All Forum Posts by: James Krahula

My wife and I have been managing a vacation rental cabin for my mother-in-law for about a year now. Now, my wife and I have a possibility of buying 1 or 2 cabins next to it, and also have the opportunity with some vacant lots of the property that we could build on. We have just crawled back to zero debt (minus student loans) after being financial messes for our whole adult lives. We now have a great opportunity that has recently been presented to us, and we are trying to take advantage with very limited funding.

These cabins are very affordable, and the rental income on them is pretty decent. They are located on a property that is designated for shops and short-term rentals only, with a big event in town every month that we are guaranteed to rent out for a large profit at least 9-10 months out of the year. I've done very limited marketing on my mother-in-law's cabin, and I'm ranked above all the other cabins more times than not. My day job is marketing, so I have a lot more I can do there. I'm renting her cabin out more than anyone else is renting out their cabins despite others having established businesses on this property. As for the boots on the ground business side of things, we already have a very dedicated cleaner who handles our cleaning, and we have taxi/golf cart service from another business owner for our guests on those event weekends. (She and her husband are great business people, just not very tech-savvy, but I'm going to be helping them with that side as well.)

Cabin Costs:
Cabin prices are anywhere from $15k-30k.
Lot rent: $200/month
Utilities: $50-100/month
Taxi Service: $25/per event weekend we have a guest

Cabin Rent:
Event Weekends: $180 Thursday & Sunday, $260 Friday & Saturday. Must rent Friday & Saturday, and it's usually just those 2 days.
All Other Times: $80-100/night
Average Occupancy Rate: 30-40%

Average Cashflow: $550/month

We want to purchase 1 cabin for $15k that needs minimal work and is currently being rented today. It is a much nicer cabin with wonderful cute branding that on the can on the very conservative end, rent for the same prices as my mother-in-law's cabin, with the same monthly costs. It also has a tiny storefront that's being rented for $75/month but can rent for $150/month with some work and a new tenant.

The empty lots have the same $200/month lot fee, and already have water and electricity running to them. We want to build unique stay lodging (those dome homes if you care to know) which should attract more stays and higher nightly rent. These would be nicer than most of the surrounding properties (maybe the nicest if we do our job right) but would be a really nice complement to the other cabins and shops. They would probably rent for more on those event weekends as well. We can build these for $20k/each (I'm running the numbers at $25k because we all know we will come in over budget!) I will conservatively estimate that these will cash flow $700-800/month, but if done right, I can see this cash flowing much more. We want to build as many as we can get funding for.

Wife's credit is 680, but high utilization after purchasing solar panels. My credit score is 710, but I, unfortunately, have a Chapter 7 that is still on my record. Looking at $25k cash on hand (possibly more but I'm not counting chickens). What are our best options for funding of this project? Is it even possible for us with our rocky past and credit situation and low cash on hand? Should we be looking at hard money? Any advice would be appreciated, and I can answer more questions if needed. Thank you for taking the time to read this.

Originally posted by @Bill F.:

Originally posted by @James Krahula:

Originally posted by @Bill F.:

@James Krahula, do you plan to use the SBLOC to buy RE or is that just an added bonus of the M1 account?

 Yes now I plan I use that to help fund some real estate deals. I look at it as another tool to help build my portfolio. I'm thinking I'll even utilize this and not sell stocks but I'm not completely sure on that yet.

 Good luck and hope you find some great deals. 

Be careful about the minimum LTV requirements of the SBLOCs, especially investing in a iliquid asset with funds secured by a liquid and volatile assets.

 Essentially my portfolio would have to drop by over half in order to call a selling of stocks how it's currently setup if you have it maxed out. But you should constantly be paying that down to lessen your risk if you experience a market crash. 

Originally posted by @Bill F.:

@James Krahula, do you plan to use the SBLOC to buy RE or is that just an added bonus of the M1 account?

 Yes now I plan I use that to help fund some real estate deals. I look at it as another tool to help build my portfolio. I'm thinking I'll even utilize this and not sell stocks but I'm not completely sure on that yet.

Originally posted by @Michael Randell:

@James Krahula thanks for the post. Very interesting discussion not seeming to lean towards one way or the other...I'm curious James, what way did you go with this? Did you end up investing in index funds in the meanwhile? I'm looking at possibly going the same route but the stock market is pretty volatile lately. It seems that even with the market conditions lately, the returns on the S&P 500 will beat a 1.75% interest rate savings no matter what. Just wondering what route you decided on going with..

So yes I am moving forward with this. The Bigger Pockets Money show with JL Collins really cemented my comfort level on the subject. So essentially I'm putting all of my investment money into VTI through M1 Finance. M1 just came out with a borrow feature that you can borrow up to 35% of your portfolio at 3.5%. To me it's like. HELOC on steroids. That's the plan I'm moving forward with and I feel really comfortable with it. Go and check out that show, sorry I don't know the Episode number off the top of my head.

