All Forum Posts by: Chivas Miho

What an amazing first year this has been!  I just closed on my third long distance rental property from over 4,500 miles away in sunny Hawaii.  This secured me for my 8th rental unit this year, with no signs of stopping.  My partner and I were able to close on a duplex for $33k with minimal repairs expected, but still anticipating $8k - $10k to be spent over the coming months.  I’m optimistic by the end of the month we’ll have tenants occupying the property and bringing in some cash.  

The monthly numbers:

• Gross Rent = $1100
• Taxes & Insurance = ($156)
• Vacancy = ($92)
• Repairs = ($77)
• Trash, Lawn/Snow, Inspection Fees = ($103)
• PM Fees = ($161) based on 80% first month, 8% monthly
• Water = ($46)
• Capex = ($110)
• Total Cashflow = $355/mo, $177/door
• ROI = 9.5%. On years where tenants renew leases, ROI increases to 13.8% since the PM's 80% of first month's rent for marketing and putting a tenant in place is not required.

A couple of lessons I’ve learned during this particular purchase:

1. If you’re scheduling a wire transfer early, call the bank to make sure they completed the wire as scheduled on time.  I foolishly assumed the bank would do what they said, and they missed the transfer time so I needed to close in escrow and delay the final closing a few hours.  Bankers are humans too and it’s just as much our responsibility as it is theirs to make sure they take care of our needs.
2. When in doubt, pay for additional inspections for added reassurance.  Our property had shown signs of termite damage to a structural beam during the initial inspection, and I paid for both a structural engineer (to verify the beam’s integrity was sound) and a termite inspector (to verify there was no active infestation).  The two added inspection reports cost me $650, but it was well worth the cost to have peace of mind that I wasn’t walking into a time bomb.  When the reports came back with flying colors, it gave me the confidence to close on the deal quickly.
3. Having a partner has made the process much easier than taking down the deal alone.  The systems and processes we have built during this year from the previous purchase has really helped us by identifying concerns and how to address them quickly and confidently.  I’m only taking half of the profits, but I’m also paying for half the deal, working half the time, and have the benefit of added motivation to meet my commitments to both my partner and the business.  
4. “Progress, Not Perfection.”  First heard this term on BP Podcast #176 with Tom Krol.  This couldn’t be more true!  I found the process to be easier this time than the first time, but there were still complications along the way - definitely NOT perfect.  But the point is, making progress is more important than being perfect.  

Time will tell how this property really performs, but I’m glad I took action and added this property to my growing portfolio.  Thanks for reading.  Mahalo.

Welcome to BP @Daniel Kong!  Glad to hear there's a growing network of RE investors from HI.  Feel free to reach out with any questions, there's definitely a lot of educational info to pass around.  Good luck!

Hi @Chris M. - that's a wise decision not to pay their asking 50% up front cost.  What I have done on the last renovation was, my Property Manager (acting as Project Manager to manage the Contractor) had placed materials in a cart on Home Depot or Menards for me to pay the bill direct so I could monitor what was being purchased and they would pick up materials at the store.  That could limit your exposure on materials like you mentioned.  

For the labor, I think the 1/10th idea to get them started is good.  If you are able to physically see the progress of the project, I would recommend paying them based on % complete.  My strategy was to pay them weekly based upon a schedule of scope of work items that they provide to me.  This way, they plan it out and you're just paying based on their own schedule if they complete what they said they would.  I would also hold back a 10% retention figure in case they complete the work but need to finish up punchlist items.  This is meant to incentivize them to return to provide proper workmanship, but you should put this in the contract and be upfront about holding this back before they do any work.

Hope that helps!

So I listened to this podcast again for the third time just tonight and totally missed that first part where @Brandon Turner mentions how difficult refinancing has been for his recent conventional refinance and he had to write an essay on why refinancing is a good thing.  Hahaha, HILARIOUS!!  I couldn't stop laughing!  Brandon - can I borrow your essay in case I have that same problem?!  

@Phillip Tomasso - I agree with Dennis and the line of credit. Being that you are a new investor, it may be challenging for you to get a business line of credit since you have no LLC history. Getting a personal line of credit should be fairly simple at any bank. If you have excellent credit and show high income from your day job, you should have no problem getting it within 2-3 weeks. I would suggest putting in applications to several banks at the same time, this could affect your credit score by a small margin due to the hard inquiries, but you should be able to get approved for all of them at the same time. So if you apply to 3 separate banks at the same time for $20k per bank, you could get approved for a total of $60k. It's better to have more credit available in case you need to make repairs after the purchase.

@Aliz Raksi - tough situation, I think your husband should try to understand that earnings go to the investor willing to do things that others wont.  In the situation with the current seller, I’m sure it didn’t look like a slam dunk at first, he had to put a lot of rehab for it to be the cash flowing property you folks see today.  If your husband wants the really cheap prices, you should be looking in foreclosures and massively distressed properties that have high risk, high reward instead of already fixed up properties.  Maybe you need to have that discussion with him first and see if you should change your search parameter to pursue these types of properties instead.  

If you think this is too risky, I agree with the others that you should first have a discussion with your husband that you’re going to look for other business partners that are on the same page as you.  Once you find a new partner, you’ll be able to make things happen quicker.  But of course, you always want the support of your life partner in any investment or things will fall apart at home.

On another note - there’s nothing wrong with hitting several base hits instead of a homerun.  The base hits help you learn the business and how to identify a homerun when you see it.  Good luck!

@Ryan Keenan - I’m targeting small multi family properties that roughly hit around $15k - $20k per door.  So a duplex would be roughly $40k.  On the refinance I’ve been trying to get a conventional cash out 30 year loan.  

Thanks @Kiley N. for tagging me in.  @Ryan Keenan - I haven't gone through exactly the same process as you, but I have used personal lines of credit to help me purchase cheaper properties in Michigan as all cash offers. I'm currently in the process of refinancing as part of the BRRRR strategy and the lenders have reviewed my LOC as part of the DTI ratio. I believe you will be ok as long as you keep in communication with your banker that you have a relationship with. One of the first questions they ask is "what do you plan to do with this money?". A good answer is pay off the line of credit immediately. I don't see why you couldnt use the same bank for the entire process. Do you already have the PLOC in place? If not, I would start with getting the PLOC first, because the bank could stunt you on your limit if they see your mortgage on your credit report. Get the PLOC first at the maximum you are allotted, and then get your mortgage in place later. Plus, you don't want to be waiting around 2-3 weeks for the PLOC to get approved after you closed on the property, you want to start rehab immediately. In the past, I've even applied to multiple banks for PLOCs at once to ensure I had a large amount of credit available. You don't need to spend it, you just need to have it available to spend when you need it. Hope this helps. Good luck!

Thanks @Derek Lacy, I'm reaching out to new contacts to see what I can do about the situation, thanks for your advice!

@Jordan White - Thanks for the response!  I guess I'm so inexperienced when it comes to insurance I foolishly didnt look elsewhere and just signed up with Foremost because they sounded reputable.   I've reached out to a couple of other contacts to see what my options are and hopefully I can get a solution here.  The 4 unit property is in average condition, nothing special so maybe you're correct that they're viewing it as high risk.  Or maybe it's because of the age of the property which is built in the 1920s, but many homes in my market are built during that era so I can't imagine the whole city paying these astronomical policy fees.  The policy is based on stand alone policy as a residential form.  Thanks again Jordan, appreciate the help!