All Forum Posts by: Robert Feol

Hi All

I live in Memphis and own a management company and turnkey company here, but first and foremost my interest is and has always been growing my personal portfolio.  While I am able to self manage my homes in Memphis and have had good success, I did buy a vacation rental in Gulf Shores last year and have been struggling to get it to cash flow with the property manager.  It's been annoying, to say the least.

The property manager has been VERY professional, and due to so many daily tasks I have traditionally speaking, lately I have been working on setting aside time to really focus on why the home is not cash flowing as projected currently and how to improve my booking rate significantly.  With that being said, I spoke to my wife and also my good friend @Stephen Akindona who I am blessed to work with and I am fully prepared to let my property manager go if I a) am unable to eliminate the expenses that seem to be coming in regardless of meager bookings, and in doing so find and try another management company or b) self manage the unit with the help of a good cleaning person, similar to the Air Bnb I have in Memphis where I manage all the bookings and my housekeeper simply turns the unit over after each stay.

I state this only to encourage you long distance investors to consider ALL options.  There are many great management companies in Memphis, but the best property manager in my opinion is yourself.  No one will be a better steward of your property than you.  But understanding the feasibility or lack thereof of long distance management, don't be afraid to let yourself out of your management contract. 

I see alot of people slamming Crest Core on BP here, and while I have referred clients to them over the years(I have no financial interest in that company, fyi) some have had a great experience - a local client of mine LOVES them and sings their praises - and others have had experiences which vary.  That being said, I know @Douglas Skipworth and @Dan Butler personally(Crest Core partner owners) and I know for a fact that they would let any management client out of their management agreement if they are dissatisfied with the service offering they are receiving.  These business owners understand there is no value in forcing a client to stay via contract clauses if a client is unhappy.  Both parties lose and it is better to part ways.

This speaks again to fluid dynamics - if you are unhappy with your management company interview others and change it!  Don't stay static and unhappy - assess your situation and make the changes needed to accelerate your growth and success.  And remember - every month when your tenant makes a payment on your loan you are one more payment closer to financial freedom!  So get the right chess pieces in place an flourish!

Hope this helps.

rf

Marvin

It sounds like you have what is known as 'structural settling'.  This is usually indicated by uneven floors, and then more noticeably, cracks in the walls.  On the exterior this presents itself visibly as cracks in the foundation(brick facade or cement underpinning, for example).  You can tell on older homes if this has been repaired - in a cement underpinning, for example, you would see an old crack which has been filled in with mortar of some kind - it looks like a smear.

I'm not a structural engineer but have done this a long time.  Deterring visible factors also manifest themselves when you look at trim - hallway, bathroom door trim, for example, is no longer square, but starts to look somewhat trapezoidal.  It's hard to miss.

Assuming you want to BRRRR a property, this one for example, you would have to be all in at 75% of ARV.  assuming 120k as a realistic value, can you be all in at this house for 90k?  Or 85k, assuming 5k in your refinance costs and impounds cost about $5,000.  Seller asking 60k, maybe you would be looking at 40k as a discounted price - can you rehab a house built in 1880 to modern standards for 45k or less?

These older homes all have secrets, and secrets can be costly.  So, make sure - if you get an accepted contract - you get a structural engineer to investigate the issue - it is possible the seller might pay for this inspection as a request in the contract.  Assuming you can repair the issue, and be all in at 90k or less, sounds like you have a great deal on your hand, assuming you fix up the home properly.  We like to address ALL deferred maintenance items when we rehab homes in Memphis - new dimensional roof, windows, hvac, electrical, everything.  I'm glad to send you a list of what we do as a scope of work if that would help you.  

Remember, however, there are many great deals - heavy, structurally intensive rehab work may  be too much for you to take on, understandably.  There may be a better deal out there.  Let me know how it goes!

rf  

Hi @Lisa Sluss

I think what you are looking for is generally called 'desk side banking'.  The three banks that you mention who turned you down seem to be larger banks with multi branch, multi state, corporate type of structure.  I, personally, have found that when you work with smaller, community banks, especially local banks who have local lending committees who meet weekly, your approval rate will skyrocket.