I just had my first offer accepted yesterday in McKinney, TX. The house needs some rehab work (immediate needs are a 2nd bathroom and a new sub-floor in one of the bedrooms). I need to get quotes ready in a short time frame. Am I able to schedule more that one contractor to come out at a time? Bonus if you have recommendation for DFW area contractors or any other helpful information to give. Thank you.

To help clarify I'm not expecting the seller to care are all or even know what my intentions are with the house, I don't want them paying for improvments to get me to buy the house, I want to make them on my own. I just want to get my fair price. I also do have a realtor who's fantastic, but I'm trying to do my due diligence and make sure im ready after seeing the house later this week.

I am looking at a property this week that I think I will be putting in an offer for. I will be living in this property for a few years and I will eventually rent it out. The house is in the North Texas area above 380. Very minor TLC needs to be done from the looks of it, but I do think that some improvements to the floor plan need to be done initially (I am in a house hacking situation where I need 2 bathrooms, and the house only has 1). Most other improvements can be done over time because I will probably be in this house for 3+ years before renting. This will be my first home purchase, so I want to go in and fully prepared as possible to make this happen. My questions below.

1. There is a comparable house that has sold for $10k less than the asking price of this home, and it was move in ready, slightly bigger, and a garage. How much of a bargaining chip can I use that as for putting in my offer. The house makes sense $5k less than the asking price. Because of the lower offer, I plan to have a very short option period. Anything else I can do to make my offer more attractive while still offering below the asking price?

2. If the offer is not accepted, what is the best way to come in with another offer? (I will only do this below the number that makes sense.)

3. If the offer is accepted and I'm in the option period, I need to find a home inspector and I need a contractor to make a bid. What is the best way to get these done? I've heard that setting up appointments with multiple contractors is smart to account for no shows. Any other strategies? Who else do I need to talk to to make sure I'm able to do the work I need done with the city, what does the contractor know and what should I be responsible for finding on my own.

4. Any other general advice I should know to make sure my offer is attractive, I'm efficient with the option period, or just anything else that will help me make this into a better deal?

One other detail I thought of. I have been working with a RE Agent and she has been nothing short of amazing. If I have to delay purchasing, what is the best way to compensate her for her time or any tips of keeping a good working relationship with them?

I'm in the DFW area (working in Richardson) and I'm approved up to $170k for a property with a FHA 3.5% down loan. I will have a roommate who will rent out a room in this future property to help offset the monthly expenses. Right now my goal is to find a property that I can refinance to a conventional loan (get out of paying PMI ASAP) and will cash flow when I move out in 1-3 years. I need to find something that is not too far of a drive (McKinney or Rowlett are what I would consider a reasonable maximum commute time) and where I won't get murdered or robbed every few months. I know I will have to look at a lot of properties before I find a good deal, but the lack of options makes it seem that this could be a journey that could last a year or 2 at this rate.

So, what would be a good plan if I can't find a property (right now I have until May 1st to let me apartment know if I am renewing my lease or not)? Find a property I can afford that I feel will appreciate in value in the coming years but will make a long time to cash flow (mostly buying in hopes of higher property value in the future), continue to rent until I can afford a down payment for a conventional loan to allow me for more options on cash flow, or continue to rent and invest in a more affordable cash flowing market?

I want to make as smart of a move as I can given my current limited options so I want to see what others would do in my situation.

After a great discussion on the strategy of investing in the stock market to help fund future real estate investments, I have decided to implement this strategy for me and I plan to document my journey with everyone here.

The strategy is simple enough. Instead of saving down payment money in a checking or savings account, take that money and invest it (in my case, that will be 66% VTI, 26% VWO, and 8% VEA ETFs). Then when the account value is enough to purchase a investment property, liquidate the holdings and purchase the property. Start the cycle over.

Yes, this would be considered a very high risk investing strategy in this community, or anywhere honestly. Truth be told, I have had just as many people tell me the same thing about the risks of investing in real estate and to just stick to the stock market. It all depends on a persons risk/comfort level. I believe after crunching the numbers that in the long term (even with the ups and downs in the market), this strategy will have me much further ahead than keeping them in my savings account that yields (currently) 1.49%.

So, please ask me any questions you may have, give words of advice, words of caution, etc. I will be documenting this entire strategy from the start (I will also be using current savings account data each month because I will still keep my emergency fund in that account), and hopefully provide very detailed numbers of this strategy in practice.

Thanks to everyone who provided their input in the original discussion and who helped with numbers! Some of you will be right and some of you will be wrong, let's find out together!