All Forum Posts by: David B.

Hi guys, 

As a new real estate investor, I have a very basic question that I could use your help with.

I'm starting to rack up properties (5 units currently) and my intent is to keep BRRRR investing into more and more.

However, I'm starting to realize the more rentals I get, the more responsibilities I'm going to have in terms of paying my mortgages and such. 

I should point out that organization is NOT my strong suit. I'm much more of a vision/ execution guy. That said, I know I'm going to need systems in place to make sure my properties are running fluidly. 

So I wanted to ask what steps you get when you get a rental property? Do you open a bank account for that property and set up an auto pay? Do you pay each at the top of the month? What about reserves?

Please guide me towards an easy, effective system I can implement as I build my portfolio. Talk to me like I'm a baby haha I can use all the help I can get. 

Thanks Kindly everyone. 

Hi all,

so I recently purchased a duplex, and just two months later we have a disaster happening. 

the pipe leading the sewage water to the street collapsed, and now sewage water is flooding into my tenants basement. 

We have an estimate already for 6,600 dollars, but then can’t begin work until Monday at the earliest so now we’re thinking we have to rehouse the tenants. We’re going to offer a rent credit - but they may very well throw a fit since we expect they’ll need to rent  a more expensive to rent a hotel. 

So I called State Farm and they’re telling me they don’t cover things like this - which is CRAZY to me. They may cover some of the rent loss from the tenants, but the pipe they’re claiming isn’t their responsibility. I have a very hard time understanding that… why else have insurance if not for disasters like these? 

Ok so that’s problem one. Problem two is this…

my property manager calls me and says that the tenants are telling her there were sewage issues before (amongst other things) that they complained about to the previous owners. We’re compiling a list of those complaints as we speak so we know exactly what they were. 

But the disclosure documents never mentioned any ongoing issues or complaints from tenants. They do say that their was a plumbing clog in one unit - they hired a plumber - and that they cleared it and the plumber said it “all clear”

But of course… now we know that’s not the case, as my basement is flooded and my tenants are looking for a motel. 

There’s is also a concrete sidewalk issue where a tree has mangled the walkway. A tenant recently tripped on it. 

When we called to find someone who could remove it, one of the companies responded that they had previously priced out a bid for the same house 6 months prior! So apparently the former owners knew that tenants were complaining about tripping on the sidewalk, and looking into removing it, but never mentioned anything in the disclosure docs.

I’m not sure if this is just tough learning bumps, or if these things really weren’t  disclosed properly at the outset - I’m still finding out more info. But it appears that the former owners withheld information, and now two months after purchasing the home I’m dealing with a massive plumbing issue worth about 10k

I’m wondering if you guys have ever had any experience with these issues.

First, what can (or should) I do about State Farm not covering this disaster? It’s becoming very expensive 

second, what recourse do I have against the sellers if we learn they fudged on their disclosures and stuck me with a project with a large Cap X?

Any and all thoughts would be appreciated. Thanks! 

Hi all

i have a question that might be confusing, so I’ll try and simplify it. 

i have recently purchased a duplex in Columbus, Ohio in a C class neighborhood. I intend to purchase more. 

Now - these homes are functional and rented. Tenants are paying above average rent. But the units themselves could definitely be upgraded further if I wanted too. When I look at nicer SFH or MFH in Columbus, it's clear there's a top end aesthetic that my units don't currently match.

But here’s the thing… in my c class neighborhood, my units don’t look any worse (they may even look better) then some of the neighboring properties. 

So here’s my question - if I upgrade my property from a C class to an A class property, in a C class neighborhood, does that force appreciation? 

The reason I ask is I would rather recycle the Capital and pull my money out to keep investing if possible. I don’t expect to take all my capital out (as I’d didn’t buy these as proper BRRRS), but if I could take most of my capital out and still cashflow id like to do that. 

I should mention that the neighborhoods I’m buying in are expected to improve over time, even though they’re not the hottest areas in town currently. They’re pretty much adjacent to the hottest areas in town. 

Hope that makes sense! Thanks for your thoughts 

This seems complicated to me, and complicated is the death of good business. 

Perhaps a simpler arrangement might be something where he keeps his cost low and sub contractors available for the volume you intend to do with BRRRR - but instead of a 50/50 split he gets 25/75 or something of the like.

