All Forum Posts by: Jared Ryan

@Jim Spatzenfeld I remember getting the mortgage on my current house, and your story about the credit card is all too relatable. You really concerned about the $25 I have on my credit card when I've made my payments on time for the entirely of my credit history? I'm not suddenly going to go rogue here...

Thanks for sharing your experience about the underwriting process for your conforming mortgages, and your advice.

@David M. Thank you for the links, I dive in when I get the chance. I'll try to keep my responses on the forum instead of your inbox in case other people have similar questions.

Thanks for clarifying the part about renting to yourself. It seemed kind of odd. I should just check in with experts if I go with the LLC route, and they can help me get the most out of it tax-wise (if anything, since that isn't really its purpose) and liability-wise. As you said, it only semi-protects you since you can pierce the corporate veil, and I think that's why everyone says to just get an umbrella policy for your insurance, instead.

To follow up, my idea is to
1. Sell my current home
2. Buy a 10 unit apartment building with commercial real estate loan.
3. Buy a 1-4 unit home with FHA residential loan.

The idea is to buy the 10 unit building first, with the reasoning that without any mortgages on my record, I'll be more likely to quality for a better loan than I would if I had an FHA loan on record. So that's why the buying order is 10 unit apartment building, then personal residence with FHA loan. And yes, I would live in the FHA home for 1 year, no fraud for me. Anyways, that's what I meant by "use my full borrowing capacity on the commercial property".

So, that's the plan. With the LLC in mind, I'm wondering if I should change it to:

1. Sell my current home
1.5. Set up an LLC.
2. Buy a 10 unit apartment building with commercial real estate loan with an LLC.
3. Buy a 1-4 unit home with FHA residential loan in my name.

If having the commercial loan in the LLC's name instead of mine gives me a better credit score (since I heard the LLC does not impact your personal credit score), I'm wondering if that means I can qualify for more on my FHA residential loan in my name than I would if the commercial loan was in my name. However, I hear you still have to disclose your LLC's commercial loan, so I'm guessing that putting my property in the LLC means I wouldn't really quality for a different loan amount on my FHA residential since the bank is still aware of it...but perhaps I would get a better rate on my FHA loan since my credit score would be better with having the commercial loan in the LLC's name instead of mine.

Yep! My car is paid off, so car insurance, gas, food, subscriptions, it all comes out to under $500 here in San Jose, CA. Tack on $300 for healthcare if I were to quit my job, it comes out to just under $800 a month. I could probably live cheaper elsewhere where things are less expensive.

On the other hand, my house and all associated costs—utilities, mortgage, taxes, insurance—are high, $5k a month. I house-hack so it's more like $2.5k a month, and I'm getting great appreciation, but if I made a move like this and kept a job with the same salary, instead of making $50k a year in my pocket after-taxes, I could be making $100k a year. Do that for 1-2 years and sink that money into a few BRRRRs, and I should be looking pretty well off. Work my tail off for a couple years, take a small vacation, and think about what I do next.

Hello BiggerPockets!

I'm exploring the possibility of getting a 10-unit apartment building. With that in mind, I'm wondering if I should get an LLC.

Benefits of LLC:

1. If I live in the property, I, Jared, can rent from my LLC, and that provides come interesting tax advantages. Though I got lost in the weeds here, I couldn't quite figure out how advantageous that would be.

Could someone please provide more insight on this?

2. Liability protection. Well, sort of. Everywhere I read says just go for good insurance, at least for newer investors. Maybe when the portfolio gets larger, or if I were branch into other areas of real estate, it would make sense (wholesaling, agent, flip, etc.).
3. If I want to go buy more real estate, the commercial loan and LLC don't show up on my personal credit.

That's pretty nice if I want to go buy future 1-4 unit properties. However, I've read that the commercial loan / LLC is still something I need to disclose as I try to get funding for my next property. So, does the LLC actually benefit me at all, when it comes to seeking future loans? If the lending institution knows about the commercial loan / LLC after all, it seems like I would probably qualify for the same mortgage amount that they would lend to me without an LLC, but just perhaps I would get a better rate with having the commercial loan in the LLC because I would have better credit.

The reason I ask is because I have not yet utilized the oh-so-beautiful FHA loan, so after I use my full borrowing capacity on the commercial property, I'd probably try to buy up the most expensive 4 unit or smaller that the bank will let me purchase, and knowing how LLCs impact my personal borrowing ability will help me gauge how much I should be able to borrow for the FHA loan. And if I should get the LLC at all.

Cons of LLC:

- It costs time and money to set up and maintain, and it costs different in each state. So...to know if I should get one, I should just make sure the benefits outweigh the cons.

Are there any other pros/cons I'm missing here?

