All Forum Posts by: Erich Henson

I've been investing in real estate for 15-20 years. I used the infamous BRRRR method to purchase beat-up single-family homes and turn them into rental properties. With my background as a mortgage broker, I was able to obtain decent financing to accumulate about 57 rental properties (mostly houses, but some 2-4 unit properties). I also have a 10-plex and some office space. I own approximately $12 million in real estate with about $5.5 million in equity.

I feel like I've done a decent job of creating value because I started with basically nothing and now have several million in equity but the problem as I see it is that my cash-flow is not very good at all.  For example, my Return on Equity is only about 2.5%.  I just feel like someone with $5 million in net worth should be making more than me.  

I've made some changes with my property management, which has greatly improved the quality of my incoming tenants so I think that will help.  I also joined a real estate group that allows me to invest in syndications that seem to have pretty high returns on investment.  I recently invested $175k into three syndications so I will see how those go and if they are as good as they claim to be, I'll probably sell off some of my rentals and invest more in those.  

I'm curious if anyone out there can relate to this my situation and I'm curious to know what you did or are doing about it.  I'm not complaining; I think it's a good problem to have, but I just feel like I am doing something wrong or missing something important.  Thank you for your interest.

Erich

Do any of you home investors have rental houses in Adjustable-Rate Mortgages that will be adjusting soon?  That could be an issue for some investors.  Since I own more than 10 rental houses, I had to get portfolio loans on some of my rentals that are financed with 5-year ARMs.  The first ones adjust at the end of 2024...  But I'm sure some have ARMs adjusting soon?

 The millennial generation is slightly larger than the boomer generation now: "Millennials, whom we define as ages 23 to 38 in 2019, numbered 72.1 million, and Boomers (ages 55 to 73) numbered 71.6 million."

My question is whether they will be as prone to home ownership as previous generations..

Some things to consider:

1) Demographics.  Over the next 10 years real estate values should be stable and rise although at a slower pace than the last 10 years due to the large millennial generation entering the housing market.  After that, we could see a decline unless immigration makes up the difference for low birth rates.

2) All real estate is local.  Here in Kansas City (and most of the Midwest), sometimes known as a linear market, we don't see much up and down even during major "crashes."  However, in cyclical markets like LA, Miami, New York, etc, all bets are off.

3) 40% of homeowners own their houses free-and-clear and another 30% or so locked in 30-year fixed rates in the 3-4% rate and are unlikely to sell or let their houses go to foreclosure for the next 20 years.  I don't see much room for a crash with those stats alone.  

My experience in real estate investing has been that reaching $5 million in net worth is easier than achieving $400k net income.  My net worth is around $6 million now but it only throws off about $200k/year in net income.  So I’d probably need a net worth of $12 million to generate $400k/year in net income.  That’s strictly from buy and hold real estate though.  Others have pointed out that you can hit a higher net income from other types of work/business.  

I’d love to hear others’ experience with their net income vs net worth in real estate.  I think I’d need to own over 200 houses to make $1 million/year net income.  Does that sound about right?

Thank you everyone for your advice.  I'm liking the idea of hiring someone and teaching them to manage the properties.  I have a gal who is a realtor that is interested.  I'll work on that and see how it goes.  In the meantime, I am looking into 1031 exchanging some properties in multi-family.  My hope is to find a built in property manager who I could add the single family management too and growing that person's team..  Just trying to figure things out.  Thanks again.

Thank you for your advice.  I saw several posts questioning why hiring a property manager would cut my profits in half.  Here are the numbers:

Annual total gross rent received: $800,000

Annual cost of property management (10%): -$80,000

First month's rent goes to property manager as finder fee: -$66,666 / 2 year lease = -$33,333

Total cost of property manager: -$113,333

Current annual profit; $200,000

Net profit after paying property manager: $86,667

I like the idea of selling some properties to 1031 exchange to a larger self-managed property like an apartment complex but I don't know how feasible it is to try and sell enough properties simultaneously to time it correctly for a 1031 exchange.  I'm also thinking about hiring my own leasing agent to work directly for me to do most of the management work.  

Maybe I didn't purchase these properties correctly to make enough profit but I did the best I could.  Another idea is to refinance a lot of these to get the monthly payment lowered in order to offset the property management fee.  Still brainstorming.  Thank you again for your input!

Fast forward 20 years from first reading Rich Dad Poor Dad, I've built up a portfolio of 50 rental houses, a 10-plex, a couple office buildings, and a tax-free annual net profit of around $200k.  I've achieved my dream of leaving the rat race!  Or have I?  You see I manage my properties myself and my wife and I want to fulfil a dream of moving out of state to live somewhere warm and close to a beach but I'm realizing that if I hire property managers to take my place, my profit will be slashed in half or worse. :(

So it's back to the drawing board.  To move away, we either cut our lifestyle in half or figure out a way to give our portfolio a "make-over" to somehow squeeze more profit out of it while at the same time hiring management so that I don't have to work on it full-time..

I'd love to hear any success stories of others who have been in our shoes or advice on what direction to take.  Some ideas I've had are to start selling off properties and try to 1031 exchange into an apartment complex with management or sell off properties and 1031 exchange them into properties closer to where we want to move to.  I think maybe a mastermind class would be helpful if anyone has a suggestion for that..

Thank you!