All Forum Posts by: Dan Gandee

Slow downs are typical especially before June/July/Aug in this area. BUT...

Make sure to watch the economy closely as this isn't a covid/post covid travel economy. 

When paying cash the GRM (gross rent multiplier) or BEP (break even point) is key here in the short term game. Weather the storm and wait until you can start profiting on your investment, i.e. be patient 7-10 years as this will pay dividends. If you panic in year 2-4, you'll make a little equity and then be forced to 1031.

If you financed the purchase, then cash flow after debt service is going to be key for monitoring in this specific area. I have a few STR's in areas where if the CFADS isn't going up with rental rates, then I'll move those to long term holds with steady tenants.

Just some food for thought as no need to panic, but watch your money people.

@TimDelaney Totally can see your frustration there and it's definitely something you've got to battle with. For years I've called the mortgage industry "The mafia of real estate" because they see every deal yet own a piece of it all because it's their money. I've moved to having private investors come in with 2nd, 3rd position loans so we can redeploy capital on new projects, giving those same PML opportunities on the new deals so that their front end and back end investments were secure for profit. 

Much appreciated @Andy Sabisch

Let me preface by saying that I was an investor for years (and still am) that hated real estate brokers - I thought they were a necessary evil to the game of relisting and provided no value to find off market deals...

Fast forward. I run a team of 19 agents and have a very successful investment business. Let me tell you that LOYALTY changed the game for us. 

Loyalty between our investors and agents created a mutual beneficial relationship that was NOT BASED just on "who was bring them the next deal" but who could help them build their business fast. We lead with value and tons of it - showing them our systems, spreadsheets, contacts, subcontractors, competitive commissions, access to private money, and overall strategy. 

Loyalty between our contractors and investors skyrocketed our profits, margins, and volume (commissions). No more babysitting and chasing subs down. They know they were the only one we are calling every time unless they are unavailable, then we go to our #2 on the list who was always inspiring to be our #1. Bids are competitive and straight forward. Change orders were reduced by nearly 50%. Repair addendums were handled in days and not weeks. Bids were fast and thorough. 

Loyalty between our HML/PML and investors has created referral relationships that built faster funding and quicker underwriting. Rates have become more competitive and fees have been capped at respectable rates. Access is always there if the deal makes sense without having to bounce around.

Loyalty with our wholesalers and investors has given us more off market opportunities before it gets "sent out" to the rest of the list. We treat them fairly and compensate them greatly. If we pass on the deal, they have can take it elsewhere without any issues. But our business is #1 - We provide the dialer, the data, the scripts, the CRM...

We established this loyalty by FORMING RELATIONSHIPS and not just valuing PROFITS > LOYALTY.  

This came from sitting down and drawing out our expectations up front. If they didn't want to follow our model, then we moved on. If they did, then we would test them out. 

Once they passed the test, then we would keep meeting with them again and again to get deeper with them on their why and their goals. Working together to get them where they want to be in life was and still is our #1 priority. We stopped looking at business as who can I use as a "means to the end or tool to get the job done" vs. who can I put in the seat on the bus with us to accomplish our end game. 

That's when things took off! Yes, people screwed us over. Yes, people would turnover. Yes, damage control would need to happen. But the BS slowed down significantly. We built a retail side and investment side business that everyone tries to work together for the common goal = wealth to change our lives. 

Have loyalty and build relationships when forming your dream team. Take care of people. Don't be inconsistent. Your word is everything. 

People will forget what you said and did, but they won't forget about how you made them feel...

@Ian Kinder Thanks for chiming in here.

Ultimately you'll want to get "legal advice" from an attorney that handles these types of scenarios for your specific state, but from my own experience here's what I did. 

1. When I was just starting out, I formed a quick LLC in Delaware or Wyoming using one of the online LLC formation companies (LegalZoom, etc) - Making sure my registered agent is not myself and listed at my own home address. In order to bank in Michigan, you most likely will need to register this LLC as a "foreign entity" (just Google the steps). I then will list the property I'm holding in the operating agreement of the LLC (that's how you identify from the LLC's organization side that you own property that is held in the LLC, and not just naming it at the county level).

2. Next, I would go to the county recording office and "quick claim" the deed from your individual name to your LLC. Once again super easy to do but just need to do a little research.

