All Forum Posts by: Drew Y.

@Jesse McCue Thanks for the advice. Sounds like one thing is after you have your based established, make sure that you are prepared for the growth. Like you said one step back in order to take two steps forward. It's definitely been hard for me making that transition to paying someone instead of doing it myself. 

Thanks for paying it forward with the podcast and advice. Hopefully I will be in the same position in the near future. 

Cheers

@Lee Xing one option is to go straight to commercial . As they tend to have slightly more flexible lending standards. They look more to see if the property can Service the debt normal 1.5X debt servicing. Though jumping straight to commercial loans might come with other risk.

@Jesse McCue Thanks for the podcast. It was very inspirational and provided a lot of good information. You mentioned getting started in property management as a way to build networks and pipeline as well as starting small. That's very good advice and looking at the bigger picture vs  like you said "not huge dollars" in property management. Love to hear how you got past that 10-20 unit stage in into the next 50-100 unit stage, as that seems to be the threshold I am currently stuck at. 

@Dave Foster thanks much for the advice , I will definitely have to noodle on it a bit more.

@David Cruice Do you have any advice or reading material on how to offer a note for sale or structure a deal like that? 

When the good times are rolling we often forget to think about the negatives. That said I decided it might be a good time to Stress Test my real estate portfolio, before I went on another expansion/acquisition round in a new market. I want to understand my personal and portfolio debt to income ratio. How much a lost of income I could withstand and for how long before my portfolio collapsed. It was an amazingly humbling exercise that I would recommend to every investor, given we are at the top of Markets again in many markets. 

Here is how I analyzed things. First I broke things out into fixed and variable expenses in my business and also my personal expenses. Then I broke down my income streams to understand where all the flows were coming from. That allowed me to quickly see where my income was coming from and where my expenses were going out. From that I determined that debt to income ratio of 2.61 that is my every dollar of expense I had 2.61 dollars coming in to service that expense. 

So if I had 1,000 dollars of expense, I had 2,610 dollars of income coming in. This allowed me to understand how strong my income streams were in the event of a collapse in my various income streams. By understanding this I could adjust my income and see the probability of me losing one or more income streams and how it changed my ability to service my expenses. In my particular situation, I could lose 58% of my income and I would still be able to service my total expenses. So based off this calculation I determined that my portfolio is strong enough to move on with my expansion plan into a new market.

Business expenses as % of total expenses : 70%   

1) Fixed Expenses:   

     a)Monthly Mortgages: 45% 

b)Property Taxes: 18.7%

c)Utilities Expenses: 14.8% 

d)Licenses & Insurance:  5.4% 

2) Variable expense - Water bills + repair expense : 16%

Personal Expense as % of total expenses: 30% 

My monthly living expenses

a)Housing: 39.7%

b)Child Care: 25.4%

c)Living expense: 22.2%

d) Food: 7.9 %

e) Insurance: 4.8

Income 

1) Total Income - 100% 

 A) Rental Income: 42% 

 B) Wage income (W-2) : 26 % 

 C) House Flipping Revenue: 23% 

 D) Property Management Revenue: 5% 

 E) Stocks/Dividends: 4% 

Please let me know if you would like help walking through this process as it has been super helpful to understand my financial situation or send you the spread sheet I used.  

Cheers 
 

@Dan Romnek A lot of factors go into the determination of what property size we are buying and are "sweet spot" . 

But high level:

1) If the units rental income doesn't cover mortgage its not going into my buy/hold portfolio , I have a separate "appreciation" portfolio for that on (think San Francisco where CAP rates are 3-4 , but if you can wait out or turn low rent controlled tenants you can improve the building profile.)

2) I am currently looking for places in B- to A- areas. I am avoiding C, D, F areas currently as I don't have time for war zone and high turn places. I had taken on projects like these when I was a little more cash strapped and had to boot strap things, but I am moving away from those as my time is becoming more valuable than the incremental dollar provided. 

3) Ask yourself what is your realistic return that you want and the time you are willing to put in to get that amount. This will go along way in determining what is right for you. 

@Joseph M. Yes, a combination of higher profit margins and also potential for buy/holds out there. I have a partner that is helping with the boots on the grounds aspects out there, since I am still holding down a W2 currently. 

We have a local contractor that my partner has worked with on a few of his buy and holds out there. 

@Tara Wright Good question. I had primarily been a buy/hold investor working a "9-5 dream" and slowly building my investment portfolio. I had a stated goal of buying 1 new rental income property every other year. However as the markets for rentals in California started to become less and less attractive (CAP rates below 6) I started to transition to flips to build up cash and reduce my long-term exposure to buy/holds that might not make as much sense if the rental markets turn and rates move up. I am currently taking my flips gains and moving them into buy/holds out of state or rentals that might take a little more TLC and long-term value add strategies .

@Tonya Davis I would love to do a webinar if I were invited to speak or asked to give one. I appreciate the compliment and humbled to think that my advice has been helpful. Please let me know if I can every share anything else as, I have been taught to give in order to learn more. 

Cheers