Volume of work is very important for contractors, and if you guys create a business model where you profit together than their could be an arrangement here that makes sense. In fact, I think Volume is a reason to keep costs low in itself. If you’re keeping your contractor working 8 months out of the year, then wouldn’t he be incentivized to keep costs favorable for the arrangement? 

 I’m generally wary of 50/50 splits that don’t include capital investment because to me it always seems like someone is benefiting more out of the deal than the other. As a contractor, he is being paid for his labor. If he’s being paid for his labor, why does he need a 50% split? 

Sure, keeping his costs low is incredibly beneficial. But I doubt he’s suppressing 50% of his cost. Doesn’t seem like he could given the subs underneath him who require their fee (unless I’m missing something about this arrangement) 

I guess this brings up my final thought - which is why this is necessary in the first place? Unless you’re having a hard time sourcing deals and your margins are getting thin, I don’t see why you should make your contractor a heavy equity player when it is ALL your capital at risk.

Cash is king. If he’s not bringing any, than he shouldn’t sit on the throne. 

BUT - a smaller piece of equity could be a negotiated if it really supercharged the business relationship. 

This cash flow repayment thing… I would drop that. Too much room for error in this situation. 

Good luck! 

Quote from @Rick Martin:

@David B.Multifamily. You can control the investment more by improving NOI.

Thanks Rick!

and I assume you mean targeting value add multi family deals that I can increase NOI and refi my capital out of? 

a follow up question if you don’t mind: what short of pitfalls should I be avoiding seeking Multifamily in this particular economic time. Anything in particular? 

Best - DC 

Hi all -

I recently freed up about 300k and I’m debating what would be an appropriate use of the funds. 

Iv only been seriously investing the last 2 years or so, so Iv still got some training wheels on (hence why your feedback would offer some real value/guidance) 

Basically my thoughts are I could use the money to purchase roughly 1.5 million in single family homes or 1.2 million in a commercial multi family. 

My goals are mostly centered around long term growth/ wealth, as opposed to cash flow. Although obviously it’s very important I buy an asset that can cash flow - especially now. It’s just not necessarily my first priority. I’m hunting  “quality assets” so to speak. 

Since the market is so wonky I’m holding tight at the moment. I’m currently in SLC  - prices are dropping a bit so may be great buying opportunity. 

Alternatively- I see some awesome multi families floating around Texas / Florida / TN area.

I know this question is also one of preference. i guess I’m wondering what tends to be the better growth strategy? If I owned 5 houses in SLC (or other growing market) and they double in 10-15 years, is that more productive that sinking all my cash into a Multifamily? 

I should point out - ideally I will value add on any deal I can, to recycle my money and scale as quickly as possible. But assuming I couldn’t do that… 

Thanks for your thoughts! Best,

DC 

Hi all -

i recently purchased a 3200 square feet primary residence in a prominent area of Salt Lake City, Utah. 

it’s a new build, and the basement has 1400sq feet of unfinished area that I’m going to make livable. The upstairs (which is finished) is a big, wide open space that is very modern. We are doing some minor cosmetics to really make the home pop. 

My question relates to the staircase. The builder put in a really paltry staircase that doesn’t match with the rest of the aesthetic of the home. I feel like we should upgrade it, since the stairs are a center piece of the home and I think it would (subtly) attract a buyer in the future. I was thinking a modem cable railing. But the bid we got back was about 9500 for the railing, which seems like a pretty expensive bite. 

My initial thought was to just scrap the railing, but I thought I’d ask here first. Would this bring any additional value to the home? 

Keep in mind I purchased the home for 720k, it appraised @ 760, and with the finished basement should be about 875. Our plan is to live here two years, rent it out, and then sell it in five. 

Maybe the 10k in the grand scheme of things isn’t a big deal. I tend to feel that with more luxury homes, small details make a bigger impact. But.. I’m also not looking to overspend. (FYI the basement is being quoted @ 60k to finish… which seems about right to me) 

Any and all thoughts would be appreciated. Thank you! 

Quote from @Logan McKay Zylstra:

Coming from someone who makes a living off of helping people buy and sell properties, I would recommend holding onto the property for the time being. 

With where interest rates are at, your purchasing power is much less than where you bought. In addition, if you are in a good location in SLC, let the property continue to appreciate and then roll that equity into something even bigger. You also have to consider the capital gains tax which would eat a substantial chunk of your equity.

Bonus-

I recommend rolling the equity into one bigger property. I like to trade up and get as much revenue under one roof as possible (a simpler business model in my opinion).