3. Next, I'd open all utilities in my LLC's name and have all the mail go to a PO BOX that I set up for my LLC(s).

4. Next, if I was hiring a property manager, I'd give him/her my EIN number once the LLC is official so that statements at the end of the year are easily completed by my accountant for K1's and Schedule E's.

As you buy more and more of the same type of property (STR's) then you will then need to decide to place the properties into a trust or create a separate LLC for each one (More tax preparation and fees). If paying cash each and every time, I'd suggest talking to a estate planning attorney and stacking those in a trust(s) for the purpose of holding all STR's.

If you begin to flip properties, then you'll need a separate LLC that is building credit and a P&L so you can navigate financing in the future. Don't mix asset classes IMO. We have them currently structured as follows:

-All STR's are held in separate LLC's under a holding company.

-All FLIP's are completed by one designated LLC that retains profit and builds credit. We pay ourselves as employees.

-All LTR's are held in LLC's and trusts only depending on the partnership structure.

-All assignments are completed by a separate LLC for risk mitigation.

-All "Subject To" are completed and held by a separate LLC for risk mitigation.

Many different ways to structure your companies, but get advice early and don't just listen to me or anyone else on here unless they are legally able to provide you the advice. Each state is diff. This is what I did, not suggesting what you should do...

Congrats and keep stacking em! 

When scaling a real estate investment business, there are several significant challenges that we had to overcome while getting to the 7 figure mark in holdings and roughly $10K net cash flow. 

Let me preface this to everyone: "Everyone will have a different take on what are the most important aspects to scaling your investment business, so while I want to have a healthy debate, I'm not ranking or ordering these in any sort of hierarchy of importance."

Here are the most common issues we faced...

1. Access to Capital: Scaling a real estate investment business often requires a significant amount of capital. Acquiring properties, renovating them, or expanding your portfolio requires substantial financial resources. Securing funding from lenders or investors can be challenging, especially if you don't have a proven track record or if the market conditions are unfavorable. This is where OPM came in. We built relationships through friends, family, and business associates to create enough "interested" investors that were willing to put their money into our ventures, projects, or BRRRs. 
2. Market Volatility: Real estate markets can be unpredictable, and they often go through cycles of booms and busts. Scaling a business in a volatile market adds an extra layer of risk. Economic downturns, changes in interest rates, or shifts in local market conditions can affect property values, rental demand, and profitability. Adapting to market fluctuations and developing strategies to mitigate risks is crucial. While all these market conditions are critically important, there is money to be made in any market at any time. Risk = Reward in my eyes. 
3. Talent Acquisition: As your real estate investment business expands, you will need to build a reliable and competent team to handle various aspects of the operation, such as property management, acquisitions, financing, and legal matters. Finding skilled professionals who align with your vision and can contribute to your business growth can be a challenge, especially in competitive markets where talented individuals are in high demand. This can be challenging if you are not 100% committed to vetting and growing your team through a hiring process.  
4. Operational Efficiency: Scaling a business requires efficient systems and processes to manage a growing number of properties and projects. Inadequate operational systems can lead to inefficiencies, delays, and increased costs. Implementing scalable technology solutions, streamlining workflows, and establishing standardized procedures can help improve operational efficiency and support growth. This is where we shined. From start to finish, there was a process put in place that was constantly challenged, A/B tested, and perfected. 
5. Market Saturation: In popular real estate markets, competition can be fierce, and finding attractive investment opportunities can become increasingly difficult as the market becomes saturated. Scaling your business might require exploring new markets, both geographically and in terms of property types, to find untapped opportunities. Conducting thorough market research and developing a comprehensive growth strategy are essential to overcome market saturation challenges. This shouldn't be an excuse for anyone, but in my market - competition was EXTREME. Limited inventory of good deals was an everyday occurance and typically 2 to 5 of the same investors were looking at the same lead's property each week. LOL 
6. Regulatory and Legal Considerations: Real estate investments are subject to various laws, regulations, and local zoning requirements. Scaling your business may involve dealing with complex legal and regulatory frameworks, obtaining permits, complying with building codes, and navigating zoning restrictions. Engaging with experienced legal and compliance professionals can help ensure your business expansion remains compliant with all applicable laws. Build your dream team from the ground up! 
7. Risk Management: With growth comes increased exposure to risk. Scaling your real estate investment business involves taking on more properties, tenants, and financial obligations, which can expose you to potential liabilities. Implementing risk management strategies, such as comprehensive insurance coverage, thorough due diligence processes, and appropriate legal structures, can help mitigate these risks. This is 100% one of the most overlooked aspects of scaling. Be sure to consult the right experts and get the advice from CPA's, attorneys, and others who ACTUALLY OWN REAL ESTATE. 

