All Forum Posts by: Eric Schultz

@Drew Osifalujo

Many ways to skin the cat.

You can have them provide an itemized labor quote and then break out a materials estimate as you say. There’s nothing wrong with that approach. I would recommend setting terms with the contractor upfront that you will pay for materials based on invoices provide at each payment draw.

If it is a larger project scope that will take several weeks or months, setup a schedule of values in which to pay them off of verified progress.

When I act as general contractor on my own local projects, I will purchase the major items direct like the cabinets, countertops, fixtures, flooring, doors & hardware, paint, etc. and have it all stored at the property ready to go. You can pickup yourself or pay to have these materials delivered. Then the subcontractors I hire just have to pickup the misc. materials & consumable items as they need them (e.g. caulking, adhesives, screws, nails, drop cloths, trays, brushes, taping mud, etc.) They provide me a receipt on those materials, and I add it on to their payment on the labor progress completed.

This approach described above does two things. First, it allows me to control the costs. Secondly, when the material is sitting in the property and waiting for them to install, they have no excuse not to show up each day to get the job done. There are exceptions, such as waiting for cabinets to be fabricated or things like that, but you probably get the point.

Rehabs are all about managing cost and schedule to get that property to the market.

@Matt Wells

I've done partnerships on flips. We each had our own LLC setup and entered into a separate partnership agreement on each property. It was not always 50/50 split, based on who was bringing the funds, found the deal, or managed the rehab. Make sure everything is spelled out, including the exit terms for the partners.

I caution doing a partnership like this with friends or family though. At some point along the way, you will have a disagreement and will need to decide if the personal relationship is more important than the money made on the deal.

@Tyler Stindtman

Hard money lending at 10% (maybe some points too) may be tough to find, unless you go the private lending route. I would underwrite a higher interest rate, unless you have already made this connection with a lender.

Your potential outcome with the HELOC and conventional loan route will be based on your credit score, DTI, the appraisal, and all the other documents lenders require now with minimum 2 years of records. Potentially a much slower process to get to the closing table versus hard money, but this route would help your underwriting look better with the cheaper cost of money.

@Lyle Klein

Nice work!

I thought about doing something similar back in my college days but similar houses to yours were going for $500K - $800K nearby the campus. Those price points where pretty daunting at the time. But now when my kids head of to college some day (if they so choose), I’ll probably buy a house nearby the campus and make up for the lost opportunity back in my college days.

Another lesson you may have learned...make sure your friends / roommates have their parents co-sign the lease!

@Klemens N.

Thanks for sharing in such great detail and being open to the criticism.

Question #1:

There is some focus here to avoid paying the annual $800 to CA, but are you actually paying more in CPA tax prep fees annually with all the complexity? What would the delta cost be for tax prep if you just had the properties in your name versus a single LLC versus the AP structure you have in place?

Question #2:

You've gone so far with the AP structure, why not just add the property manager in the mix to be the landlord on the lease agreements and collect the rents? Heck, you could even have a separate LLC and "be" the property manager.

Question #3:

Do you also have a personal / business umbrella policy on top of all of this AP structure as a final line of defense?

@Elias Gilchrist

Not sure if you are familiar with the concept of a punchlist, but you can review the contractors work and make a list of poor workmanship and incomplete work items. Make sure to take photos and document the issues with your list. Hold some owed funds back until the contractor makes the corrections. In the private sector, 10% retainer on owes funds is typical.

@Jerry W.

See my post above.

I think you were misled on some of those numbers.

@Josh Calcanis

The infinite banking strategy uses an overfunded whole life policy specifically designed with something called paid up additions.

I would say this strategy makes sense for maybe 1 in 5 serious investors. It’s more of a long term wealth building strategy than it is an accelerator for investing in something like real estate.

Many will focus on the CONS of a whole life policy not knowing there is a big difference between the “retail” whole life policies sold to the majority of the population versus the investment grade versions which are designed with a lower death benefit in order to allow for much higher overfunding contributions on an annual basis than a typical whole life policy. The break even point on a well designed policy with reduced fees is about 3 - 4 years. After that time period, the long term wealth building payoffs of owning the policy begin.

Some of the PROS of these specifically designed policies are:

1.) they grow tax free at a guaranteed 4% interest rate plus typically another 1% - 2% annual dividend, also tax free growth. If you think about it, 5% - 6% tax free growth may be equivalent to an 8% - 10% gross return in the stock market...but then you have expense ratios, advisory fees and capital gains taxes taken off the top bringing your net returns much lower.

2.) The interest and dividend growth in these life policies are not correlated with the stock market or real estate market. These policies only increase on an annual basis. No downside. They cannot lose money unless you take out a policy loan, lose that money and never pay back the policy loan.

3.) The policy loans do not have a payback period. You get to set the terms on the payback. You can actually let the death benefit payoff the policy loan if you choose.

4.) These policies (and cash value inside them) are protected from creditors.

5.) The policies are private contracts, so the policy loans (typically used to invest in higher yielding assets) do not show up on your credit report.

6.) The life insurance companies to setup these policies with are the ones with the highest AM Best and BBB ratings. These highly rated companies have been around for 100+ years and some have been around since the Civil War days. The most impressive part is that these life insurance companies have paid annual dividends consistently since inception, through the Great Depression, World Wars, 1970’s stagflation, Great Recession, and now the pandemic. These life companies have much greater financial strength and history than the big banks. There were no bail outs requested by the life companies in the 2008-2010 period...

I could go on further, but I’ll stop there. And no, I am not a life insurance salesman. I just happen to be educated on the topic.

Finally to your last question, I have not heard of any big banks allow you to use your whole life cash value as collateral for a loan, but there are some credit unions and community banks that do. Check around locally if you have interest going down this path.

@Melanie Stephens

Biggest mistake was the deal I didn’t make.

I passed up the purchase of a three property deal in the Phoenix AZ area back in 2010. I looked up recent market values on those addresses and would have at least 3.5x my investment. A 30%+ average annual return would have been nice!

@Sergio Jordan Manzo

Curious to why you have chosen Austin, TX?

There are other markets like the Midwest or Southeast with lower barrier to entry, especially if funding / financing is a constraint.

Unless you have private lenders in your family or close friends circle, you will need to demonstrate what value you bring to your investors. If you are investing out of state, it will be difficult for you to perform the sweat equity on rehabs or manage the properties. So, you may need to deliver deal flow thru local market connections, deal underwriting, etc. from afar. Growing your network takes a little time, especially if you are trying to develop an out of state team you know, like and trust. Underwriting deals takes knowledge and experience.