All Forum Posts by: Chris Jensen

@Will Rodriguez welcome to BP!  I saw no one had jumped in on your post so I thought I'd offer a couple comments.

I haven't utilized LLCs yet, but there's VERY mixed opinion of them in the forums.  That being said, the times when they tend to be used are when there are partners involved or when an individual's portfolio becomes quite large.  So that might be something to consider.  I've also read that it's smart to be very detailed in the contract, to avoid misunderstandings later.  I've managed people and worked in teams long enough that I know the challenges of having multiple people with the same decision rights.  I'd HIGHLY recommend each of you have defined roles and responsibilities (and decision rights) to minimize potential for bad blood.  Family relationships are too important!

I do have much more refined experience / opinions regarding your 4th question.  Even though coming up with cash might be easy now, you never know what the future holds (divorce, job loss, incapacity, bad luck, etc).  As such, I would highly recommend treating each property as it's own business and build / maintain a property-specific reserve for items like vacancy, repairs, capex, etc.  To your question about how much equity to maintain in the properties, I look at equity as a place where smart money goes to die.  Maintain the minimum amount of equity to keep you and your banks happy, and then use your remaining funds to build your portfolio.

Certainly more that could be said, but hopefully there's a helpful nugget or two in there.  Best of luck to you!

@William Hart glad to be the first responder to your first BP post. Congrats on joining BP and starting down your very own REI path. Congrats also on jumping right in with a 6-unit! Commercial multi-family is right where I'm headed as well. Here are a couple thoughts for you.

Management.  Not sure if you're self-managing, but I'd highly recommend it.  Partly because of the cost savings, but partly because of the knowledge you'll gain that will be important as you grow your portfolio.  As you add more and bigger properties, you'll at some point likely transition to professional management, which will add more risk.  For example, they'll never care as much about your property as you do.  And you won't be able to control everything they do.  But as you cut your teeth on your first smaller properties, you'll be much more able to manage and mitigate the risk of using professional management.

Adding value. As you take over that 6-unit, and frankly with any property you acquire, always be looking at how you can improve the value of the business. 2 main ways to add value. First is via the BRRRR approach (many forums, podcasts and blogs on that topic). Second by improving operations. As you probably know, 5 doors and up is considered commercial, and commercial properties are valued based on their operations not based on comparables like 1-4 door residential properties. So any way you can improve operations (raising rents, reducing vacancies and expenses) will have a compounding effect on how your business is valued (code for forcing equity), allowing you to potentially refinance and get cash out of the property to use toward future acquisitions.

Tenant experience. Work hard to fill your property with your ideal tenants (lot goes into that, I know) , and then keep them happy. Give them a great tenant experience, and they are most likely to give you a great REI experience. We use that approach in our SFR properties.

So much more that could be said, but hopefully there are a few helpful nuggets in there.  Best of luck to you!

@Ernesto Diaz welcome to BP and congrats on wanting to start down your own REI path. These forums are a great way to gain perspectives on just about every related topic you can think of.

If I were in your position, I'd certainly look at a HELOC. On your primary residence you should be able to get a HELOC for up to 95% of the current value of your home, subject to DTI restrictions of course (typically 50%). HELOCs are a great way to participate in real estate because they offer inexpensive access to very liquid funds. I personally have a HELOC on my own home, which I use for flipping.

But there are two big risks with HELOCs. First, realize that at 95% of the current value of your home, if you've fully utilized your HELOC funds, you now have only 5% equity in your home. If something big happens and home values fall, you can get into trouble very quickly. Second, don't use HELOC funds for long-term REI activities (e.g. buy and hold). This ties up your HELOC and further subjects you to the previous risk. Rather, HELOC funds are perfect for short-term activities like BRRRR or flipping where you can relatively quickly recoup your investment, pay off your HELOC, and generate profit.

I hope there are a few helpful nuggets in there.  Best of luck to you!

@Devon White you'll get a LOT of differing opinions on this topic, but here's mine.  I would HIGHLY encourage you to pursue a degree for two main reasons.

First, generally speaking, it takes a good credit score with good W-2 income to get started in life in general and specifically in real estate.  Banks won't normally talk to you about loans for rental properties, let alone a personal residence, without both these things.

Second, a high-quality degree from a high-quality university generally leads to higher W-2 income.  There are worthless degrees and worthless education institutions, so quality counts.  Keep in mind, though, that quality doesn't necessarily mean expensive.

