All Forum Posts by: John Gillick

Scenario 1:

Party one: experienced flipper doing 100% of the work (not actual labor, just selection, management, etc.)

Party two: providing 100% of the money.

What's the "typical" profit split?

Scenario 2:

Party one: experienced flipper doing 100% of the work (not actual labor, just selection, management, etc.)

Party two: providing 80% of the needed funds for a first position lien and 10% APR

Party three: providing 20% of the needed funds for a profit split.

What's the "typical" profit split between party one and party three?

Any thoughts would be appreciated.

@James Wagner I agree with @Joshua D.  

Rentals are a great way to turn money into more money.  So they're a great step 2.  You're at step 1, getting that initial money.  You're doing great so far!  Keep it up, don't lose focus, but yes, you do need to increase income or decrease expenses.

Spend 10 hours on Mr. Money Moustache (MMM) or watch his 30 minute talk on youtube.  Whenever I am trying to cut back my budget and just not seeing where I can, I like to recall that about 50 million Americans live in poverty, which for a family of 4 is about 20k a year.  If they can do it, surely I can live on double that comfortably, right?  I try to meditate on that ($40k) number when I'm looking for ways to reduce my budget to some number that seems impossible but is actually much larger than 40k.

MMM lives very well on less than 30k per year, and the "extreme retirement" guy lives what he considers well on (I think) 7 to 10k a year.

No judgment from us either way.  By participating in your 401k and still wanting to save more, you're already in the top 1% of financial intelligence among Americans.  Good luck!

So, I mostly just wanted to share an alternative view on the whole property management vs. deal with headaches yourself debate.

I have 6 units in three states: 2 apartments and a store in Brooklyn, a condo in Florida, and two units in PA.

I live 2 hours from all of them except the Florida condo.

I use a PM for the two PA units and manage the rest myself.  (The RE agent in FL does some light PM work for "free").

The Brooklyn one is my first, my "baby," so I wanted to do it myself for the experience and because I've heard horror stories about PMs, plus NYC PMs for small owners tended to be pretty pricey with not great reviews.  However, I am very busy and have zero desire to do much PM work.  I never want to hear from tenants.  I read about owners who "check in" with their tenants every 30 or 60 days and think "I see how that is 100% great advice, but I have ZERO desire to do that."  My goal is to field 3 emails per unit per year, and one of those should be telling me they want to re-sign at the new rental rate every year.

So far I have been VERY  successful in achieving that (more so than I think anyone can fairly deserve to expect).

Here's the catch (no free lunch).  I thought to myself, "I could pay a PM 12% to give lackluster service to me and tenants, OR I could set the rents 10-12% below market rate and be very up-front about who I wanted to rent to."  You: self-sufficient tenant, can handle minor tasks yourself, can be home to meet contractors, can find and schedule your own contractors, are happy to pay those contractors out of next month's rent, must be willing to do electronic rent payments.   Me: laid back, non-intrusive, will not be a cause of delay for repairs because I'm not involved beyond sending you a confirmation email within 24 hours when you let me know you have an issue that you are seeking professional help resolving.

Maybe I'm just the luckiest guy on earth, but I've had several tenant groups/families so far and everyone has: (1) been either perfect or close to it, (2) rarely needed a plumber/electrician/other paid contractor and never appeared to be trying to "take advantage" of the situation, (3) seemed super happy with the arrangement.

One reason I thought this might work is my own personality as a renter.  Just like I don't like calling tenants, I also don't like calling landlords.  I prefer to fix minor things myself.  Even paying for inexpensive parts if needed just to avoid strangers in "my" house/apartment.  I figured, hey, maybe there are others like that out there who would love to have a solid 10% discount on their rent to just live the way they want to, to the mutual benefit of us both.  So far so good... (famous last words?)

When tenants pay $2000/mo for a $2000/mo apartment they expect service.  When they pay $1800 for that same apartment they're happier, friendlier, less demanding (my experience).  So do you want a demanding tenant serviced by a PM or a happy self-sufficient tenant serviced by themselves?   Same price to you either way.

[Obvioulsy, not for everyone, not for every situation... even I have started using a PM for units 5 and 6, because while I could handle a 5th and 6th great tenant, I do understand that this system has the POTENTIAL to turn into a time-suck at any moment.]

Thoughts?

This is, by your own assessment, your very good mentor.  Why don't you present your financial position to him, let him know you think you're ready for private money lending, and ask for his advice on where to find it?  If he's smart enough to be a great mentor, he's smart enough to read between the lines.  Or who knows, maybe he knows of a better source, one that doesn't strain the relationship of your "most valuable connection."  IDK, just a thought.

I was in a similar situation as you and used FHA.

One real problem with FHA and one fake problem:

Real problem: Very expensive. Get a quote because it's always changing, but after the '08 crash they jacked up the PMI to crazy levels because their trust fund was wiped out. I hate the idea of having to pay for their previous mistakes, but it is what it is.

Fake problem: One thing that stinks is that FHA doesn't care about your great credit score (as long as it's over like 620). So you feel like you wasted your great credit score. I found that credit score alone means little to banks. Equity opens the door, credit score is what you talk about once inside. A private lender might let you monetize your excellent credit more than a bank, but they too will be expensive.

Good luck.