a clash of investing philosophy. While I don't currently invest solely for growth in RE, I do only invest in strong markets that hit my CF goals but also have stronger economies (MCOL to HCOL markets) this results in better appreciation over the long term. Fully paid off properties carry risk. Leverage carries risk. Running a risk profile on an investment is an important skill especially if you plan to invest in this manner long term. Many RE investors write off RE debt as carrying no risk but it is 100% a risk and should be evaluated (many deals wouldn't be deals without it; making them too risky for me).

Joe's approach is the safest approach as it takes the approach of focusing on net cashflow which drives successful businesses (RE investing is a business), and therefore is often critical to sustaining operations or growing.

In summary both are right both have there places. But from a pure risk perspective an an RE asset not CF posses more risk than one CF. Additionally, sheltering your capital from law suits, foreclosure, etc. is possible via leverage. There are reasons why large developers use debt and it's not always to increase returns, it's to hedge risk. Yes debt carries risk, but that's when it's over applied. So maybe a 50% LTV makes sense for you, just has to go into your evaluations.

Congrats on your investment, hope it performs to your expectations! 

Currently using CE shop to get my Colorado RE license. It's a very good program, not that expensive either.

@Samuel Young Solid input already here. I would recommended you check out the book "profit first". If you haven't already. It's a great way to begin looking at these kinds of questions from a more strategic nature and how you position said accounts. 

My only account related advice aside from that if you decide not to read the book. Don't co-mingle your funds. Keep it simple for you and your CPA.

Quote from @Sharyn Mousseau:

My biggest challenge is finding financing for my next opportunity. Originally we were trying to find someone to finance my portfolio of 5 properties that we paid cash for. Individually they are worth on average of $60K; each netting anywhere from $550-1100/mo. I'm finding it frustrating. I talked to local banks (to the homes) and since I do not live in the state my properties are, they won't lend. Other portfolio lenders I spoke with have a minimum loan of $50K per property at 75% of the value...so I just miss that mark. I'm considering rolling my IRA into a Self Directed IRA (& Learning all the rules to that) and going that route to finance our next purchase. I'd love other suggestions on leveraging the properties I have or other strategies I'm missing....I'm new at this!

Have you spoken with commercial lenders? Might be an option to package the loans. If you plan to keep them this shouldn't be an issue for you. Tons of ways to get creative with the right LO.

Check out this thread:
https://www.biggerpockets.com/...

Quote from @Steve K.:

I've had several neighbors recently move and convert their properties to STR's and it has definitely changed the character of the neighborhood for the worse. We used to know everyone here, our kids played with the neighbor's kids everyday, we looked after each other's properties when folks were out of town... great sense of community. Now there are different people coming and going all the time, nobody says "Hi", loud music late at night, pot smoke smells drifting into our yard, random people sitting in their car in front of our house running their engines for hours while they talk on the phone, permanent dumpster on a residential street etc. None of it is even legal, we have an STR ban here but it isn't enforced that well recently. I have an STR myself (in a different area where they are still allowed), so I paradoxically find myself on both sides of this argument. I've seen how they harm neighborhoods first hand but I also benefit from increased profits at our property that we rent short term. It's hard to pass up the chance to rent a place for $10-30k/month when the most you can fetch as an LTR is $6,500.

Everybody loves to talk about how great property rights are until it effects them negatively in a personal way. We can look at a place like Belize which has no zoning or property laws whatsoever. Sounds dreamy until your neighbor ruins your little slice of paradise by building a night club in a residential area, or a pig farm, toxic waste dump, blocks your view, etc. and in the absence of any government regulation, neighbors often end up settling disputes with guns or machetes there.

 I find many of the people advocating for property rights actually complain the loudest and fight the hardest when something effects them negatively. Just like people who complain about high taxes then also complain when their street isn't plowed quickly enough. We all just look out for our own self interests at the end of the day.  

This is one thing I like about the US: we have individual rights but they are often superseded by the common good. Finding the right balance between protecting the public interest and maintaining personal rights can prove difficult, and Short Term Rentals are one area where there is a lot of tension between the two. With only a few exceptions like AZ, TX, OH, most courts have determined that nightly rentals are more akin to running a hotel than a rental property i.e. a commercial activity that can be limited to commercially zoned areas or taxed and regulated like a business, which seems right to me. 

Steve, 

Other than people saying hi to each other I think all of your concerns regarding the legality of the STR are very valid. And those issues are why many cities should regulate STR's. Not ban them, not impose Owner occupied requirements, etc. just regulate the existing housing laws (dumpster that you mentioned, noise ordinance) Hosts have an obligation to be good hosts. If I were you, I'd find the STR owner and contact them about the issues; if nothing changes call the city, find the platform they operate on and report them.

I'm very Pro STR, but anti-bad STR owners. That's what's ruining neighborhoods.

I think this is just an opportunity for virtue signaling. As someone who consistently see's "eat the rich" associated with the morality of all RE investing; I'm over it. 

The truth is, we have 3 major issues. 1) People not being able to afford the specific areas and/or types of properties they want. 2) People underpaid - minimum wage jobs honestly should be automated. In the short run this will cost low skill workers their jobs, but with support an retraining we can begin to see a household average income closer to what in needs to be in the 21st century. 3) The trades have been dying off. I work in the power industry for the largest clean energy company. I know for a fact, that we don't have enough tradesmen. We aren't getting enough into the union training programs. Or even into local builder association programs for non-union states. Instead we have seen my generation (millennials) and all those after them gain crippling debts by pursuing college education (often times a useless degree) that is federally backed; so it keeps magically increasing in costs. 

So OP we have a lot bigger underlying fundamental issues that are directly correlated to the housing affordability issues in our country that have nothing to do with anyone on this site.

Quote from @John Underwood:

I want to say it's 2 years of income also.

Not 100% sure though.

 Thanks for the input John. After some further searching it sounds like it depends on the lender but most lean in that direction.