All Forum Posts by: Eran G.

 Jay - I have followed your comments here on BP extensively and heard your podcast.  You obviously know a lot about real estate.  Do you think buying notes should be reserved for more advanced investors?  I am an intelligent individual that loves to learn.  I am finding that the buy and hold real estate market has changed quite a bit with inventory being very tight in cash flowing markets, prices going up, and profit margins going down.  I have thought about investing in notes but this seems like an investment vehicle with many more moving parts than owning RE.  What are your thoughts about getting into investing in notes?  

I am in a tough situation. I am ready and willing to take action but I need to narrow down a strategy. I am a busy professional with a busy private practice. I live in Socal and have decided to invest out of state (buy and hold SFR) in Indianapolis. I am an entrepreneur with a business mindset who would naturally like to maximize returns. That said, I already have a job that I love and have no plans to make real estate a full-time job for me no matter how lucrative it might be. I need a real estate investment option that is going to work with my lifestyle and that means that while I have time to continually dedicate to my real estate investments, I certainly dont have the time to make it a major priority in my schedule on an ongoing basis.

The problem as I see it is this:  Maximize returns through BRRRing or go the simpler (but certainly not passive) strategy of turnkey.

BRRR strategy:

BRRRing means building a  team and managing a rehab project.  I have done many home improvement projects in my own house and know first hand how squirrely contractors can be even when you live in the property that's being renovated.  The thought of trusting others to manage a contractor out of state and get a good product sounds a bit like a pipe dream.  I keep hearing about how important it is to have good feet on the street.  Absolutely.  That sounds like a no-brainer.  But trust is earned, not given, and how do you build trust when large funds are at stake and all the players are out of state and you are starting from scratch?  Please note, I plan to meet the players in person and see the property firsthand before I close a deal regardless of which strategy I use, however, that wont solve all my trust-based issues.

Enter the turnkey strategy:  

It could solve a big part, though certaintly not all, of my time constraint issues and fears about managing a rehab project.  The returns are certainly going to be lower but I could live with that if value is brought to the table in other ways.  The issue with this strategy I am finding is..once again...who to trust?  It appears almost everyone involved in the turnkey game on BP has a vested interest in you going with this outfit or that provider.  Everyone is incredibly nice, mind you, but there is likely a vested financial interest in it for them when they make their recommendation, even when they are not "disclosed turnkey sellers."  I have no doubt some, possibly many, of the people making turnkey recommendations are truly good people with recommendations that could very well help my personal interests, however, I am struggling with who to trust.

The 3rd option:

Get a good deal on a good property off the MLS with little to no need for rehab and then hire a property manager. This may seem like the best of both worlds until you realize that the money you saved from not paying full market to a turnkey provider on a 120K property is maybe 5-7K. Now I am not scoffing at that kind of money, but from a time saving perspective, is it even worth the headache of doing even a minor rehab to maybe start off with 5K in equity when I could have saved that time and headache if I started off with a solid turnkey provider who delivered on a good product and looked after me?

So here I am, head spinning about issues with investment strategy, trust, and which direction to go.  I would love to hear feedback from busy investors (who are not full-time real estate professionals) and are investing successfully out of state.  What strategies are you using?  What worked and what didnt?  What did your journey look like? 

Please note, I am not a passive person, I am realistic about needing to be active in my investments and holding my team to account for their actions and performance.  I plan to visit my properties at least once per year and I have no false hopes that someone is going to take care of me and make it all perfect.  However, getting into a wholesale deal and starting from scratch on a big rehab project while hoping that I can trust my contractor, property manager, and anyone else to do things the right way when I have no contacts or existing relationships whatsoever is likely a recipe for disaster.  