Thanks in advance!
Jared Ryan

Hello BiggerPockets!

The motivation behind this post: I realized that if I sell my current home, I could have around $150k to invest, so I'm investigating the best possible usages of it, and if I could achieve financial freedom today (rather than my current planned strategy of slowly buying up BRRRRs in the midwest).

My first thought: go put that $150k to work getting a 20% down commercial loan on a 10 unit property somewhere in the midwest of the USA for $500k-$700k, and live in one of the units. I'm single and my total expenses are around $1k, not counting housing, so...it seems realistic to say that I should be able to achieve financial freedom through this alone (but I'll keep my W-2 for a bit longer so I can get more real estate investments to cover future family expenses, 1-3 years should probably do the trick, then just manage/grow my investments).

The two major hurdles I see here:
1. Is a 20% down payment on a $500k-$700k loan a product that commercial lenders actually give out? It seems like I could find companies that lend like this, but that it'll take a few calls to make that happen.

Question 1 for BiggerPockets community: I'd love to confirm if these numbers are possible for a commercial loan ^? I'd love to confirm this before getting too excited dreaming about financial freedom.

2. How to convince a commercial lender to loan to an inexperienced buyer? My current research suggests doing the following:
- Network and find myself a great property manager. That'll give my deal some credibility.
- Be prepared. Have a nice pdf/binder/presentation showing that even if I'm experienced, I do my homework, and that I'm the type of person that can step up to the plate and solve any problems that will come up.
- Emphasize that because of my W-2, I could pay for the costs of the commercial loan even if I make literally no rental income. I feel like that should give them some security that even if I was terrible, they'd be getting their money from me.
- Have good reserves. Probably means I shouldn't try to throw down all $150k in my deal, so probably shooting more for $500k-$600k
- Find a good deal. If I am prepared and find a legitimately good deal, then I can present a compelling case for them to loan to me
- I could present a lease-option deal to the seller and/or lender for 6-12 months. If I can't convince them to sell/lend to me outright, maybe I could convince them to give me a 6-12 month trial run, and through that, I can establish enough credibility that they will sell/lend to me.
- I could always try to find a partner with credibility and/or high reserves, but I honestly feel like this would be the most difficult and risky option for me. And it might also mean that the deal won't profit me enough to jump straight to financial freedom.
- I could also hope and pray that I find someone who could give me seller/owner financing, and use everything above to convince the seller/owner instead of the lender.

Question 2 for BiggerPockets community: Is this strategy ^ a solid-enough plan that it is worth pursuing? Or is my inexperience too large of a hurdle for a commercial lender to stomach at this time, so I should start with SFR BRRRRs or Airbnbs, like I've been exploring before this realization?

Thanks in advance!
Jared Ryan

@Jay Hinrichs You are absolutely right. It'll likely take longer than my initial guess of 5 years to achieve my goals.

Right now, I have around $50k and make $50k a year after all taxes and expenses from my W-2. If I purchase a new rental property for around $150k every time I have $40k available for a down payment, and it cashflows $300 a month (revised it down from $500 after talking with investors in Indy), it'll take me 7 years to acquire 11 such properties to give me lean FIRE for around $40k a year. 13 years for 29 properties for fat FIRE at $105k a year. I'm not factoring in appreciation, equity, or 1031 exchanging into better properties, rent raises, or promotions at work, so it can go more quickly than that, especially if I can figure out ways to use OPM so I can scale more quickly.

But, similarly, appreciation would mean that acquiring such houses would take longer, and that's assuming I can find properties that actually cashflow $300 after everything, including capital expenditures, repairs, etc. I should also keep a decent amount for reserves, so I shouldn't just spend $40k as soon as I have it, etc.

Real estate is a slow game, but once you get the ball-rolling, though, it builds up speed and momentum, especially if you really dive in to find good deals and use OPM. I'm hoping I can do that to speed up the numbers, but I'll just start with one property and see how that goes, and go from there. I have big dreams, but one step at a time so I don't burn myself out or get so disappointed that I quit. And I can revise and adjust my plans and timelines as I go along.

@Steve Vaughan Thanks for your input as well, and I hear you and Joseph loud and clear. The real money is to be made in appreciation and equity, and that's a great reminder for me, as I keep dreaming of my cashflow being my escape from the 9-5 that I am narrowing my focus a little too much. Although it's true that the cashflow is the ticket to financial freedom, focusing on appreciation and equity will help me generate the wealth needed to obtain properties that have that kind of cashflow faster, and cashflow really should never be your focus after you've achieved financial freedom (as long as you aren't taking significant losses).

