All Forum Posts by: Chase Gochnauer

Originally posted by @Richelle Bryan:

Originally posted by @Chase Gochnauer:

Originally posted by @Jay Hinrichs:

@Chase Gochnauer  your the perfect guy to make this work in that asset class. you live there work there probably self manage.. your in the industry etc etc.

although the BRRR is still no money in the deal.. and those that do that if they got a problem they will walk to.. its only their credit they lose no cash. Just saying.

again why I like to get these things paid for in 10 years or less.. your in it 7 years you kind of burnt out but you look at your mortgage and see you only have 3 more years not 23 years and you tend to stick it out  :)

I don't like the management part so I hired a PM when I had 6 units. I'm at 130 now. About 30 SFR, 30-40 in 2-12 units, and one large 72 unit. I like finding the deals and do enjoy managing the rehabs. I get them rent-ready and then hand off to PM and generally don't deal with them anymore unless there's any major cap-ex type issues. Then it's just a matter of looking at your P&L each month to ensure repairs aren't eating you alive. It definitely reduces my burn-out. Delegation is key.

 Can you please give the abbreviated road map [if you don't mind] from 6 to 130? That's great!

I'll say that I'm pretty lucky to have another business that does well that allows me some solid working capital to continue to grow. I bought my first 9 houses cash. I then put together a small presentation for some local banks on where I sat today, where I wanted to be in a few years, and what I needed to do to get there. I picked the one I liked best and I then got a LOC on those 6 to start doing BRRR. I was doing 1-2 houses a month but still wasn't the speed I wanted, so every couple of months as the capital became available I would buy a duplex or something as well that didn't need much work to keep my unit growth up. I found a commercial property, 14k SF office building that I then purchased outright, spent a year rehabbing and renting and used the equity from that as my primary source for my 71 unit I just purchased. I was at 9 units only about 2.5 years ago. 95% of my financing is with local banks.

Do not neglect another source of solid income, whether that be a job or an alternate business. Tax returns are critical to getting loans, and seed money is also important. I think the BRRR method is great, but you have to be prepared to get your hands dirty. My background is primarily foreclosure maintenance, basic construction, and being a Realtor. Each area was great education for finding deals and rehabbing to rent, so this is the area I've chosen to really focus on.

My growth plan was ambitious, but having that goal is important to me. Each year I set a goal as to where I want to be at the end of that year.

Originally posted by @Jay Hinrichs:

@Chase Gochnauer  your the perfect guy to make this work in that asset class. you live there work there probably self manage.. your in the industry etc etc.

although the BRRR is still no money in the deal.. and those that do that if they got a problem they will walk to.. its only their credit they lose no cash. Just saying.

again why I like to get these things paid for in 10 years or less.. your in it 7 years you kind of burnt out but you look at your mortgage and see you only have 3 more years not 23 years and you tend to stick it out  :)

I don't like the management part so I hired a PM when I had 6 units. I'm at 130 now. About 30 SFR, 30-40 in 2-12 units, and one large 72 unit. I like finding the deals and do enjoy managing the rehabs. I get them rent-ready and then hand off to PM and generally don't deal with them anymore unless there's any major cap-ex type issues. Then it's just a matter of looking at your P&L each month to ensure repairs aren't eating you alive. It definitely reduces my burn-out. Delegation is key.

Originally posted by @Jay Hinrichs:

@Chase Gochnauer  that's my exact point your STUCK.. small value assets are hard to sell.. in non appreciating markets.. and harder to 1031 since you have so little money coming out of them.

Also the major issue is many folks have no experience being landlords become landlords and don't care for it.. so it really does not matter they just want out... I know I fund a whole heck of a lot of burned out landlord transactions for my teams in 14 states.. I see the huds.. LOL..

and those folks don't post on BP.. on BP its all blue sky rentals are the way to financial freedom quit your day job.. live the life you deserve etc etc.. well for some for sure.. for many NOPE.. they are like why did I do that.. and they exit no matter the loss.

now this is more prevelant in the lower value asset markets.. not all markets are like this.

But I look at when I started hard money lending in 01 for turn key and I started in Detroit.. the homes there appraised at that time for 120 to 140 each rented for what they rent for today 800 to 900 in those days the .05% rule was fine.. we loan 80k as a HML .. well those homes tanked as you probably know many went down to less than 10k in value.. thankfully the 200 plus I did there I got refinanced out of them all. but you know long term lender lost their lunch and so did most of the investors in those days.

I am not prediciting another major meltdown.. but even  break even is not a good position to be in with rental properties in my humble opinion the risk/reward and hassle factor just weights on you.. but I know I am in the VAST minority in my thinking.

So my thought is you really need to get these things paid for and keep them forever.. but life happens and I would say 80% of people that have that thought process going in never make it past about 7 or 8 years.

 Very true. I suppose I have the mentality that I'm in it for the long haul, and being only 32 that makes sense for me.

I'm in Iowa, Midwest market, I wouldn't say no apprecation, but it's not like the coastal areas. Most of my smaller value properties have been rehabs that I held, BRRR basically. So I'm into a property mentioned above for $60-80k out of pocket and it's rehabbed, so low risk for capex surprises for awhile and I have no cash in the deal once I refi. This is really the only way to do it in my book. Buying a property at market value that still has the potential for some cap ex items just doesn't make much sense. A lot of part-time landlords aren't wanting a property they have to rehab, though.

