All Forum Posts by: Greg Scott

Rachel:

I will not answer your question but provide you the key to answer it yourself.    

How much does the property cashflow?   Cashflow is key to success and survival in real estate.  You NEVER want to be forced to sell because of a problem.  That is when you lose.   

Cashflow gives you money to live on and gives you the right to hang on to a property long-term even if you have unforeseen major repairs.

Many people like putting a huge amount down so they have high cashflow.  But, the more you put down, the slower your potential growth.

While the banks would never let you do this, what if you could borrow 125% of a homes value.  Would you?  What if I told you that after you borrowed ALL that money, it still cashflowed $1000 per month?  How fast could you grow, if you could buy 10 more houses just like that one?

Sam:

Not sure what numbers you are seeing.  Generally my cash-on-cash returns are higher in single family....at least in the short term.   Multi family has a HUGE advantage in a few critical ways.  

1) You can deploy capital quickly.   So, putting $100K, $500K, $1M into a multi family property is much easier than putting the same into single family

2) Instead of waiting for appreciation because the market rises, you can force appreciation, giving you greater control over how fast you grow

3) Financing is easier.  After you grow the value of your property, do a 100% cash out refi and do it again.   Try that in single family!!!

Both strategies are actually just fine.  I wouldn't be where I am in multi-family without my prior single family investments.  It more depends on where you are financially and how comfortable you are with big numbers.

Feel free to private message me with any follow-on questions.

@Carl M.

I've had a few lower-end rentals, properties worth ~$80K.   I find that tenants for those properties generally have lower incomes, worse credit, and are rougher on the properties.

As I progressed in single family I started moving up the food chain. The last few properties I bought were in the $175k range. (I wouldn't go much higher than that as the CoC returns start to suffer.) In those sorts of properties, I found I was able to attract a much better tenant base. When they move out, they often clean and vacuum the entire property. I almost never have damages exceeding the deposit. Note: Even if you do, you should be able to go after them for additional damages. Tenants with great credit scores want to keep their credit so will pay.

To get maximum value as you sell, try selling it just before the tenant moves out.  (Free staging!)   Ideally, you give them some incentive for the inconvenience.   Once the house is vacant, you may find the walls need some touch-up or carpet wear & tear becomes more obvious, so it is better to sell while it is occupied.

So just get some education on managing rent properties and you are good to go.   I highly recommend Lifestyles Unlimited for that.  (I am a member and not an employee and get nothing for recommending them) Their basic 1-year membership is pretty cheap and gives you online access to 100s of hours of recorded video classes plus online live webinars, and access to many live in-person events (mostly in Texas).   My wife and I actually fly down to Texas a few times a year to go to their events.  They changed my life.   Feel free to private message me if you want more details.

Carl:

If you have been successful at fix & flip, you have more than half of what you need to be successful in buy & hold.  You just need the education on screening and managing tenants.

Here is a new mental model for you.   

Instead of fix & flip, think of it this way, fix, rent, & flip.   On my properties, I do just what you do.  I fix the place up and make everything safe and perfect.  If you offer it at market price, you get the pick of the best tenants because your property is the best one around at a competitive price.   Keep the tenant in place a few years and then sell the property before things start wearing out again.  That process should be no problem for you.

Here is what gets really cool.  When you fix & flip, the income is ordinary income, taxed quite high.  If you hold it for a few years, it is an investment.  The cash flow is largely tax-deferred (covered by depreciation) and when you sell, it is a capital gain or portfolio income, taxed differently.   If you like, you can even get into 1031 exchanges to defer taxes further.

So, I'm not exactly answering your question, but hoping to explain that you don't necessarily need to change your strategy, except to insert "rent it to a tenant for a couple years" in between "fix" and "flip".

@Jason Chen

Not knowing what you are doing and taking blind risks is stupid.   In that sense "sight unseen" is risky.  But you will never be picking up a discounted property from me.

On all my properties, they were evaluated by trusted experts.    Not only did I have their opinion, they were independently verified.   My contractor didn't know what my inspector said and neither knew the appraiser.   When all three are in agreement, there isn't much risk and not much value that my eyes would have added.