Also, it is important to understand the mentality of the banker - taking a first position up to 75% on your homes which are free and clear - what is known as a 'secured line of credit', with the homes acting as collateral, is an absolute 'no brainer' for any bank who works with investors. They will do an appraisal in advance of granting you a loan, and then you would be able to draw freely from it. But the word 'HELOC' is traditionally associated with 2nd mortgages on primary residence, so I think, in addition to making some relationships with smaller banks in your community, ask them if they grant homeowners secure lines of credit with the homes as collateral in first position.

Remember, there is a thing called a CD Line of Credit - for example, you put 40k in a CD(this is a terrible investment, by the way, but I am doing this for illustration) and then you tell the banker you want a line of credit secured by the CD.  The banker gives you a 40k loan for this at a higher interest rate than he or she is paying you on the CD, and then makes money on the yield spread, and if you were to default(God forbid), he TAKES THE CD, CASHES IT, AND PAYS OFF YOUR LINE OF CREDIT.  Your 40k is at the bank the whole time, and there is no downside.

My point is - the banker does this ALL DAY LONG - he never says 'no' to this type of deal which is highly favorable for him with no downside risk.  And when you secure a house to to a first position secured line of credit, it is even less of a no 'brainer' - maybe he won't give you 75% of the appraised value, maybe just 100k - about 30 pct - until you grow the relationship.  But any true investment banker, worth his salt, who understands real estate and works with real estate investors, should have no issue making these loans to you.  Yet, if I go to Bank of America today and ask for this, in addition to waiting in line forever, the banker, in all likelihood, would have no idea what I am talking about. 

Focus on the smaller investment/desk side banks. If you are unsure of who is lending in this capacity in your local area, contact your local REIA. Hope this helps.

@Davis Doan great to have you here!  Get working on building that portfolio, there are many people here who are glad to share their experiences in the same journey you are embarking on.  No fear!

Hi Christian!

I live in Memphis where the cost of housing and living is much lower.  If you find yourself traveling a great deal but housed/based in San Diego, one option outside the box you could consider is what they offer in a course called Bnb Formula.  I have no financial interest in this company but watched a webinar of theirs and, found it was innovative that, instead of purchasing property and using it as an Air Bnb rental model for househacking purposes,they in fact simply rented a suitable place and then applied the Air Bnb model to it, using it for their personal residence if needed as well as providing rentable space for income purposes.

This could be a great way to generate some significant passive income while abating your housing payment altogether, though you would not build an equity stake.  Obviously, there is tremendous amount of valuable information in these forums on house hacking, and if you have the resources to consider a purchase in San Diego and life looks like you will be making that home for some time, I have found single family homes with rentable space such as guest apartments and carriage homes, as well as small multifamily(duplex - quad) can be a fantastic way, when combined with a daily rental model vs monthly rental model, to explode your passive income.  Couple this with an aggressive mortgage payoff, and you are well on your way to financial freedom.

Hope that helps and, as always, if I can be of assistance please don't hesitate to contact me.

rf

HI @Jacob 

@Jacob Lamar this thread is filled with strong advice and none of it is incorrect.  I think@James Wise @James Wise and @Nicole Heasley Beitenman posts' summarize two sound, but contrarian viewpoints. James says 'get your house in order' and Nicole says 'why wait?'

I am sure you see the wisdom in both of these posts, but I wanted to share with you some alternative ideas to cogitate on as you are so young and have obviously done very well professionally.  Yet, as I outline in my new book which was just released, you have three things(I am making an assumption here but let me know if I am wrong) going against you financially right now.  Please understand I am making some financial assumptions as I don't have your personal details, but this should be correct or pretty close.

1) Your housing payment(apartment in NYC) is probably your highest monthly expense, comprising a significant majority of your take home pay.  This is probably extremely close with your student loans, as follows:

2) Assuming 200k in student loan debt and a 20 year repayment at 3.5% fixed(I'm assuming subsidized loans here), your monthly payment would be $1,159.22. 

3) Someone in the thread said you are making '100k large' but I do not see where you stated you make 100k, so I am going to assume you make more than that - double - 200k.  It is not necessary to correct me or share your income information here, I only discuss your income to make the final assumption I need which is - the IRS LOVES professionals like you who receive 1099 income or W-2, both of which are subject to social security tax and effectively places you in what I call a 50% tax bracket.  So, assuming you make 200k, take home 100k, your biweekly take home would be $2,083.33, or a biweekly check of $4,166.66.