I forgot to mention I have a large tax deduction that would save me from paying any capital gains tax on the money. 

Sound advice. My only question with purchasing a larger unit is what’s the benefit of the cash flow is still very low? Buying a small unit, perhaps with more cash down but higher cash flow, seems like a good way to get a waterfall going? 

That said, bigger more valuable assets appreciate better, and that’s where some real cheddar can be made.

But if the focus is cashflow how does it help to go bigger? This is a concept that I’m still wrapping my head around. 

Thanks Logan! 

Hi all, 

I have a townhouse I purchased in the midst of the pandemic. I put 50k down at the time, and now the property has ballooned up in equity. I probably have about 185k in equity at the moment should I sell. 

The property will also cash flow well @ roughly 800 dollars a month... almost a 20% cash on cash return. I locked in an interest rate of 2.9 percent.  

However, on the equity I currently hold in the house, I'm only making about 5% on the money. 

So my options are to either rent it out and hold the asset, or to sell the property and collect on the 185k in equity. 

If I sold it, I would either use that equity to hold as cash, possibly wait to inject into a dipping stock market (I do both stocks and real estate), or more likely use it to buy new property. 

I will note that the townhouse is in an awesome area of Salt Lake City and likely to continue growing in value. That said, I am worried about a correction that eats at the delicious equity I already have. 

* BONUS QUESTION *

When selling a property, is it better to reinvest that capital into multiple properties, or use it to purchase one bigger asset?

So if I make 180k on the sale of my townhouse, I could either...

Place 90k in two separate properties (2x 450k properties)

OR

Put 180k into one bigger property ( say a 900k property)

Curious to your thoughts. 

Thanks! 

Hi All -

So i've been debating how to best use a rather large line of credit I have. My goals are to invest in one appreciating asset a year (primary residence, low cashflow), and then invest in a cash flowing asset to increase my monthly income as I grow. 

My problem has been that with rising rates, and asset appreciation, I'm having a hard time finding good cash flowing deals, particularly when you consider that the credit line I have would be charging %4.5 percent interest. 

BUT WHAT IF... I used my credit line like the bank giving myself a mortgage? Rather than going and shopping for a fannie may/freddie mac loan, instead I loan myself the money, and use the cash flow of the asset to pay off the line?

EXAMPLE

Duplex - 250,000

Cash flow is 2500 a month fully rented out. 

I use 125k of my own money, alongside 125k of the credit line (@4.5 interest)

Let's say the duplex cash flows 25k (after management/expenses) a year. Rather than taking the money for myself, I use it to pay down the credit line... 

125k / 25k = 5 years till credit line is payed off. 

Now, what is my Cash on Cash for the original cash investment? 

25k / 125k = 20% ConC return. 

Let's say I duplicated this process with another property as I paid the credit line down... 

New duplex - 250,000 

Monthly cash flow 2500 

125k / 125 credit line (let's say 50% of credit line was paid down before new purchase... so new credit total is 187,500k)

NOI 25k annually.

Now combine that with the first duplex... 

50k NOI income annually. Used to pay down the credit line...

187,500/ 50000 = 3.75 years to pay down credit line. 

Rinse , repeat, rinse, repeat... until I have 4-5 assets that are producing 100k - 125k a year with no debt. 

What do you think? Pros and cons to this scenario? Here's what i can see as pro/con argument

PRO'S-

- Lend to myself at cheaper interest than a bank. 

- No mandatory debt service monthly

- Debt pay down MUCH faster than 30 year fixed. 

- Can come with cash offers to deals... maybe squeak better terms with market shifting. 

- Instant increase in income for w2 purposes. 

- my credit line isn't reported to credit agencies... so no threat to credit. 

Con's

- The money spent to acquire the asset is also money that could be used as a downpayment for a better asset. (however, if the asset isn't producing heavy cash flow, then I'm banking on appreciation for my exit strategy since I can't pay down credit line)

- No tax benefits from the mortgage. (but I can still write off expenses/ depreciation?) 

- Would be investing in more "cash flow" markets that may not benefit from appreciation as much. I've considered acquiring higher value assets and banking on the long term appreciation... but seems risky at this point (unless it's a primary residence)

Anyways.. would love your feedback. This seems to me like a way to scale cash flow very quickly by creating a waterfall of cash. But maybe I'm missing something? 

Best

DC