My actual profits came in almost exactly at forecast. Because my contractor was so good, my rehab costs were spot on. My rent was withing a few $ of forecast, sometimes higher and sometimes lower. My ARV appraisal came back often better than forecast (admittedly a rising market helps).

Arthur:

As you know, one downside of the MLS is that the best deals should already have been picked over by local investors. On the plus side, you can usually get an inspection period which is the critical piece of the puzzle here.

Many REOs have a formula for pricing and accepting offers.   (e.g. lower the price 5% every two weeks, only take offers within 10% of asking)   I would throw out an offer you think will get accepted with contingency on inspection.  Then get a reputable contractor, hopefully one you already have a working relationship with, to give you a quote to make the place perfect.   That is when you really run your numbers.

If the deal doesn't box, then make a counter-offer at a lower price and explain why.  You don't want a reputation as a low-baller, especially among your Realtor brethren.    If the numbers don't work, just walk away, but keep an eye out for later price drops.  If the numbers don't work for you, they probably don't work for most investors.

That article appears more oriented to owner-occupied houses.   As an investor, some times you are at an advantage if you don't go see the house.  Why?

 - You don't "fall in love" with a loser

 - You evaluate it based more on the numbers than anything else

 - As long as you are smart and get inspectors, appraisals, contract bids from a team you trust, you know just about as much as someone who walks the property

 - Perhaps most importantly at this time, you can make a decision faster.

I don't recommend doing this for uneducated investors or those without a solid team.  I've bought 15 properties sight unseen - all very profitable.   Four of those, I owned for a number of years then sold at a profit and still never saw them.

Rusty:

Have you evaluated what your property looks like if you refinance into a 30 year mortgage?   You might decide it looks a lot better.

I know there are a lot of people out there that still want to pay down the mortgage as fast as possible, but since our money is no longer backed by gold and the Fed prints like a drunken sailor, it no longer makes any sense to pay down a mortgage.   Long-term fixed-rate debt will make you much more wealthy.  I recommend Robert Kiyosaki's latest book Why the Rich are Getting Richer.  It does an excellent job covering how the wealthy use debt to make money.

And, even if you still like the idea of paying a mortgage off quickly, if you get a 30-year mortgage, you still can pay more than your payment if you choose, but you have the option to pay less when needed to maximize cash flow.

Jeff:

The answer to your question is both yes and no.

Most people try to get out of hard money loans quickly. Once the property is stabilized, you can do a rate & term refi (no cash out) and get out of the hard money loan. If you are willing to wait until the loan seasons, you can then do a cash-out refi. I'm not up on the latest cash-out refi terms, but typically you aren't going to get as good an LTV as a rate & term refi.

Adam:

Congratulations on being so fiscally responsible.  That is a key start.  Those without cash or credit are at a disadvantage.  That said, I am going to challenge your premises here.

WIth $150K, you have had ample cash to buy several SFRs, yet you are stuck in analysis paralysis.   How are you going to feel  when you have to plunk all $150K down for an apartment?   Do you need the partner to help you acquire the property or overcome your fears?   I suspect more the latter because at one time I was in a similar position.

I recommend surrounding yourself with successful investors.   After you talk to 10 people, all who have done what you want to do, but who don't seem any smarter or more motivated, it will give you the confidence that you can do it too.

As I was writing this, I also just put 2 and 2 together.  Consider going to the Lifestyles Unlimited event in your area.  They are the premier real estate education and mentoring company in both SF and MF with thousands of members.   There are two events coming up in Tampa.  One is next weekend.  Check out meetdel.com and givemetotalfreedom.com for dates.   

I have been a Lifestyles member since 2011.  (I am not an employee nor do I get any compensation for posting this) Until recently Lifestyles was a Texas-only organization.  My wife and I had been flying down to Texas 3-4 times per year to meet people and take their classes.   If you get involved, no only will they give you the education you need to move forward, you will meet like-minded people.  I GUARANTEE they will also expand your thinking and instead of buying a $1M property with you and a partner, you will soon be thinking about a $5M property syndicated by you with a bunch of passive member-investors.

Good luck.

Feel free to private message me if you have any questions about Lifestyles