All Forum Posts by: Evan Polaski

@Jesse Watson, I will add to what @Michael Bishop stated.  Nothing is truly passive.  For syndications, you need to vet sponsors, and there are a lot, to find one who you believe in and their investment profile makes sense for you.  You also give up control.  I.e. you do not get a say on when you exit the property, the level of renovations being done, etc.  For many people, they don't want that level of control, but if you do, it is probably not the right investment.

As for BRRR, anything that involved rehab will need to be a hands on endeavor. You could seek partnership with a local investor, and align interests through your structure. But again, you will have some vetting to do. As someone who was "BRRRing" before it was a thing, and fix and flip houses, I can tell you this is DEFINITELY not passive to do on your own. There is another active thread here about a contractor that put the wrong tile up in a bathroom, and having to deal with that.

From the sounds of it, the syndication route seems to be the better play. Since you aren't hands on, evening hours to review offerings and setup calls with sponsors seems to fit.  The nice thing too is some, if not most, can be long term holds through 1031 exchanges into the next deal.  So even if the sponsor's track record is 2-5 year holds, if they are an active investor, there will be more coming down the pike to take your investment and proceeds and roll it into the next without taking the tax hit in between.  And you still get the benefit of direct ownership through depreciation and consistent cash flow.

@Blake Hrabal again, this is where it gets to what you and your investor agree to.  As a general rule, you need to season the property for a year before most banks will allow you to refi at current market value.  Many will let you refi sooner, but you will be limited to a percentage (typically 75-80%) of cost versus value.  Of course, there are probably lenders out there that will go sooner and I have done it, but it was on my 3rd refi with that bank, so I had an existing relationship.  

Others may be able to chime in on how long term hold splits typically work.  It really comes down to who is doing what work and how valuable that is.  I am of the firm belief of doing well by your investors first and foremost.  They are the lifeblood of your business.  And if you are relatively inexperienced, then give them more of the take, but run some numbers and make sure whatever split you come up with, you are fairly compensated for.  

If you do well for him on round 1, you can ask for a little more on round 2, and so on.

@John Reyes  You may want to look into passive investing strategies then.  There are a lot of experts on here. I will mention that many require you to be an accredited investor.  

If you are not one already, then buying single family homes, duplexes, etc can be a great way to grow your net worth until you qualify as accredited.  And honestly, managing your own portfolio is not very hard, or time consuming when you have a dozen or so properties.  But be sure you are going in with renovation dollars accounted for.  If you buy a single family, and are cash flowing pretty well, but then you need a roof, that could take out a full year's worth of profit, and does not really add value when you go to sell.

@Adnan Dizdarevic What are your offers?  I have won out on listed, competitive properties because of the terms of my offer.  Cash, no contingencies, no agent on my side, 2 week closing, or sooner if title can be complete.

Are your offers financed or cash?  Are you asking for inspections? Are you working with an agent on your side, that will cost seller 3% of purchase price?

Additionally, you may be losing to flippers, who immediately have 20% more profit in the deal, since you will typically only be able to refi at 80%.  These same buyers may have a team of full time construction workers already, so their rehab numbers are much lower.

But as many mentioned, just keep at it.  It can be very frustrating getting started, but one will click.  Less obvious ways to find deals, make friends with postal delivery drivers, they know when life changes happen and may be able to link you up to sellers.  

@Jacob Ritter, Taylor really hit most of your questions.  Your questions do amount a bit to: how do you start a business? Well, there are thousands of ways.

But to help answer as best as I can:
1) LLCs are most common.  A lot of people just buy a house personally too and rent a room to a friend or rent it out (just make sure you are not violating terms of your mortgage if you buy as owner-occupant and don't occupy it)
2) Generally, your biggest tax advantage is the depreciation you get, which often times will more than offset your profit.  BUT, the IRS always gets their piece, so you will owe more tax on the sale when you have depreciated your property.

3) I would not say there is ever an auto-pilot, but just starting out, the best bet is to find a great manager.  This can be a property manager, if you plan on investing directly.  A syndication group, if you plan on being more passive.  Or a great handyman, if you plan on managing your own.  I began investing on my own, and managed all my own properties while working full time.  6 single family homes was pretty easy, provided great additional income, and I had more than enough time to focus on my career.