I'm sure there will be a correction at some point, but not as severe. The types of loans being given out now aren't nearly as crazy as they were. Stated income, huge cash back at closing essentially buying a 20% down property with no money down, appraisals inflated to the moon, etc. Being in the Midwest, I don't believe a downturn here would not be enough to make me be upside down on an 80% LTV loan, in my opinion. Maybe breakeven, but I don't know that I'd go upside down. Even if I did, I think rents would still support my debt. Besides, my other business is maintaining foreclosed properties so I'm hedged well :)

Originally posted by @Jay Hinrichs:

@Chris Seveney  that's interesting.. lets say you buy a rental for 100k with minimum down  20k.

you make 150 a month cash flow ( realistic numbers unless you value add or get some smokin deal)

something happens and you need to sell in 5 years

you bought for sake of argument in a non appreciating market as many on this site admit they are fine with..

now you go to sell.. 60 X 150 a month = 9k   you have 10k in sales costs.. figure 6% plus closing cost plus seller credits and honey dews on the house plus it makes the math easy.

so you net 90k add in your 9k positive cash flow your at 99k... so just about break even but now your had to recapture 15k of deprecation and pay tax on that lets say 5k for easy math.. so now over a 5 year hold your 150 a month Coc really has a negative IRR since you lost right at 6K of actual cash and your only gain is whatever little principal pay down you got on your longer term note.

Do you think I have that right.. only reason I bring this up is I sold a bunch of my rentals and that recapture hit me hard personally.. but I just wanted to reposition to notes as I am not a very good landlord..

I think this is why if you think my numbers are correct.. that folks need to accelerate pay down so that you can pay these off quick so if U do need to sell and most people sell every 7 years stuff happens they have some true equity. or at least some cash coming out of the deals.

I do agree with your scenario if you do not 1031. I know you know all of this, but 1031 is only about $800-$1k/house, so by spending $11k in 1031 fees you could have rolled your basis into a larger property and saved $44k in tax liability. Not possible with notes, though. This is where I wouldn't see the point of selling the rentals. If you have an 80% LTV loan, or $80k on a $100k property, but you're only netting $100k-$10k selling costs - $5k tax liability = $85k. So selling 11 rentals @ $150/mo cash flow($1650/mo) to gain $55k cash does not seem worth it. You're getting a 36% return on that $5k/property. Even more if you consider mortgage paydown, further depreciation, etc. You'd be better off just refinancing and continuing to hold.

But, paying down the mortgage quicker doesn't seem like the right idea either. You're not increasing your IRR by paying it down faster. More than likely you're decreasing your IRR as you're putting more money into the deal. At best you're saving 4.X% in interest. You'd be better off finding some other route to spend your extra cash flow on, rather than accelerating the pay down.

There is no reason to increase your equity position in a non-appreciating market as it's likely resistant to the market downturns as well, so less risky.

Originally posted by @Marcus Johnson:

@Chase Gochnauer

Yes when it comes to mathematics, your right, the more leveraged you are, the greater chance you have of achieving more wealth.   Everyone here knows that.  The problem that your not addressing is the human element.   My scenario wasn't to reference two individuals who are building their portfolio over a time period, the point I failed to make was that someone with more units, but tons of debt, may have no networth when it's all said and done, but someone who only had a few units could have paid for properties and a high networth.   So what you've missed is it all comes down to the individual and the decisons they make in life.  The number of units has nothing to do with success.  You have to look deeper into each persons situation.   That is why in the book "The Millionaire Next Door", they refer to someone has a large income, but a small networth, didn't do a very good job of managing their income thus is why they are called UAW (underachiver of wealth).  Whereas someone who has a smaller income, but managed their money well, they have a large networth.  They are called PAW.  (Prodigous accumulator of Wealth),   

 I understand what you're saying on the number of units, absolutely. I'm just saying having a goal of a smaller number of paid off units would make a person a UAW, versus someone leveraging to grow their portfolio dollar size would in the end, make them a PAW, but it is a little more risky. But as you and others above have said, it completely depends on your goals. 

Originally posted by @Marcus Johnson:

@shiloh lindahl

So if you had 100 units all leveraged to the max and your assets equaled 3.5 million and your liabilities equaled 2.5 million and you were partnered with three other investors, your net worth is only 333k. If you had 3 duplexes all paid for, worth a total of 750k, your net worth is 750k. I’d rather have less units.
As for success, I use ratios to determine the math on that. If i make 100k a year and another person makes 250k a year and my net worth is 1 million and the higher salary individual has a net worth of 1 million. Well the lower income earner has been more successful with money.

This is where you're slightly off in my opinion. 

Fast-forward 20 years, your $750k duplexes have doubled in value, giving you a net worth of $1.5m.

Fast-forward 20 years, the 100 units have doubled in value($3.5m to $7m) and have been paid off(majority of my investment loans are 20 years) giving a net worth to the 33% investor of $2,333,333. Plus, the cash flow and depreciation benefits over the 20 years has likely been higher as well.

So in your example, in scenario 2 that investor has taken $333,333 in equity and turned it into 2,333,333 over 20 years(7 fold increase), where the $750k investor has only doubled. Therefore the person that is leveraged has had more success with their money.

About 130 units, all in-state. Continuing to add as many as I can.

Yes! Everything I own is DM & suburbs.

I rent to employees and such but I have a property manager, they handle things like a neutral 3rd party. I pay my people, they pay the PM. No taking it out of checks or anything. I will often knock $100 off market rate or something when they sign lease but beyond that they become like any other tenant.

Originally posted by @Billy Tran:

@Daniel Toshner: Yes, they're SFRs. US Bank can only do 4+ unit right? Who do u use for your SFR?

 I use a two local banks for mine. 75-80% cash out refi, 20 year amortization, rates are 4.5% give or take a little. 0.5%-1% origination.