All Forum Posts by: Eric Martel

@Jim Cellini I like your style. No BS. :)

What is the duration of the rehab and how long to rent it out

1) HML what are the terms?

2) I always like that option. You better be 100% sure. Are they going to ask a million questions, tell you what to do, ...?

3) What are the terms? Typically there is no prepayment penalty. You take the money out when you need it and start paying interest at that point.

I prefer #2 depending on your friends. if you do a good job then they tell their friends. Then I like #3, #1 is still a good option depending on the terms.

@Chris Watson Sounds like a good deal. Assuming that the market and neighborhood where the property is located is steadily improving. It looks like a good cashflow. The expenses seems a little low at 15% of Gross Income. There doesn't seem to be property management which I would suggest. Cap Rate at 12% with Property Management seems high which makes me question the market. I would recommend for you to do the new parking lot and driveways and claim 100% bonus depreciation on that.  Verify the market rent as well. Don't necessarily believe the seller. Every single building I bought the seller claim that there was no way to increase rent and in every single case we were able to increase the rent by 50% and spending a little bit more on renovation.

1) Own for cashflow. Leverage these asset to optimize the return

2) OPM may be a good idea as long as you don't tie yourself down and you can buy them out whenever you want.

It is not a simple answer as it depends on the title and the city/state where the property is. Is it Joint tenancy or tenants in common? Talk to your local title company or real estate lawyer to understand all the ramifications and options.

@Robert Matelski Thank you Robert. Scale happens. We started with 1 house in Memphis a couple of years ago. I really enjoy the BP community. People are so knowledgeable and willing to share ideas, etc. It is inspiring.

Dear BP! I just wanted to share my story with all of you and hope that it will motivate you and give you hope. My story will show some of the lessons I learned during the last few years. First, it doesn’t take as much money as you think to achieve financial freedom but you have to stay focused on your goal. Realize that made you successful in your job today may not be sufficient for you to be successful as a real estate investor. Be numbers driven and get emotions out of financial decisions. Finally take action. Any action is better than inaction in my opinion.

On October 2014, one of my 2 sons came to me because he wanted to do real estate investments. It gave me mixed feelings. My real estate experience so far was not as successful as I wanted it to be. His announcement brought me back to my very first real estate investment. I was young, fearless, and nothing to lose. I was in my second year of university with $125 in the bank. I was introduced to this real estate mentor who showed me how to do a deal one move at a time. I wasn’t afraid because I didn’t know what to be afraid of and worked tirelessly to find an 8 units apartment building that would work cashflow with a seller who was willing to give me loan in second position. Closed with no money down! But it was bitter sweet because I didn’t see the value in property management so I became the property manager and the maintenance guy. Let’s just say it was not for me.

Just a little background about me before moving on. I graduated in Math and worked as an Actuary in Canada. Most of my actuarial career was dedicated to converting defined benefit plan to defined contribution plan. In 2000, my wife, my 2 boys (5 and 3 at the time), and I moved to the SF bay area. As an actuary I knew that I wouldn’t be able to retire comfortably unless I changed the path I was on. As a father I wanted to leave a legacy for my children. As entrepreneurs, my wife and I tried multiple businesses that would generate passive income.

Back to my son who is waiting on my answer while trying to figure out my inner dialog. My answer? “Sounds great. How do we do that?” Turns out that FortuneBuilder was the answer. FB has a great program for people who are new to real estate investment which was perfect. The two of us tried to put some deals together but living in the SF Bay Area it was nearly impossible. My older son was graduating in entrepreneurship and he wanted to do business so he joined us in this venture. We pivoted a few times since 2015 until we found our footing in Single Family rentals out of state.

February 2017: We bought, rehabbed and rented out our first single family rental in Memphis. BRRR

April 2017: Bought 1 more SF rental in Memphis.

July 2017: Sold 1 rental and bought 1 rental in Memphis. Word got out to our friends and family about our investments and some of them started investing with us.

August 2017: Built a team in Cleveland and St Louis. Bought a fourplex in St Louis, 1 single family (SF) in Cleveland, and 1 more SF in Memphis. At this point our buyer’s list was growing.

Sept-Dec 2017: 4 more deals.

2017: Bought 10 deals and sold 5 deals. The deals that were not sold are still cash flowing today as part of our portfolio.

January to July 2018: We bought 15 more houses, rehabbed them, rented them and sold 10 of them to our growing investor list.

August to December 2018: Sold our primary residence in August. Like I said, be numbers driven. I used the gains to invest in out of state rental properties, used the passive income to pay the rent on a bigger better house for us in the Bay Area. Bought 34 properties including a 20 unit apartment building in mid town Memphis. Sold 11 more properties.

2019: We are on target to more than double what we did last year, including 4 multifamily properties. I also quit my lucrative consulting gig to focus entirely on real estate.

Are you planning to leverage your current rental? How much equity in the current rental? I would try to move to a multifamily asset if possible. Are you looking in FL only or are you interested in other areas?

Our investors look for 15% CoC returns after financing.

1) Am I reading this correctly? Your gross revenue is $1,200 but expenses is $1,360 (assuming debt service is in there too). So you are loosing $160/mo. 

2) When you say the market rent is $1,800 you probably mean once it is all updated. It is probably not realistic to ask the current tenant to pay market rent. How much rehab work will be required to fix the house so that it will get you that rent? Does it make sense to spend that money to get $1,800

You can ask your provider for the comparable sales they used to determine the market value of the property. You can ask an independent real estate agent for a Market analysis (CMA). If you are planning to finance the property the bank will request an appraisal so if the property doesn't appraise then you can back out (assuming you have that as a contingency).

One way the TK provider get you is by selling you at a higher price than the markets. They are the experts in this market so they know what the property will appraise at. As an investor you are focusing on the return. The cash on cash return looks good at that point because they are assuming that you will get 75% of the price of the property. When the bank appraises the property the value may be lower and the TK provider will pressure the investor to put more cash in the deal. As an investor the cash on cash return is not the same anymore so you need to reevaluate if it meets your investment criteria.

Focus on maximizing your return on equity. Keep in mind that Multifamily investment has much more potential to generate a higher return than single family. You have better opex on MF and appreciation (especially forced appreciation) on MF is based on economic value (NOI, cap rate) instead of comparable sales. A 100k SF house is always 100K whether you have a tenant paying 500$ or $5k a month.

1) If I read correctly you have 1 SF rental at this time. Is this property cash flowing? What is the return on equity of this investment( Net cash flow/equity)? If the ROE is < 10%  you should consider repositioning this asset. Sell and do a 1031 exchange.

2) Renting out your current 3 BR home. What would you be able to rent it for? What would be the NCF and Return on Equity for this property once you move out? Again if the ROE < 10% sell the house. If the capital gains is > 500k you may want to consider renting for a year and doing a 1031 exchange. but if you buy a multifamily you can do a cost segregation and get accelerated depreciation that would offset that capitals gains tax.

3) Buying a 4 BR house. Now here is the part that may blow your mind. Have you considered renting a house? If you invest the down payment money towards a multifamily you the NCF might just pay off your entire rent. As your family composition changes you can more easily change house to meet your needs. I sold my house in the bay area and bought a MF in Memphis and the NCF pays for all my living expenses in the bay area. The house I rent is bigger than the one I owned, I am in the hills and have an amazing view which I didn't have before. 

I hope this helps.