All Forum Posts by: James Kojo

@Paul DeSilva:

@John Leavelle and @Anthony Gayden (above) are both correct.

Unless you have more than 10 residential mortgages, or the properties are above the jumbo mortgage limits or you're trying to finance the the properties with the LLC intact, then they should qualify for conventional residential FNMA loans.

For the LLC situation: my strategy is to close the loan under my personal name (no LLC), then after a few months of "seasoning" to establish on-time payment, notify the lender that I plan to drop the property into an LLC strictly for asset protection purposes.

Many seasoned pros will tell you that you don't even have to notify the lender that you plan to do so, but will warn that doing so runs the ever-so-slight risk that they may actually call the entire loan due immediately. Search for due-on-sale clauses for deeper discussion on that strategy. Personally, I think it's entirely reasonable, but you get a few outliers who disagree.

Hope that helps!

James

@Carlos Casanueva

Lots of really good answers so far. Let me throw in my 2 cents: it really depends what your current network looks like. If you're starting at square 1, and don't have wealthy friends, family or contacts that are willing to take a bet on you personally, then it will be hard to establish credibility with people you haven't met since you don't yet have a track-record. 

It's not impossible to do so, but it won't be cheap or easy. You might have to "buy" credibility by jumping on-board with a well-known syndicator/educator.

With 250k, that might eat up too much of your capital, so if you don't have a built-in network, I'd go it alone. Once you've gone full-cycle on a deal, it will be easier to show that you have the chops to get'er done.

you mentioned an ambitious target to double-up every 18-24 months. The first double-up is highly aggressive but may be doable depending on your risk tolerance and strategy. However, the 2nd double-up may not be doable with the same property. Keep in mind that a 24 month double-up represents a roughly 50% IRR, which no self-respecting syndicator would ever actually promise to an investor (unless they enjoy being sued.)

If you're swinging that hard for the fences, I would actually recommend going it alone unless you can find a niche of investors of the same mindset.

Hope that helps!

James

woops. sorry about all of the repeated posts. There was a few errors when I tried to submit the post, and it ended up triple-posting the same message!

Link to the report - Free registration required.

James

@Tyler Kastelberg

Did someon say cap-rates? That's my jam! :)

I can actually offer insights via a couple of different studies that I've recently read, but I'l just share the most recent for brevity.

Marcus and Millichap just recently released their 2018 multi-family market forecast. In it, they share this gem:

It shows a roughly inverse correlation between appreciation and cap-rates, which you might expect.

If you're looking for cap-rates, then you'll want an MSA higher on the chart. Appreciation is more to the right. The national average is the orange dot. The magic quadrant then would be the upper-right. My markets are actually in the upper left, because I prefer yield.

Keep in mind, this study doesn't take into account some very important market selection criteria, such as jobs, population growth and landlord/tenant laws, etc. You'll want to further whittle-down the list based on your other selection criteria.

Hope that helps!

James

@Kyle Mitchell : Hey Kyle.

You didn't mention exactly what you'd be using the crm for. Deal tracking, Investor tracking, vendors, etc? How many of each?

That said, I use Zoho, and I like it a lot. I primarily use it for keeping notes and contact information on Broker, Lenders, and Vendors. But my day-to-day notes on active deals are in Evernote, and I tend to transfer them over in bulk after a deal is done. No particular reason I do it that way. I just happen to like working in Evernote, but it's not a great overall CRM solution.

My suggestion is to just try a few. They are almost always free to try. However, beware. They can be a time-trap. If you spend all day customizing your CRM, your actual business operations will suffer!

hope that helps!

James

@Arturo Borges

I've found the 50% rule to be surprisingly accurate, +/- 8%.

Like all rules-of-thumb,  it gets increasingly inaccurate as you approach the extremes (SFH in war-zones vs luxury 100-unit apartments).

That said, i've actually found the 1% rule to be more helpful. Not as a yard-stick to which should be accepting deals, but as a base-line as to the worst deal you should be looking at unless there is a big value-add component.

FYI, if you apply both (50% rule and 1% rule), you're looking at a 6-cap, which is really not that exciting, unless you have a value-add (read: appreciation).

Let me know if any of that didn't make sense and I'll clarify. 

Hope that helps!

James

@Daniel Perez

Here's my 2-cents:

First things first: figure out your goals. cash-flow to replace w-2 income? Potential explosive appreciation? Just something to do because you're bored? :) Also, take inventory of your assets (money, time, energy, knowledge, etc.)