4) Excel is the standard for creating models.  As for property management software, it depends on what you are buying.  One single family rental, you really don't need anything.  Track revenue and expenses in excel and send to your accountant.  I started using Cozy.co to give my tenants the ability to pay rent online with either credit card or ACH. I have seen large 100+ units under management use Appfolio, and then you get into Yardi and its competitors for the very large scale owners/managers.

I cannot recommend quickbooks enough though.  Most accounting firms use it, and while it is not the cheapest, it is powerful and saves me a lot when it comes to tax time.

5) This really depends on what you plan on starting with.  A house-hack duplex or 4 family, a single family rental, joining a syndication group.  For me, I own single family rentals and duplexes.  I am very glad I purchased a house and lived there for 3-4 years before I bought my first investment property.  I learned how much a furnace cost, how much a water heater cost.  I had to fix leaky faucets, etc.  Additionally, build your network.  I used the same handyman, who I got from a coworker for about 8 years, until he finally started doing bad work.  But in those 8 years, I was able to meet and build out a roster of others so I didn't have skip a beat.

6) Again, this depends on what you are buying. Typically, you are either looking for a residential lender or commercial, depending on what you buy. Residential will handle 4 units and under. As soon as you get to 5 unit buildings, you are in commercial. You are also in commercial if the property is not owner-occupant or owned under an LLC. There are entire forums here focused on lending, so you will have no shortage of resources to access once you determine what you are buying.

@Daniel Lozowy I am looking to get into 20+ unit complexes.  Both to scale better, and because it gets me into a price point where the asset is underwritten more than the borrower, and non-recourse loans are easier to find.

There are not a ton available, and those that do hit the market have not piqued my interest.  But there are a handful in my neighborhood that I would love to get my hands on and take from adequate to something great.

@Ron Ripley congrats on making the big jump.  Why would you have short term capital gains on the sale of a property you have owned 10 years?  Also, capital gains is not calculated on what you receive at the closing table, but what your sale price is less the book value on your schedule E (?).  Regardless, it should be long term capital gains on the taxable profit.

Another thing to think about is most lenders will want to see 2-3 years of tax returns with your non-W2 earnings on it, if/when you apply for any new credit.  So, making sure you have that history is key, and enough income on those Schedule Cs and Es to get you what you need.  However, if you are going the passive route, this may not be necessary.

To answer your question, it sounds like your focus is on the passive side, so I would sell the property and reinvest in another syndication.  It seems be aligning with your goals and gets you out of a trouble property.  Seems like a win-win.

@Daniel Lozowy while I think cold calling is fine, it has not worked for me.  And even the direct mailing of letters, both hand written and typed varieties, yields little.  I am debating adding an actual rough offer into my letters, as I think sometimes calling or writing and essentially asking if they have considered selling almost always gets a no because the owner assumes you will lowball them, like most other investors.  But digging into old rental listings can help you get a better understanding of what their financials SHOULD look like, and allow you to put a real number on paper. 

I have not tested this theory yet, but I figure it will get people's attention better if they have an idea as to what they might be able to sell for.  I understand there are risks to this too, but putting an offer, with the caveat of based upon complete financial review, might be more enticing for owners on the fence.

@Da Shiek Woodard I am a Cincinnati investor.  As with all markets, and others have mentioned, you need to know the market.  There are a lot of out of towners investing here, because we can offer much better cash flow than the coasts/major metro areas.  As with all cities, there are good pockets and bad pockets.  Generally, looking at nearly everything hitting the market in the Cincinnati area, pricing is generally correct.  The $50k properties are generally in areas where you cannot get as much rent and can't be as selective with your tenants, OR need a lot of work.  

Not to say there are not deals to be had and money to be made, but the highly active investors I know in Cincinnati at least, are rarely buying on market deals.  They are blasting direct mailers out and able to get good deals that way.

Best of luck, and please reach out if you have any specific questions about Cincinnati.  I also have a friend in Dayton with about 120 single family units that I can connect you with, if you think that market might be better for you.

It all depends on what you are looking for.  What are you looking for out of life?  Do you want to grow your rental property portfolio (I assume you do, since you are here).  A duplex is a great starting ground and can help get your feet wet in the rental property game. But good managers are hard to find (at least for me) with a single 2 family.  So you will either need to be the manager, or will be battling managers to run it for you.

Lastly, when you say $100k equity do you mean the property is worth $100k more than you paid for it, or $100k more than your current mortgage balance?  Typically, although some of the mortgage brokers on here would know better, you can only access up to 80% of that equity.