All Forum Posts by: Joseph Hennis

@Rodney Sums You guessed it. Planning to sell property 5 before rate adjusts. I don't want to live in this house forever. It's in the suburbs. I am more of a rural type person. I need more money to be able to afford some acreage. I currently live in this house with my parents, wife and two kids. There are two master bedrooms. My parents pay me rent, but just until they retire. They have a few more years. I wouldn't want to burden them with that forever. Hopefully I can buy a property with two houses on it. I might even build the two houses or go the manufactured home route, though the resale value of those isn't great. Still, if it's my dream property, why not?

Hmm.. No I didn't share cash flows, so no, the cash flows don't reflect property management fees. That's why I just left it as Difference:. I didn't want to seem like that is a cash flow number. Honestly cash flow fluctuates so much month to month, it's hard to pin an exact figure on it. Last month it was down $1k. This month it was up $4k. The account fluctuates $5k/mo up and down every month. Depending on how I chose to estimate my cash flow numbers, could be anywhere from -$1k to +$2k /mo. Generally though, what I have seen is around +5k/yr for every year except last year. -5k last year. For some reason, it seems to grow very fast in the winter. Less moves and repairs. Then during the summer I tend to have cash go out to pay for repairs and cover move outs. I think this year will be better than last year though. Finally took care of that roof in Ogden...

@Sam Newell I have a similar long term goal. I want to own 50-100 units eventually. Raising rents is tough. Every time I try, I am met with angry tenants. =) It's easiest for me to just raise rents when they move out. But... I do use property managers so maybe I should put a little pressure on them this year to get that rent up.

I understand what you mean about flipping being tough on the body. I got out of construction work for just that reason. I might partner with someone who is an experienced flipper. Hopefully someone who uses contractors. =)

Where can I find more information about FIG?

Also, do you think a commercial line of credit would be useful at this stage for me, or do I need to have a bigger portfolio to worry about that?

Thanks for your help!

@Account Closed I have been tracking P&L only in quickbooks. It's a pain to get the cash flow out of quickbooks, though you can get the statement of cash flows and fudge around with it to get the numbers. Just isn't instantaneous like the P&L. Seems quickbooks was made more for taxes and businesses.

I like the idea of getting a better bookkeeper. I have one, but she seems better acquainted with businesses than real estate. I had to argue with her that painting is directly expense-able and does not need to be depreciated. Also, when I bought more properties, she seemed concerned, and advised me not to buy anymore properties lest my tax preparation fee become too high. LOL. I hope to one day spend a fortune on tax preparation, with a huge portfolio to match.

If I had a bookkeeper with more real estate savvy, I could get help tracking returns and cash flows. I haven't really needed that yet. I have no outside investors I need to show my numbers to. But occasionally I do pull out all my numbers and play around with my financial calculator to figure out my rate of return and cash flow. It would be nice to have that information handy at a moments notice.

I might take you up on having separate checking accounts... I hadn't even considered this until you mentioned it. If I had LLCs I might have to do this anyway. It might be good to start now. I could probably tie the accounts together too (so that if the balance is short in one account it pulls from another) to keep from going negative in one account or another. My cash balance fluctuates 5k/mo. This would make it super easy to tell which property needs more attention to increase cash flow.

So, you what would you do in my shoes, investing wise? Just continue holding?

@Charles Doehler Investing in used cars? This is definitely a more unique approach. I'd love to hear more of this strategy! =) My friend does car flipping and loves it.

There's no wrong answer in this thread. I asked what you would do in my shoes!

@Andrew Dean Thanks Andrew! I have thought about 4-6plexes as my next step. I wouldn't want to go any bigger just yet. I do like how easy it is to fill vacancies with plexes.

For me, a $475k four plex at $1k/mo per unit wouldn't meet the minimum 1%, so I might look for a different area. I do know people invest in this level, and if the down payment is right the property will cash flow. Generally more appreciation in that range as well. I guess this fits the B class MFR type?

@Rebecca Belnap That's a good idea. I could buy a larger MFR with the capital. One thing I like about our duplexes, they are ALWAYS rented. Literally. Not even 1 week/yr of vacancy. There is always someone lined up ready to move in as soon as the other people move out. For this reason alone my wife was suggesting we go this route.

And yes, I am fairly comfortable buying out of area. In fact the properties in Utah I bought site unseen. I still haven't seen them, lol. When my mom visited my sister who lives in Utah last year, she just had to go see them. Guess she didn't think they were real, haha.