Again, we have to factor in items that we haven't counted like - health insurance, transportation(subway?), food, clothing, entertainment, utilities, retirement deductions like IRA/401k which you channel into a 3rd party investment firm(assuming you have them), other benefits your firm may offer which you should be taking advantage of like a salary match, and so on.

So a typical young attorney in NYC might have a general budget look like this:

Rent: $1500

Student Loans: $1,160

Health Insurance: $800

Food, clothing, expenses, entertainment: $3000(is this high? Assumes $500 weekly for food, feel free to raise or lower as you see fit)

IRA/401k Deduction(assumes 10% of monthly salary): $840

Transportation: $500? I am assuming you do not have a car, this would be much higher with an auto payment and insurance, can be lower obv.

Any other outstanding bills - revolving credit line payments, misc, etc. - $200

Utilities - $400

Total Monthly Spend: $8400

Now I didn't plan the math this way but it worked out to be exactly about what a 200k earner would bring home, post tax, each month - which effectively means this theoretical person is living paycheck to paycheck.  Your individual spend may be (hopefully) less if you have roommates who share expenses and utilities, if you never 'go out', eat very little, etc.  But the point of this exercise(and this is the fundamental premise of my book) is that for 76% of Americans who live paycheck to paycheck, when you:

1) Have your housing payment represent the largest portion of your take home pay, and;

2) Have massive student loan debt, and;

3) Give half of your paycheck to the IRS involutarily through State tax(didn't count NYS tax in the example, an effective tax rate of almost 15% on TOP of your take home pay), Federal tax, local tax, and social security tax;

It becomes extremely difficult to get ahead financially simply working and trying to save.  Additionally, the Federal Reserve has a stated optimal inflation rate of '2% annually' so any money you manage to save and NOT invest dies through attrition anyway.  You are a perfect example of everyone who has done everything 'right' and now you recognize that you want to start acquiring properties and passive income because while you love your job obviously - working at it for the rest of your life may not be the way to make your financial dreams come true - or, at least, as quickly as YOU would like to see!

I cannot comment on if any of the excellent advice in this forum is 'right' or 'wrong' for you. I was in this exact situation - I was a school teacher from NY who moved to Memphis, TN and was making about 38k when I started with 100k in student loans and MASSIVE credit card debt.  And no nest egg.  For me, I realized that buying real estate was the only way I could get out of my situation so I started by doing several things:

1) Buying a duplex I lived in and rented the other side, nullifying my mortgage and utility payment via the tenant's payments, and;

2) Buying a duplex which generated additional take home cash flow, and;

3) Wholesaling homes for monthly spendable cash.

I parlayed this then into what I chronicle in my book, which discusses using aggressive amortization schedules to pay off rental homes in very few years and some other aggressive, out of the box strategies using private lending and seller financing to acquire homes with favorable terms, and in the case of seller financed homes, paid them off early and at an extreme discount.  Today I have no student loans and have retired most of my mortgage debt and I am very thankful.  But the overarching idea I encourage investors to think about when starting out in a situation like yours is 'to make your biggest payment your smallest one', meaning, turn your housing payment from a liability into an asset.  For many people in NYC, the Air BnB model offers a significant opportunity within the framework of your primary residence - for example, if you live in a 1 bedroom apartment right now, possibly get a 2 bedroom and configure it for guests to stay while insuring your privacy. This could generate thousands of dollars of income a month for you, which makes your rent payment zero, and now you are freeing up income to invest, aggressively pay down debt, etc.  People call this 'house hacking', and I really do hate that term - I like to call this 'portfolio structuring', because in an ideal world the houses you live in eventually would become a part of your portfolio and you would maintain the integrity of the cash flow streams you worked so hard to establish.

There are many ways for you to go from where you are to where you want to be, debt free and with tons of cash flow coming in - this is the way of the new real estate 'rich'.  For me, real estate acquisition and transactions were instrumental in me, personally, paying off my debts.  Memphis may be step 2 for you - if you can make your biggest payment your smallest one in NYC, you may find yourself breathing a bit more easily in the ultra short term and getting some perspective on what to do next.

I hope this helps you.  

Make that biggest payment your smallest one!

Hi Alex

I think the question you need to ask is - what does The Tennessee Real Estate Commission say, policy wise, about you managing homes for your friend? You could take a position in his LLC and state you are an owner/manager, certainly - but if you truly don't have an ownership interest other than a fractional percentage AND you are managing, if a serious issue happened(slip and fall, other personal injury issue) you could find yourself in a suit as both party to the LLC AND as the acting manager who performed the lease signings, etc. Regardless, it's always possible an 'unhappy' tenant could report you to the TN Real Estate Commission as being unlicensed, and then you are explaining your 1% fractional ownership.

