All Forum Posts by: Greg Williamson

I use Cozy.co for my rentals and it works pretty well; however, all of my prospective tenants come through Zillow.  The Cozy listing just doesn't drive traffic.  Cozy is free so that's great but it does take about a week for payments to post to your account.  If I had to start over I would probably just look into using Zillow's rental manager for everything so I don't have to maintain listings on both platforms.

My family stays at Airbnbs almost exclusively.  We may stay in a hotel en route to our final destination but always try to get an Airbnb when we get there.  The primary driver is space and economics.  We are a family of three (plus a dog) and we often times have grandparents that stay with us to watch the little one.  That puts us in a scenario where we ideally need three bedrooms so the cost for an Airbnb is always lower than the hotel option.

We also get to stay in interesting places and are the only guests compared to a hotel which is crawling with people.  We love Airbnbs so the extra administrative burden is completely worth it.  I'm actually considering converting one of my long-term rentals to an Airbnb as well.

Hello BP,

I recently scoured the forums looking for some guidance on building a website and I found some useful tips but I'm hoping to provide some recent perspective here.  I simply looked up a 'how to' video on YouTube and created my own WordPress website.  The video I used was developed by Tyler Moore and was about 2 hours long.  It walked me through every detail step-by-step (see link below).

(53) How To Make a WordPress Website - 2021 - YouTube

I have my site hosted by HostGator but I'm sure you can use pretty much any WordPress hosting service with the same results.  It cost me ~$100 for 3 years of hosting and it took me about 15 hours to build my site.  Bear in mind that I have no website building experience and I wouldn't call myself tech savvy.  

It can be a bit overwhelming when you start thinking about it but if you work through it step-by-step, it is certainly doable.  I can't recall which BP podcast it was in but I like the analogy about selling a truck.  You may not know all the steps but you know that you have to start by vacuuming the truck so just go and vacuum the truck and then take the next step and the next and so on.  I hope this helps.

Jonathan - certainly different perspectives on this.  One school of thought says that you should never put your retirement savings at risk and the other camp argues that investing in yourself with higher returns makes more sense.  I've always been pretty financially conservative myself but as I've gained experience in real estate I've shifted to the latter camp and have taken numerous loans from my 401k to fund real estate deals.

I think it all comes down to your personal risk tolerance and life situation.  If you're young with few responsibilities/obligations, you may be willing to take more of a chance with your savings.  If you are closer to retirement and can't afford a potential loss to your savings, you may not want to go this route.

I've been investing in real estate for ~8 years so I have built up a level of experience that gives me confidence in my ability to far outperform the stock market through real estate investments so I take as much as I'm allowed in 401k loans.  Think of it in these terms - I can borrow money from myself at 3.75% or I can borrow it from a hard money lender at 10%+points.  Far cheaper for me to borrow it from myself.  

Just make sure you distinguish between a 401k loan and a disbursement.  If you withdraw money from your 401k you will be hit with an early withdrawal fee (10%, I think) and it will also be taxed at your personal income rate.  For me that would translate to something like a 40% hit on my funds.  (Finance guys, chime in here if I'm off in my assessment)

I haven't been able to convince myself to take that kind of hit yet even though I can get 100%+ ROIs on my BRRRRs.  I'm still a little conservative, I guess.  There are a few other considerations as well.  First, you can only borrow a certain percentage of your 401k (10%, I believe).  Second, if you leave your job you will be forced to repay the loan within a certain period of time or it will be taxed as a withdraw.  Don't quote me on this but I think it is 60-90 days to repay.  This is just something to keep in mind because once you become financially independent through real estate investing and you want to leave your W2 job, you will just need to set aside some money to repay the 401k loan.

I hope this helps.  Good luck!

Hey @Clay Gregord the bank will use your, and your partner's, credit to approve the loan. Also, my experience is that you will have to sign a personal guaranty for the loans so the LLC won't shield you from personal liability for the mortgage. However, the LLC will protect you from other potential liabilities.

There is an ongoing debate on the utility of LLCs but I would suggest that you get a business umbrella policy to cover any claims that would not be handled by your property insurance.  I think my policy is $1M for $325/year.

@Ethan Brown I think you always want to have a property that cash flows because if the market falls, you can wait for it to recover with no real impact to you in the here and now.  However, I think focusing only on cash flow is also a mistake.  I evaluate my properties based on not only the monthly cash flow but also total accretive value added.  

That means I want to know how much equity I gain every month by paying down the mortgage as well as how much appreciation I expect to have.  I think the real money is made through the equity you are building and not the cash flow.  A real world example for me is a property that cash flows $285/month but is gaining $570/month in principal payments on the loan and $900/month in estimated appreciation (3%/yr).  In this example, if you got hung up on the cash flow and chose to walk away from it at $100/month cash flow you would be leaving the $1500/month on the table.

I think there is logic in buying the most expensive property you can that has positive cash flow because you will maximize items 2 & 3 of the equation above.  Of course, I'm not suggesting you overpay for properties, just get deals in more expensive neighborhoods.

I also BRRRR into my deals so the one I sketched out above has an ROI of ~42% if I just consider the monthly cash flow or ~260% if I take equity and appreciation into account.

If you have a cash flowing deal, go for it.  I don't remember the exact quote from Scott McGillivray in his BP podcast but it was something to the effect of "If you find a deal that cash flows, buy that one and buy the next one.  Buy them all!"  Good luck and get going.

Hey @Clay Gregord the bank will use your, and your partner's, credit to approve the loan. Also, my experience is that you will have to sign a personal guaranty for the loans so the LLC won't shield you from personal liability for the mortgage. However, the LLC will protect you from other potential liabilities.

There is an ongoing debate on the utility of LLCs but I would suggest that you get a business umbrella policy to cover any claims that would not be handled by your property insurance.  I think my policy is $1M for $325/year.

Kyle - small town banks have flexibility that other banks do not. I typically see 75-80% LTV with rates ~4% in today's market through a portfolio lender. You can go either way on a balloon payment. If you want to keep the property long-term, I would stay away from it because it is effectively a ticking time bomb. What happens if you have a 5-yr balloon and your financial position/market is in a very different place in 5-years? That being said, if you only intend to keep the property 5 years and it is a 10-yr balloon, it probably doesn't matter. However, I think you would be best served to lock-in a 25-30 year mortgage at these rates.

Humberto - based on what you describe I don't think you have just a "passive income loss" on your taxes, I think you have an actual loss coming out of your pocket.  If your mortgage is $1775 excluding taxes and insurance you likely have zero cash flow in a good month.  It also appears that you have not accounted for any repairs or replacement reserves so I think your Net Operating Income for any given year is going to show a more significant loss than what you have indicated.

The bank is looking at your Debt-Service-Coverage-Ratio (DSCR) and is flagging it because your rental income isn't sufficient to coverage the debt. They are probably looking for a DSCR or 1.2+. You may want to look at your numbers to confirm that this is a rental you want to keep because it seems like you have a monthly negative cash flow and are relying on appreciation and equity buy-down for your profit which is a risky place to be.

To answer your question succinctly - Yes, banks will see this investment as a concern and will want to see your global DSCR improved after any new loan which means your next rental will need more cash flow to offset this property. I hope this helps.