All Forum Posts by: Mike Makkar

@Don Griffith, I'll PM you.

I called up 15 to 20 Texas based banks and compiled a list with their interest rates and terms

@Don Griffith, if you have good credit, income evidence in your tax returns and enough liquidity to cover your debt service, just work with the commercial department of any community bank and they'll be happy to lend to you. Banks will do more due diligence than any of the previous suggestions. But they will do sub-5% interest rates and better terms (5yr, 7 yr) and no pre-payment penalties.

You go with B2R, First Key, Lima or any of these "soft to hard money" lenders only if you've been rejected by the banks.

Again, if you have the benefit of time, shop around!

@Brian Larson, I'll attempt to answer some of the feedback. I agree increasing your down payment, to get into a positive cash flow seems a little backwards for an investment purpose. But putting 10k into a investment to generate negative $100 vs. putting 30k to get a +$100/mo, I would take the latter. The math computes to -12% CoC return vs. 4% CoC return. The only reason I suggest the latter is because if nothing else is possible, it teaches more responsible investing methods. Furthermore, getting $100 of positive cash-flow is much more motivating than losing $100 per month, regardless how low your down payment was.

The challenge I've seen with all these rules; the 2% rent rule, the 50% of expenses rule, the 0% down to CF properties, 70% of ARV-cost for flips etc. etc., become harder and harder to achieve. For newbie investors, these rules confuses the hell out of them and most fail to take the plunge. Just earlier, another BP poster was stuck in a rut analyzing a 75k deal generating 1200 in month of rent. It took him 6 months to find the deal, but every other person discouraged him from taking it because it failed the 2% rule. Rather than have every rule in the book be met, I suggested a means to make some of the rules work. But taking the first plunge, will improve the process moving forward for those who are new to RE.

@Terra Spino, welcome to BP!

Once you figure out the RE blueprint, its a lot of fun!

@Daniel Hansen, Here's some that a small-time rental portfolio manager has in mind for systems.

Rent Collection: Automate through ACH or Direct Deposit, as opposed to drive to the homes and collect rent checks

Maintenance: Have a handyman "guy" or a crew that you can text and schedule, as opposed to run around to fix toilets

Neighborhood Watch: Make friends with the neighbors and have them alert you when there's undesirable events etc. going around the property

Property Management: If you choose this, have several property managers that you constantly keeping tabs on to help with management. Sometimes, you may want to self-manage vs. outsource. Have a good list to work with, especially if you don't have the time or are remote.

Showings: Schedule your rental showing as a group. And have a lockbox, for any additional folks (inspection, handyman etc) who may want to enter the premises.

Bookkeeping: Do your books end of every month, so its not a rush during taxtime

Property leads: Network with Wholesales and agents so that you have a pipeline of properties coming to your desk

Money Source: Have your books and lending sources (banks, private) in order so that when property leads come through, you are well capitalized

Having good systems in place will allow you to be operationally efficient and pretty soon, you'll be able to outsource each of these tasks to employees or contractors and free more time to focus on growth or what you love best. At the end of the day, start thinking of this like a business and each of these tasks handled by various personnel. The systems should allow you to take care of 1 property individually or a portfolio of 500+.

@Julie Marquez, Here's some pros and cons with all 3 colors, IMHO

White: Pros-Most Common, easiest to find and hence cheapest. Easy to find used. Cons-Obviously not the most attractive and hence quality tenants. Use: Sub 1500/mo Rentals and Sub-150k flips.

Stainless: Pro-Looks the best, and more common that one would think. Easy to find used Cons-Dents easily and I wouldn't put these for tenant occupied homes, regardless how high quality they are. They will never take care of the stuff. Use: 150k+ Flips and maybe +2500/mo rentals.

Black: Pro-Looks as good as stainless and more resilient than Stainless for dents. Prices very close to those as white. Cons:Black is actually harder to find than stainless and I've had a hard time finding used black appliances. Use:Flips Only. Don't use 'em for rentals.

I signed up for bulk buying at Sears and HomeDepot for white appliances, after experiencing my pitfalls with black and stainless. Then again my model is sub-100k rentals. Just don't think twice anymore!

@Ryan Morgan, There are multiple models in the RE business. Two popular models are Buy/Hold Rental or Flip. House hacking just means, you live in your own rental or live in your flip, before you turn it into a rental or you flip it.

The economic advantage to this is, you roll your mortgage or rental costs into your "investment" and thereby save several thousands of dollars. Inorder for this to work, your fundamentals have to work. Fundamental such as your property should be able to cash flow (ie rent for at least 1% of the purchase price per month) or you get the property for 30% below ARV-costs to be flipped for profit. Technically, you could reduce the cost of "stay" to get better numbers, but you try the math!

@Will Barnard is correct! I ignored the debt service (which would add another 10% expense) to holding costs of the property. So there you go, ~11.5% as opposed to 14.8%. But he brings up an additional point about using the rental as collateral and refinancing or getting a revolving line of credit from it. That itself should give you "tax-free capital" to fetch more properties.

@Mitzi Castiglione, if you have a property that could generate 103% return from a flip, I believe you should be able to fetch better rent than 1200/mo. Somewhere in the 1400+ range. I believe the economics of the region should warrant it.

Personally, I hate liquidating cash flowing assets for a quick pay day, regardless of the return. Its much harder to find cash flowing assets these days. Creative financing will let you unlock cash from any asset these days.

@Navin Kumar, what's your goal? 

Buy/Hold or Flip?

For Buy/Hold rental, unless you can rent it for 4k a month, your expenses (taxes are high in denton and collin counties, hoa, etc) will outstrip your revenues and will result in negative cash flow. At 4k a month in rent, you'll be lucky to make $100 a month.

For a flip, you wanna make sure, you can sell it for 30% over purchase price, so 450k after holding for 6 to 12 months.

If its long-term hold and wait (hope) for appreciation, then it would be pure speculation. Nobody can predict whether its a good deal or not.

@Erica Vargas, its hard to be cash flow positive with a FHA down payment standards (3% down I assume). Once you house-hack, look at increasing the down payment to investment style loans, ie. 25% down with a 30 yr mortgage and work the numbers. If you're at cash flow positive, at least 200 to 300 per month, then it should be sustainable.