I know you feel college is useless, so I'd recommend refining your mindset.  Instead of approaching college and your classes as a distraction or drudgery, focus on a major in a field related to real estate like finance, construction management, or business (many to choose from that would directly support a real estate career).  Then approach each class by asking yourself, how will this help me in real estate.  Apply everything you're learning to how you will build your real estate business.

Also lots of real-estate related education you can gain outside the classroom. Books, podcasts, BP, etc. All good sources to supplement.

You can also do many things on the side to gain experience and build your network.  Lots of possibilities here.  Be a real estate agent, flip homes, house hack a duplex, work at a bank, etc.

Point is to laser focus on your end goal by pursuing related education and doing as much on the side as possible.  Then, after graduation, you'll hopefully get some serious W-2 income, have great credit, and be able to apply your background, network, and education to pursuing your dreams.

Best of luck as you decide your future. You've started on the right foot, though, seeking and being open to the advice of others further than the path!

@Chris Connery I'll let others chime in on specific returns they look for in properties. Every situation will be different. For example, a truly passive investor may be just fine with 8-10% returns, whereas active investors will want at least 15-20%. Most of us will fit somewhere in that spectrum. Beyond cash flows and returns, I would highly recommend you also look for value-add opportunities. You can pour all your money into a nice cash flowing property which hits all your return goals, but if there's no value add opportunity, then your cash is stuck there, trapped in the equity (aka down payment). You'll wait for years to generate enough profit/cash to do another investment. I started down my REI path using that approach and fortunately realized my quandary soon enough to change course. On the other hand, if you buy a property that allows you to add value and force equity through rehabbing or improving operations or both, you can refinance, get some/most/all your initial investment out, and proceed to acquiring more properties. Hope there's a nugget or two in there. Best of luck!

Erik, there are certain pros and cons of investing in higher crime neighborhoods. For buy and hold I personally have never considered it. Mainly because of the higher turnover, higher vacancy, more hands-on property managing experience you typically hear about. For that kind of investment I just wouldn't risk it. Unless of course there's a big redevelopment initiative in place and you can get ahead of the redevelopment. Now those neighborhoods can be good for flipping because there tend to be more value add opportunities. I'm working on a few such examples. But we're very focused on the specific neighborhood and solid comps. Hope there are a few nuggets in there. Good luck!

@Emeric Harney based on your situation things are a bit more challenging. You could quickly run into a DTI wall. Banks typically won't include rental properties in your DTI calculation until you've owned them for a 12-month seasoning period. This doesn't mean you're out of the game, though! My main suggestion would be to partner up. Find someone locally (via BP or local REIA meetings) that you trust and that has similar values / goals as you. Discuss with them how the two of you can work together, which roles each would play. For example, I'm in a partnership where I handle all the financing and my partner finds the deals and handles all the rehab. Then we split the profits 50/50. Our investment activity is centered around flipping, but you could certainly use the same approach with the BRRRR method.

@Vick Galu hope things are going well in Honolulu.  I'll be thinking about you as we head into deep freeze here in Iowa.

To your question, what's worked best for us is Craigslist listings with a link to our rental property Facebook page.  We have professional pics taken of our properties, throw a few on Craigslist along with key rental specs and details, and include a link to our Facebook page with many more photos and information.  We are also thinking of doing video walk-throughs, and such to provide a more rich user experience.  We haven't used Instagram yet, but that could be on the horizon.

Hope there's a nugget or two in there for you.  Best of luck!

@Taylor Nunn if I could start over, I would never EVER buy turn-key or move-in ready rental properties even if they cash flow well. That's what we did with our single family houses. We bought in a high-demand area and as such never struggle to rent them out. And they cash flow very well. But I have a lot of my own money trapped in the equity in those homes. This is a fine option for the wealthy 1% and such, but for the rest of us 99% all it takes is buying a few properties like this and we're done. Our money is consumed in the downpayments, and that's the end of our REI path.

If I could do it all again, a) I would use the BRRRR approach over and over to maximize my available investing funds, and b) I wouldn't mess around with single family rentals but focus instead on commercial multi family.

Hope there's a nugget or two in there.  Best of luck!

@Benjamin Herrmann it depends on what type of REI experience you're looking for. If you want truly passive then loan to other investors either as an equity partner or private money lender. If you're willing and able to be more hands on, cut your teeth on a few flips or use the BRRRR approach on a few self-managed single family or residential multi-family properties. This will help you learn the ins and outs of rehabbing, financing, property management, and marketing. At some point, I'd recommend transitioning into commercial multi-family. Best of luck!