It's important to note that each real estate market and investment business is unique, and the specific challenges faced during scaling may vary so don't use this as a blueprint for your own business until you get some advice from your mentor or coach. Don't re-invent the wheel is my advice...

Best of luck everyone and don't stop hustling! 

100% Agree haha. I deal with a lot of problem tenant solutions in my state. 

I'm not the first to talk about this strategy and won't be the last so feel free to chime in here. Over the past decade of deploying a very successful BRRR model across the Pacific Northwest, I've been able to perfect my "cash for keys" process. But before I give you my play-by-play, let me first overview what this concept includes for anyone new to property management or owning rental properties.

**DISCLAIMER: "Always seek legal counsel regarding tenants rights in your state and speak with a trusted and licensed property management company before doing any of this!**

"Cash for keys" is a strategy that landlords can use to encourage a tenant to vacate a property without having to go through a formal eviction process. This can be a useful tool in situations where a tenant is uncooperative or unwilling to leave, but it's important to approach the process carefully to ensure that it's successful. 

Here are some strategies that I use for cash for keys with a stubborn tenant:

Start by having an open and honest conversation with the tenant. Explain why you need them to vacate the property and the benefits of accepting cash for keys, such as avoiding the eviction process and potentially receiving a financial incentive to help with moving expenses. Ask them questions on what they ultimately need to make the move - is it time? is it money? is it links to available rentals? Dig into what they need and see if you can provide the administrative support as I mention in #4 below. Next, ask them if you can inspect the property for any damage prior to agreeing to the payment amount. Take pictures and measure your risk/reward. The walkthrough can play a critical role in determining compensation. Many investors skip this step because they are so "stuck" on getting the tenant out. 

Determine a fair amount of money to offer the tenant in exchange for vacating the property by a specific date. This amount should be enough to provide a financial incentive for the tenant to leave but not so high that it becomes prohibitively expensive for you as the landlord. In Oregon where I own most my properties, relocation fees for no-cause evictions is one months rent. I typically provide that as a starting point and then assess my situation/budget for the BRRR/and timeline for my next move with the investment.

Put the agreement in writing. This should include the amount of money being offered, the date by which the tenant must vacate the property, and any other terms and conditions of the agreement. Let them know that your "attorney will draft it" so they know you have legal means if things go sideways. Make sure it's signed prior to you handling the compensation. A good way to do this is have it electronically signed the night before you meet with them to exchange money. Get their email addresses and draft the documents. Inform them that loitering or come back to the property will constitute trespassing. 

Consider offering the tenant additional support, such as help finding a new place to live or arranging for movers. This can make the process less stressful for the tenant and increase the chances that they will accept the cash for keys offer. I will even go as far as paying for the UHAUL for local moves and using the proactive scheduling method..."So how does Saturday, March 7th work at 10AM? I'll have the truck here for you and I'll help you guys move. Play ball with them.

Be prepared to follow through on the agreement. If the tenant accepts the cash for keys offer, make sure you provide the agreed-upon amount of money promptly and follow through on any other commitments you made. This can help build trust with the tenant and ensure a successful outcome. I typically have a cashier's check from the bank with the tenant(s) name on it. I'll then take a picture of it in their hands so I have proof it was provided.

Make sure to have new locks installed the day the key transfer happens. I typically wait at the property until the locksmith or handyman has rekeyed the entire property. Helpful hint here - Always install key code locks that can be reprogramed. Then a locksmith isn't necessary.

Don't forget to transfer all utilities to your name the same day as key transfer! No internet = no tenants a lot of the times...

Ensure them you'll leave them a fair reference if any future landlords contact you about their tenancy. You should notice I didn't say "Positive Review" or "Great Review" - this is critical to the psychology of such statement.

Overall, the key to using cash for keys successfully with a stubborn tenant is to approach the process with empathy and open communication. By being clear about your expectations and offering a fair financial incentive, you can increase the chances that the tenant will accept the offer and vacate the property without having to go through a formal eviction process. And always remember evictions can cost typically 2X-5X than CFK's - But your time is the most valuable LOSS in this all!  

Thanks for your comments @Evan Polaski - All valid points.