I get enough pictures to get an idea of what it looks like. I have contractors, property inspectors, and property managers tell me about the property's condition and rent-ability. I would recommend purchasing through a property manager as opposed to a retail real estate agent. The property manager is going to have to manage the property they sell you, so they have some skin in the game. I have had property managers tell me they wouldn't manage in certain bad parts of town, or the property is a dump, best to pass on this deal... A real estate agent generally just wants to make the sale and in most cases doesn't know much about investment properties.

That's a good point about cap ex. One of the duplexes needed a new roof. I knew that before I bought it. They just replaced it too, but didn't put the right kind of moisture barrier underneath for Utah. The snow and ice caused water to wick up under the tile (don't ask me how this works, I'm from california!) This extra expense (finally paid it this year) caused me to negative cash flow for the first time this year

Something I've been thinking about with regards to Cap Ex.,, Maybe it makes more sense to finance Cap Ex. The monthly debt service may rise, but that can sometimes be offset by increased rents (especially if the Cap EX was something that increased the rent, like a new kitchen/bath). Rents have increased in two of my properties, ogden SFR and suisun SFR, 850/mo to 1100/mo and 1600/mo to 1850/mo. I am pretty sure if I remodel the kitchen in suisun I could get 2200/mo. So if I spend 15k on the kitchen and get 350/mo more, thats not a bad IRR (at least for me). So Cap Ex could be seen as an opportunity in some cases.

@Ryan E. I left out purchase price because I am not so much trying to analyze what I did in the past as I am trying to analyze what to do in the future. I have two conflicting thoughts in this regard... One is "If you are doing something right... Keep doing it!". It's good advice, especially when someone is jumping around a lot instead of focusing on what works. I have done a few different businesses before finding this one, and I like it... a lot... The other conflicting thought I have is "The way I made my first half million isn't going to be the way I make the second half million." Markets change. The strategy I used before is becoming less and less effective in this market. I have to find more obscure markets across the country to find properties with decent cashflow and those will not have much appreciation.

That being said, here are some numbers and locations for ya.
suisun city CA 150k, 5k closing costs 4/2 1890 sq ft, bought 4009, current value 362k

ogden UT 77k, 4k closing costs 4/2 2000+ sq ft. bought 2013, current value 150k

ogden UT 93k, 4k closing costs duplex (I think 2/1's, I would have to go look to be sure) bought 2014, current value 150k (this one is harder to figure out the value, maybe 130k-170k)

ogden UT 93k, 4k closing costs duplex (these were actually side by side duplicate properties) bought 2014, value 150k, same as above...

fairfield CA 343k 5k closing costs (my own home... not really relevant but since my dad is paying rent... kind of consider it an investment. plus there is equity I could tap...) bought 2015, current value 395k (this is california, rising as we speak! lol)

I put 10% down on first one, 20k ish to close (less actually) The other four I bought with HELOC money as down payment with a little of my own. With repairs (I put 15k into my own home, wife wanted a better kitchen) I have spent about 50k total. None of these properties needed any repairs but we have done some. All were rent ready. The 3 ogden properties were already rented, 850/mo for the SFR, 525/mo/unit for the duplexes (1050 per house). Rent to price ratio around 1.2% so a bit over the 1% rule of thumb.

I am wondering actually why ogden is so cheap compared to the rest of utah? 45 min drive to salt lake city seems like a breeze and more people would want to live there. Commutes are 1 hr+ in the bay area, What do you think the likelihood of that changing in the future and Ogden becoming a higher valued area?

@Michael Lee That's another strategy I was considering... I could just keep going the way I have been... Slowly.. I have income from my job that I could invest and not worry about the properties. They can be maintained at current mortgage payment and rent indefinitely. I feel like it isn't aggressive enough though. I have all this capital potential that could be utilized.

Thanks for your post!

One thing to consider, you refinance, and YES THE PAYMENT GOES UP... HOWEVER, (just wanted to emphasize this) if you are following the "repeat" part of it, you will soon have new cash flow coming in to pay against the higher mortgage... For instance...

75k purchase, 25k repairs. ARV is 135k, rent at 500/mo. refinance at 100k, Now your payment is $500/mo, which is negative cash flowing. buy another property, same deal.. You now have 2 properties 1k/mo in rent, with only one payment of $500/mo.

I used poorly cash flowing properties on purpose as an example. You should shoot for better deals.

@Ryan E. That is great you have a friend who has a lot of experience flipping. I really like this idea. In a hot market it makes a lot of sense to invest for capital gains. I have a couple friends who want to do a flip. At first I was against the idea of investing with partners... Too much complication. But the more I thought about it, I realized it was a smart idea to reduce risk. Still, it's a good idea to be choosy in your choice of partner(s). I've been calling a friend of mine who I know has done a few flips. What I would really like though, is to know someone who flips full time or at least has quite a lot of experience to partner with. Where could I meet someone like that?