Then on to your target markets:

Plan-A: invest in your local markets, if they make sense.  

 1A) See what works in your local markets, such as long-term buy/hold, vacation rentals, or appreciation
 2A) figure out if those strategies align with you goals, passion and assets.

Plan-B: find a target market that makes more sense given your goals.

When evaluating a target market, you'll want to make sure it aligns with your goals AND you want to make sure the deck is stacked in your favor. Trying to find the perfect target market  (huge cash-flow with huge appreciation) is probably not realistic.

here are my baseline requirement for a target market:

1) jobs... I want to see a low and decreasing un-employment rate

2) Jobs - I want to see a growth on total jobs available (i.e. companies are moving in or new companies are being formed faster than they are going under)

3) JOBS - healthy mix in industries that are growing and stable. if they are overly reliant on manufacturing, entertainment, and buggy-whips, then move on. If they are growing in government, tech, education, and medical, then take note.

4) population growth - See jobs. population follows jobs. The exception are the boomers who are retiring and increasingly renting. You'll want to find markets that have a growing number of millennials (20-34) and boomers. If you have to chose, go with millennials. better to have both.

That was long, but I hope it helps!

James

@John Fulton : 

I often hear this debate on REI podcasts: why invest in the stock market when you could have all the benefits of REI? When talking about the stock market, there are often implications and undertones of corruption on "Wall Street" and on the REI side, you'll hear praises of the control, leverage and tax benefits.

I started investing in stocks and mutual funds when I was about 16, and I started in REI about 15 years later.

What I can say definitively is this: they are not really comparable. They are apples and oranges.

REI is a business, plain and simple. If you're not treating it as a business, then you're not doing it right. You'll hear many claims that REI is "passive," but that simply hasn't been my experience. It's true, that there are very long periods of time in which you don't have to put in a lot time and energy into a given property. However, finding deals and disposing properties is very energy intensive.  So you get a U-shaped curve for work you need to put into a property. You are definitely trading time for money, but the hope is that if you scale up, you're eventually trading less time for more money.

Index investing (S&P 500), on the other hand, is pretty much passive. Dollar-cost averaging into the purchase and the disposition is a perfectly fine strategy, and requires very little time and energy. There is no control, but also very little work required beyond keeping up with the news if you chose to do so.

If you want something closer to apples to apples, then you should compare index investing to passively investing in REI syndications. We have some very knowledgeable and talented syndicators in this forum (@Todd Dexheimer, @Brian Burke and others) who can give you the benefits of investing in syndications.

Hope that helps!

James

@Tiffany Bishop : It's definitely not a bad thing to have multiple target markets, however you have to (or should be!) investing a significant amount of work into each market.

MFR is a completely different beast than SFR, unless you're talking about duplex to fourplex. You mentioned 5-25 units, which falls into commercial class residential, so you're dealing with commercial RE brokers.

Unfortunately, on the commercial side it's not as easy as calling someone up and saying "Hey! I have a million dollars that I want to spend. please send me your good deals!" It's a lot of "inside baseball" if you've heard of the term. Basically, commercial brokers like to work with people they know have a track record of closing deals with minimal fuss.

So, even if you have multiple target markets, you'll want to spend some time in each market learning how to "crack" it. So you may want to chose 1 to start.

Hope that helps!

James

@Nic Bernal

In my experience, for residential class properties (4 units or less), using the standard state purchase agreement (usually by the Association of Realtors) is the norm. All of my SFR purchases and sales have used the respective state form.

However, with the purchase of "commercial" class properties (5 units or more), custom contracts are very common. The bigger the deal, the higher frequency of custom contracts. In fact, it's not uncommon to take 2-4 weeks just to negotiate the terms of the contract.

So to start: there's the issue of expectations. If you're dealing with a non-sophisticated seller, who only has dealt with with only SFR and small MFRs, they could be quite surprised that you hit them over the head with a custom contract. That may have spooked them.

Secondly, my experience with attorneys is that they are adversarial not co-operative. That means they represent and defend you to the best of their ability, even at the expense of other parties. They don't get paid to make deals happen, they get paid to make sure the legal deck is stacked in your favor. That sounds great, but it's hard to make deals happen in that context. You're the deal-maker, so if your attorney is being overly adversarial, it may be up to you to tone it down and make sure things don't get out-of-hand.

A good attorney will understand that, and will work with you to not "kill the deal." However, their job isn't deal-making. Their job is to fight for you and in doing so, they might kill the deal, so keep that in mind.

Hope that helps!

James