All Forum Posts by: Joe Ferguson

Thanks for the replies. I pretty much knew this answer as evident by me saying "I am aware this is irrelevant". 

Funny thing is, we had a super casual conversation and it did come up. He was talking about his successes and I jokingly asked if he was accepting students... Me: "because as you know its not hard to know what you paid and I would love to replicate those results". 

FYI, we settled at 295K and I am under contract on my first house hack! Woooo!

Hey BP,

I am negotiating on a 4-plex where the seller is asking 319K and I need to get it to at least 280-290K to start making sense. 

I was amazed to find out that he paid 64K for it in 2013. Factoring in 6 years worth of cash flow, this guy is making an easy 500-600% on his 64K. I am aware that this is irrelevant but makes me feel better about being more aggressive. 

Is it considered offensive to mention anything regarding a seller's purchase price or profits in a negotiation?

Thanks in advance.

Hey BP, 

I am looking at a 4-unit property that has 3 smaller units about 500 sqft renting for $650 and one massive unit about 1700 sqft renting for $1200. I do not like that one unit is almost 40% of the income which guarantees me out of pocket using an FHA loan. Also, $1200 is high for the area and will be harder to place tenants.

The large unit has two baths and 3 beds. It would be really easy to close off a doorway and add a kitchen making a 2/1 and 1/1 about 600sqft each renting for $650-700 each.

This is what I would be hoping to achieve:

- Relieve the pressure of keeping that unit rented and reducing impact of a vacancy

- Being dependent on the market, I do not expect much appreciation. At 5 units it is considered commercial and I can force appreciation through improvements, rent increases, reduced expenses, etc. 

Has anyone done something similar? I would love to hear the pros and cons of pushing a property from residential to commercial.

P.S. FHA is only good for 4 units. Would I be forced to refinance after the conversion or just keep it on the down low until I'm ready to refi?

Thanks in advance.

Welcome to BP!

You have already taken the best first step. Devour the forums, blogs and podcast. Read all of the books they recommend. This is your life while you save some money. 

I am in a very similar situation as you. I am a 30 year old electrical engineer on a 10 year (preferably sooner) retirement plan. The way I see it, your goal of $6000-$8000 per month translates to about 60 to 80 units at a conservative $100 cash flow per door. 60 to 80 units in 10 years is extremely doable. The hardest part is getting started but then you can work into that snowball effect. 

I you are comfortable with it, I would recommend house hacking a duplex to start. From here you can keep adding 2 or 3 units at a time but I would scale up as soon as possible. For example, selling 3 duplexes could afford a down payment on a 20 unit complex. You just went from 6 units in three locations that no one wants to manage for you to 20 units in one location that will be easy to find management for. As you can imagine this 20 unit is going to bring in a lot more cash flow and if done correctly I merely traded up and gained 14 units. This is my general strategy but is just one of hundreds.

Feel free to reach out with questions. Happy to help. Best of luck!

@Will G. Thats pretty much how I see it. I guess I should start learning more about the insurance side of things. Thanks for the tip!

I know the point of a LLC is to protect your personal assets and therefore it is usually recommended not to include your name, use a PO box, etc., when creating the entity. My argument is that if a person wants to find out who owns the LLC it is not hard to do. I can easily search company names in my state on the Florida Division of Corporations website and find out who created the entity, their address, the date they created, whether it is active or inactive, etc. I do this all the time.

Then you have guys like Uncle G (Grant Cardone) who want 7 billion people to know their name. He buys property under the business name Cardone Capital. He also has Cardone University, Grantcardone.com.... his name is everywhere. This man obviously has millions to loose. 

I really like the idea of having my name associated with my business. As the face of the business, the awesome reputation (being positive here) will directly reflect on me not some faceless business where people have no idea who owns it and have to track them down. This brings us back to the main point, they could in fact track me down so what is the point in trying to hide?

Thoughts?

Your plan is solid. House hack a duplex but like Richard said don't spend the whole 10K. Keep 2 or 3K for reserves. 

Also, the property can need cosmetic repairs with FHA just nothing major. Can also depend on how strict the inspector is.

Good luck!

I am in the exact same situation. I haven't started looking for a broker yet but I'm sure it will be difficult to find one. I am a full time engineer and would only be available nights and weekends and would not make them much money. Not very appealing. 

You splitting the cash flow doesn't change anything in terms of expenses. 

I'd say if you and your partner are happy with your cut of the cash flow at 50% go for it. 

I just used an online mortgage calculator. Any of them should work. 

The 50% Rule is just a rule of thumb and should not be a substitute for a full analysis. I use it to quickly weed out 95% of what I look at, then I do a more detailed analysis of that 5%.

With 10% management, 8% vacancy, looking up exact taxes, estimating insurance, maintenance/repairs, capex, utilities, etc., I find that it is almost always very close to 50%.