Lastly, favors for friends - property management specifically - may stress your friendship.  If you are managing, you will be performing rent readies, getting bids, vetting tenants, and dealing with (inevitably) tenants who become late on rent or default - you have to go to court, file, etc..  When money needs to spent on properties owners tend to get unhappy with the property manager indicating what is needed(you). You may find that the 'favor' and upside for getting a management fee(if any - (favor for a friend may mean you don't get paid that nominal fee, as you are just trying to help) could turn into something you wish you had never done.  Just be careful and don't get yourself in a situation you wish you had avoided in the first place.  

@Candace Pfab Candace thanks so much for asking I really appreciate it. I closed the property - a beachfront 2nd tier SFR in Fort Morgan - about a month ago. We had a two week long renter in it, and the previous owner(seller) had the cleaning fee set at $375. But I got invoiced for $525 for cleaning and an additional $116 for supplies via the management, plus a 15% management fee(agreed upon in advance). In the interest of transparency I am new working with this company, all of my interviews with them ticked the boxes, and I just got this yesterday so I have to call them and vet this out. BUT, with that being said, it speaks to what I wrote above - managing the managers is paramount to your success with out of state investments. Let me know if you have any insight I'm new to Gulf Shores(other than being a vacation renter) and I placed this on a pretty aggressive mortgage term so every dollar counts obviously!

rf

Hi Tracey

I live in Memphis and invest here full time as well. While you may be subject to the recommendation(selection) of an appraiser by an appraisal management company in a refinance or purchase money situation, we have worked closely with the appraisers at The Haley Worsham Group to get our clients preappraisals and indications of value for pre and post renovation purchases.  Here is their contact information:

https://www.haley-worshamappra...

Also, for home inspections, we like to use AmeriSpec via Randy McGill and Bo Hardy.  I have trained with these guys in Brazilian jujitsu almost daily for the past five years and they are really solid.  We use them for our personal homes and for client home inspections pre and post renovation also.  Contact information here:

https://www.amerispecmidsouth....

Alot of people are focusing in Brrrr right now vs. turnkey, I just purchased a vacation rental out of state using a turnkey provider of sorts in Gulf Shores, and have had a pretty good experience with it, so I have seen both sides of it.  The keys in Memphis are 1) location - stay away from suboptimal areas, and find out where(if) your prospective turnkey providers are buying homes for their personal portfolio, and what areas they are staying away from, and 2) Construction - what is the construction quality - scope of work, warranties, etc, and lastly 3) as Keloton mentioned above, using management companies always requires a level of oversight to insure the integrity of your investments.  Example - in my Gulf Shores rental, its a short term rental - I got 1k in bills yesterday for cleaning and supplies, and was originally led to believe that the cleaning fee tenants pay each stay was the fee I pay to the cleaning company($375), but discovered that the cleaning company charges about 1.4 times that!  So I had a bit of surprise and its a good reminder to always read the fine print.  If you are having issues with your management company, address them asap!  Changing management companies every 3 months is not advised, obviously.

As always, if there is anything I can do to help you, let me know.  Memphis has been really good for my family's real estate investments - we used an aggressive mortgage payoff strategy which has worked spectacularly for us in retiring the debt on almost all our homes - and I would absolutely encourage you to keep searching and working to build your portfolio here. 

rf

Hi Tim!  I was in your situation when I first started, probably worse.  There are many solid ways, outside of the bank, for you to obtain investment property.  Kathy's comment above is a solid one, being conservative has tremendous value.  That being said, if you built your portfolio at the speed of the bankers giving you their approval, you may never get there.  The use of private lending and seller financing cannot be overstated in a situation where you don't clearly fit into the banking debt 'matrix' style of lending.

Your situation is extremely common for new investors seeking financial independence. With that being said, your local REIA group probably would be a great place to start looking at private lending, and networking to that extent. Remember, you don't need 20% down if you have title to a property. Using a private lender to take title to an extremely undervalued investment property(read: deal) and getting a significant appraisal above what you paid can keep you out of pocket very close to nothing. These alternate ways of investing and accumulating homes is a tool you certainly need in your toolbox.