@Jay Hinrichs Thank you for your advice! I've been talking with other investors in Indy and they say the same thing. Looking into cheap markets is fine, but once you choose whichever market you want, don't buy the cheapest houses in that market! That's just asking for crime/tenant/repair issues/no appreciation. And I might just have to check out Las Vegas and Steve's posts.

After the responses and several messages with some other amazing BiggerPockets members, I am probably going to invest in Indy, simply by virtue of the friendliness of other Indy investors and real estate professionals. I know I can't really go wrong with any of the top 10 markets, so might as well just go where I can most easily connect with others!

This will act as a sort of proof of concept for myself, to see if I can succeed in buying cash-flowing real estate out of state, and prove to myself that real estate cashflow is a viable retirement option. And, it'll allow me to establish a foundation for how I'll buy other cash-flowing properties in the future. But after that...

@Joseph Cacciapaglia you make a great point. When I look into my future investments, it definitely more sense to focus more on total returns, so I can be financially free as quickly as possible. My number for lean FIRE is $36k a year, so I should focus on higher-appreciating properties for the next few years to help me earn enough capital that I can then trade into properties that will produce $36k a year. Then, I'll focus back on total returns until I have enough capital to trade into properties that produce $100k a year for my fat FIRE. Then just focus on total returns and wealth building for fun as a full-time real estate investor.

First of all, thank you BiggerPockets community. This is only my second post, and I am again surprised by how helpful and friendly everyone is.

@Alecia Loveless Thanks for you input, it's good to know other people in a similar position are doing similar strategies, and I definitely agree with your thoughts about just getting started, finding a location, and building a team/foundation there before trying anything else.

@Remington Lyman, @Andreis Bergeron, thank you for the suggestions, I'll have to check those markets out before committing to anything.

@Darius Ogloza where, when, and how did you invest in the Bay Area/California that brought you so much success? I'm very curious! Personally, the only place I can see within my price range is Stockton, CA, which seems like it has some options for me, but maybe not the best options.

@Gabe Sasser that is some incredibly helpful advice if I go the Indy route, much appreciated!

@James Wise It seems like Cleveland has been appreciating a bit, then, or do you think it is just inflated because of COVID?

Quick introduction: I'm coming off my first investment, a deal where I'm househacking a 4 bedroom, 2.5 bathroom townhome in San Jose, CA. I purchased for $715,000, live in the master, and rent out the other 3 bedrooms. I still lose $1000 a month to taxes, insurance, and utilities, but the $1000 in costs beats the $2000 in rent I was paying, I now use OPM to pay down the mortgage and HELOC payments totaling $2550 a month, and my home has already appreciated $30000. Real estate investing is amazing!

With that win under my belt and 6 months to build up reserves, I now have both the confidence and money to select my next real estate investment (not that I really know what I'm doing, but it's not that scary anymore, and I'm ready to try and figure things out as I go along).

My goal is to achieve financial independence as quickly as possible. I want to build a portfolio that will generate $100,000 in passive income. I know that California sucks when it comes to passive income, so I'm ready to try to figure it out in a different state. I got about $50k at my disposal, but looking to hold on to $10-20k as a reserve (and I have a net $4k coming in each month to rebuild my reserves, and a 401K to draw from if I really had to). I've been pre-approved for a property up to $200k. And I'm ready to take action.

My first instinct is to search for cash-flowing properties, and I've landed on Indianapolis, IN and Cleveland, OH. I'm looking at properties anywhere from $50k-$150k, mostly searching around $100k (SFH or duplexes seems be the homes in this range), with total upfront investment of $40k max (down payment / fees / minor touchup / cosmetic rehab, if needed). It seems like a positive $500 seems like a completely realistic net cashflow per property, which really just boggles my mind. Anyways, the plan is to continue to accumulate properties around this range until I have enough equity that I can 1031 exchange into larger properties with more units to supercharge the process (or I have to do this because I hit my mortgage number limit). Rinse and repeat until $100k is coming in every year. According to my projections with the boring typical 20-25% down mortgages, that should be possible in 5 years for me if hold on to my 9-5 job; quicker, if I find good partnerships, seller financing, etc (and I know I'll need that or portfolio loans once I hit 4 properties, so that may be another hurdle to overcome when I get there).

So, two questions, then:
1. Does this seem like a solid plan? To focus on cashflow first while I grow my portfolio to escape the 9-5? Or, is $100,000 a year a large enough number that I should try to mix appreciation with cashflow as my focus? 
2. If cashflow is the right approach to take, what are your thoughts on the best cashflow markets? I'm thinking Cleveland, OH and Indianapolis, IN right now, based off the research online and here on the forums, but open to other markets.

And I'd be more than happy to connect with any like-minded investors, or anyone who can be a part of my team in those markets :)