All Forum Posts by: David Sims

@Lin Chen - our realtor is Paula Beauchamp with Keller Williams. She is great, works with several builders, lives in Hochatown, and has a good inside track on what’s available.

Her number is (512) 201-3875.

@Kevin Ramsey I bought my first one last year and have partnered with a builder to build serval more. Let me know if you want to connect with our realtor to discuss what we have coming up. Like everyone on this thread indicated, cabins are selling directly with builders in a matter of days and don't hit the MLS.

@Patricia Weidler, we have several cabins we are building over the next few months in Broken Bow. I'd be happy to connect you with our realtor. I would suggest getting prequalified and connecting with local property managers if you plan to rent as a STR.

@Jered Sturm you are correct I was assuming the $200K was gross rents, not NOI after expenses. I'm having a hard time locating a property that advertises anywhere close to that percentage of rents compared to the total sales price with multifamily in the Texas marketplace. Again, I think my issue is finding/locating the right deals which will probably require off-market sellers rather than over inflated Loop net listings. Your analysis makes much more sense especially with the 50% operating costs. Congrats BTW on the $2.1M deal. I'll send you a PM to schedule a call at your convenience.

@David Thompson I'm going to research more about the solo 401K as well as IRA lending. Look forward to meeting with you Friday to discuss your deals!

@Justin Windham would you mind sharing a high level overview for myself and other readers of this form on how investors are structuring their purchases with their retirement accounts? You mentioned "while pursuing the actual ownership of real property outside of their retirement account."  With this structure, are investors creating an entity inside their retirement accounts, lending out of that retirement account against the property with the borrower being the individual investor? Could you provide a specific example and structure?

Be careful on asking family for money if this is your first deal. I agree with Chris Martin that there appear to be several red flags in your post. It seems you are trying to buy a property with little upside and count on appreciation, split the potential cash flow, and pay back your family member through a re-fi down the road. The problem with that model is that your family member takes 100% of the risk and could simply buy the property themselves. Ask yourself what are you bringing to the table? I have lent on several buy, fix and flips as well as partnered as a JV on buy fix and hold. In each scenario I require the borrower to have some sort of "skin in the game" which is usually money. If you do not have any cash to put into the deal I would not lend on anything over 75% ARV (after repair value) including repairs. This way my money is protected by the equity in the deal regardless of your performance on finding a renter or missing a big ticket item on the repair estimate. On a JV buy and hold I receive 50% of rental monthly cash flow and 50% of the profit when the property sells. Typical I want my principle investment back in 12-18 months. If you wait 3-5 years this will dilute my return. The key to the PML return is not in the rental income but in the sales price of the home by building in equity upfront when the deal is purchased. If there is no equity in the property up front when you buy, there is no upside for the lender when you sell except the rental income; not to mention the risk of the lender not receiving their full principal back when you sell/refinance the home. My suggestion would be to search BP and learn about wholesaling properties to cash buyers before you buy a rental using private money. Attend your local real estate meetup groups and talk to the investors who buy property and ask what they look for in buy and hold properties.

@Jered Sturm thank you for the thorough response. Over the last few months I have been analyzing several potential multi family and industrial properties through local brokers/loopnet/costar in an attempt to find a property that would yield somewhere near a 10% Cash on Cash return and a 15%+ internal rate of return (including NOI, depreciation, and a 2% assumed appreciation).

Using your numbers: $2.5M purchase price with $500K down and $127K debt service - 4% interest over a 25 year term; the property yields a $73K gross operating income which would equate to14.6% of the 500K down. However I don't think I can use that number to compare to a 12% private lending fee as I would also be required to figure in the operating costs of owning the property in order to calculate the real cash flow and my Cash on Cash return. 

$200K gross rents (8 CAP) and $127K debt service leaves 73K before operating expenses. After I account for taxes, insurance, management fees (which I am finding cost between 5-10% of the gross income), maintenance, leave room for vacancy assumptions, and HOA fees in some cases, I have found these operating costs average about 25% of the gross income. In this example that would equate to $48K per year operating costs leaving only $25K cash flow per year after debt service. (200K - $127K - $48K = $25K)

I've read on BP that you should figure 50% gross rent operating costs when analyzing a property? If that's the case I would need to raise the rents, get a cheaper interest rate, lengthen the loan, or put more money down. 

$500K down payment plus closing costs of 1.5% = $507.5K cash out of pocket

$25K net cash flow per year after all operating expenses and debt service only yields a 5% Cash on Cash return.

The 27.5 year deprecation helps with the internal rate of return and the potential appreciation is appealing for building equity. My numbers may be off, but the risk of vacancies, unforeseen maintenance and market fluctuations have me leaning toward a NNN (triple net lease) commercial deal where a 8 CAP gets you closer to that 8-10% cash on cash return as you have no operating costs. The down side I am finding in NNN industrial is that lenders require a 30% down payment, the appreciation is limited, and the vacancy can be a killer if you go 2-3 months without a tenant. (3 months out of 12 = 25% vacancy rate vs owning an apartment building where you have multiple units)

Maybe I haven't found the right property yet and I have been looking into lending with a MF syndication group with the goal of becoming an eventual property lead. Reading through several posts on BP has given me a lot of confidence that owning is that right way to go.  Maybe I haven't found the right deal yet. 

@Jered Sturm - if you get time I'd like to talk further maybe over the phone. Thanks again for the response.

ered Sturm

For the past few years I have been lending my money on SFR fix and flips and getting a 12% cash on cash return. Recently I've been looking at the tax benefits, potential appreciation, and CAP rates on a multi family or commercial property and wanted to see if anyone has a compelling argument either way on whether private lending at a 12% return or buying and building a portfolio of rentals/multifamily/commercial property is a better path for building long term wealth? Currently I am only able to find cap rates at 6-8% on either NNN commercial or multifamily properties and the market is flooded with retail buyers fighting for the bigger deals. My cash on cash return is higher doing the private lending but I am not able to realize any appreciation or tax benefits at the end of the year on my private lending. My individual goals are similar to most I would assume -- Building my net worth and increasing cash flows while avoiding as much taxes as possible. Any insight, experience or actual numbers using leverage(financing) to build wealth would be much appreciated. I'm not willing to share my financial situation online for the world to see, but for example let's assume $500K of cash at 12% private lending vs leveraging financing and buying properties over a 10 year period.