I recently finished reading a real estate book where the author recommends tying up a property quickly (if initial analysis suggests the deal is a good one) and then doing the due diligence. This sounds pretty obvious but the question then is what if the numbers turn out to not be so good after all? I am aware that a buyer can back out of a deal and have their deposit returned based on the contingencies (loan, inspection, etc.) that were in place when the contract was signed. Doing a proper due diligence on an apartment building can take some time with respect to getting all the paperwork related to income, expenses, leases, and going over all the documentation. What do you do if a deal looks good initially but upon closer inspection, it becomes apparent that the numbers you were told are off such that you no longer want to do the deal? How do you back out of a deal strictly based on the numbers being off?  What kind of contingencies should you put in place for that type of a situation?

Thank you for the good suggestion @Todd Dexheimer, that's certainly consistent with the philosophy of many pros here on BP.  

My property taxes rate is .79% on assessed value. I believe Austin is 1.38%. That's a substantial difference but could be worth it if the appreciation happens. 

I have thought about a cashout refi to purchase other property but I also thought that the LA market can certainly go down like it did in 2008 and potentially avoid that type of a scenario by sellling.  I know right now that seems like it never happened, especially if a person like myself did not get burned in '08, but I am not fooling myself that the property prices here can't go down in value.  I am aware of the high property taxes of Texas and will admit that I have not seriously looked at how that would affect my bottom line in the event I wished to sell.  I wouldnt mind doing an appreciation play in a place that was not as risky as California, I just dont know where that place would be.  The Austin idea comes from the fact that there is a lot of job growth there along with high paying jobs.  But yes, the idea of getting slaughtered by taxes is not appealing when considering there is speculation on appreciation happening in the first place.

I would like to get feedback on an idea I have of playing the cash flow and appreciation at the same time but in different markets.  

Here is the strategy:

I am thinking of investing my existing money for cash flow in an MF property in one of the usual cash flow places: Memphis, Indy, KS, Atlanta etc etc.  This would likely be in the form of a conventional loan with me putting down 25%.  

That said, I do have an "appreciation" for playing the appreciation game as I have a property in Los Angeles that I bought in 2010 that has appreciated 80% since I bought it.  There is no doubt that solid appreciation will outperform cash flow with the caveat that appreciation is speculative and cash flow not nearly as much.  The thinking goes like this:  The LA market is very hot and may or may not continue to appreciate in the near future, in fact, many would argue that a bubble is taking place at the moment.  I am thinking of selling my LA property (which is currently cash flowing about $400/month) and with that money buying 2 houses in Austin to play the appreciation game (with potentially little to no cash flow) since Austin long-term has more room to grow (IMHO) price-wise.  

Is this too risky of a move?  Should I sell a property that is currently cash flowing $400 a month and has appreciated 80% since I bought it (and has the potential to continue to appreciate) to buy a property out of state with the speculative goal of it appreciating in a place that has already experienced a considerable amount of appreciation?

I would love feedback on this idea.

I appreciate the time you have taken to respond to my question.  I may start out with Quicken and see if my needs justify going with more complicated software.  What I am now learning is the Quicken for Windows is much better than for Mac (which is what I own).  Anybody know more about those differences and if I should make sure I use the software on a Windows-based machine?

For someone who keeps their life quite tidy and neat, I am afraid to admit that I currently do use any budgeting software to keep track of income and expenses. I currently own one rental property (SFR) and I am in the educational stage of serious real estate investing (meaning I am not out making offers at this time). I know I need to have a better grasp of my finances if I really want to play this game.

Having absolutely no experience in formal accounting (but being smart with money), I am quite overwhelmed with which personal finance software I shoud go with.  There is Quicken (which I have read is for personal finance), there is Quickbooks (which has much more powerful features and is geared for businesses - which I do have one), and there are competing products.  To make things more complicated, both Quicken and Quickbooks have multiple versions (Starter, Delux, Premiere, etc. etc.).  

I wish to start at the beginning with understanding my personal finance picture as well as have the option to later include my investments into the fold.  With those needs and wishes stated - where should I start? An Excel spreadsheet, Quicken, Quickbooks, something else...