All Forum Posts by: Phillip Denny

Investment Info:

Single-family residence fix & flip investment.

A work in progress! This is my first endeavor using other people's money, so I'm pretty excited about the possibilities.

@Alina Trigub @Thomas Rutkowski Thanks for the replies. I didn't think I could borrow from an IRA, but it sounds like I can borrow against it? What type institutions originate these type loans?

@Michael Kistner Thanks, that's good to know, I hadn't thought about that as an option. Do you know what type lender is most likely to do a HELOC on the three properties?

@Nathan Hillier  I mostly agree based on this information.  I was just posting about this topic the other day as well, albeit thinking more in the rental space.  I think so much is personal, but to me it's finding the right balance and strategy that fits in with your life, personality or business strategy.  I think what you're touching on is that your risk tolerance is lower because you are somewhat new in the business and can't afford to get caught hold a bunch of inventory if you have to support the debt service.

Also, like you mentioned, seems like there comes a point where your inventory holding costs reduce your profitability. Personally when I think about starting in flips, I worry less about ROI and more about pure net profit vs. my time and risk. In your case, it sounds like being a cash buyer provides a strategic advantage for you because you can move much quicker on a deal than someone who needs financing.

I agree as well on having an exit strategy and turning them into a rental as a criteria.

I heard a while back on a podcast (I think Kathy Fettke), that you aren't a true real estate investor until you don't have any money to invest.  I guess I should be excited, because I've gotten to a place where I have 4 properties all with pretty good equity (one is my primary residence).  However, now most of my cash is tied up and I'm probably a year out from being able to refinance anything.  Somehow, now I feel like I'm just scratching the surface!

Here are some of the things I've considered after much reading/listening:

1) HELOC on primary residence to implement BRRR on another property. This always worries me to put my primary residence on the line and my goal is to own my primary residence free and clear.

2) Partner with someone on a commercial office space (house hack) and use part of the commercial space for another business.  I know very little about commercial space but have a good commercial property resource.

3) Use private money and leverage my flexible schedule to manage deals.

4) Go into saving mode until I have enough money saved to continue deals.

Anything I'm missing here or any recommendations from someone who has made this transition?

@Kevin Mulvaney

Obviously every relationship is different, but I tried to get my wife listening to podcasts, books, etc, but eventually could tell she just wasn't that interested.  She has a full time job and we have 3 kids, so I found other things she enjoyed about real estate to get her involved (and talked about it constantly).

For example, I found she loves looking through the MLS and driving for dollars together, so I really latched onto that. I'm sure you both have strengths that you can leverage to have different roles in the business. Despite me being the active partner in our business, I also used a tip from the podcasts and started giving her a bonus once a deal was done. I've done that twice now and she's loves it despite being a fairly frugal person.

Her role has also been as a sounding board for challenges and she also helps keep me focused.  At first she was very hesitant own rental properties, deal with the unknown, etc.  Now she 100% bought in and actually helps push me when I start having doubts about my path.

Of course as books go, Rich Dad Poor Dad is tough to beat in terms of a conceptual understanding of why real estate.

I hope your journey goes well!

@William Henze I'm curious to hear other responses from more experienced folks, but I did something similar and bought a duplex in Tennessee from a bank that was occupied.  I think Tennessee is comparatively landlord friendly though.  I did extremely conservative estimates as if I would have to replace all plumbing, HVAC, electrical, etc.   This may not be an option for you, but I got contact information for one occupant (who gave me the other contact info) and I reached out to the people prior to purchase during my inspection period to feel them out.  Also, I've bought 2 different properties "As Is" where I still did my inspection and went back to the seller with concessions that I got.  Basically I tried to get a little creative on the due diligence, because the bank wasn't too much help.  In this case, I was able to piece together enough to get comfortable with the risk.  It would concern me if they can't or won't given you any kind of information at all, but perhaps that's normal.

My takeaway though is that people are much more unpredictable than repairs.  I didn't think it would be difficult to get everyone out, but there were 4 people living on one side all of whom I had to get out separately.  It took me about 7 months to get everyone out.  Much of that was just me being too flexible, but if I were doing it again, I would probably offer more cash for keys from day 1.  Its so hard to feel like you're paying people for being crappy tenants, but it would have been worth it in the long run just for my own sanity.

Good luck on the endeavor!

Loved this episode.  Definitely made me re-evaluate my attitude towards risk that's been holding me back recently.  I loved going back and thinking about some past successes/failures, then breaking down, what was the product of my good or bad decisions, and what was due to external factors.  I decided my first successful fix and flip was mostly luck.... 

@Russell Brazil thanks, I'm probably naturally a bit more conservative that many, so I try to think about different risk factors.  I call it being a calculate risk taker of course. Seems like nobody thinks they are going to be the guy that loses everything until they do, which is why its helpful to me to have  good "gut check" from others with more experience.

@Frankie Woods That's a good point. I'm probably a little higher on the equity side than most, but I figure if I have good equity, my debt service is probably relatively low compared to rental rates and will also help ride out the soft patches. Yes - the range of what people consider risky is interesting. I got out of college and bought that house right amidst the GFC, so that definitely shapes how I think about things. Sometimes I see (or hear about) people doing a lot of deals, but not worrying about the risk associated. A lot of the more creative financing isn't worth the risk to me even though I could probably own more properties (HELOC on primary residence an example). Obviously just personal preference though.

Lately, I've been thinking a lot about risk as the economy keeps on rolling.  My biggest fear as an investor (and father of 3), is that I'll overextend myself and end up in the same position that a lot of people were in during the crash. 

I purchased my first property at age 23 right before the crash in 2008 with 100% financing and its just in the last year come back to what I paid.  Luckily, I had a good job through the recession and rented out a room to a friend, but I've often thought, if I had lost my job for some reason, I may have ended up losing the house because I had no equity and no real savings.  Of course at age 23 with no wife and no kids, optimism abounds and it worked out.  However, my outlook and risk tolerance has certainly changed!

I'm curious though, what strategies are people using to mitigate risks associated with some of the different financing options (HELOC's, refinancing, etc)? I personally have decided that I don't want to own rental properties without 30% equity and 6 months of cash reserves for each unit. On the flip side, I don't believe in timing the market and I love real estate, so I don't want to miss opportunities to grow my real estate business.

Anybody that was heavily hit by the last recession that could offer thoughts on the right balance between leverage and risk during good times?

Looking forward to hearing some thoughts.