All Forum Posts by: Kevin Bellavance

@Mark Shaffar

Hi Mark, 

I don't want to predict the market since I do not have the required knowledge to do so.

However, here's how I would prepare myself for a dowturn:

1) CASHFLOW, make sure all your properties are cashflowing a good amount. This will prevent you from not being able to pay mortgages and stuff.

2) LEVERAGE, I would reduce my overall leverage. Pay the mortgages you have without refinancing the properties to the maximum LTV unlike when you are in a growth phase.

3) RESERVE, I would put a % of my current income/cashflow into a risk free cash reserve, even if it is only 5%. 

4) MINDSET, in a downturn, you're equity will fall. You will certainly feel less comfortable and probably poorer but that doesn't mean to go and do crazy things to compensate the losses. Remember, equity is unrealized money. Even if you lose 20K equity on a property, it doesn't mean you have to do a risky flip to try and make up for it. You could lose even more doing so. As long as you're cashflowing, you still have that same asset which will appreciate again back to its current value after the downturn. That's why people lose money when the stock market crash. They see the value of their stocks declining, they are afraid and they sell for less than they paid. Then, everyone does so and it worsen the whole thing. Funny fact is, if nobody would've sold back during the market crash, there would simply have been no market crash. When people are afraid, that's when everyhing goes south. If you want a good read about this, go look for Franklin Templeton's story.

5) EXPENSES, if you believe a downturn is coming, forget about buying that Lambo you always dreamed of. Be smart, lower your expenses, it is not the time to get ''not required debt''.

Hope these 5 tips were useful.

Best of luck !

Kevin

@James Wise

Thanks for the response ! Fortunately, in my area we do not need licensing to own a property management company.

Hi!

Here's the thing, I want to be a real estate investor but I was also exploring the possibilities to start a property management business targeting multi-units.

Here are some questions I came up with :

-How do you find your first customers/property? **I know word of mouth is a powerful tool, but how do you get your first ones when no one knows you?

-What are the margins related to this business. I want to know what should I expect in terms of gross earnings$$$/unit managed as well as net earnings$$$/unit managed?

-How many units should I expect to be able to manage myself before hiring somebody else?

-Any marketing strategies working well for this business?

-How time consuming is this business? For example, how much time should I expect to spend (weekly basis) on managing 20/40/60/100 units? It may sounds silly, but I'll have a full time job by the end of the year and I was wondering if it would be possible to do both, full time job and this business. My full time job will have a flexible schedule and I'll be mostly on the road (insurance agent).

Any advice from someone with background or experience in this business will be appreciated.

Thank you!

@Daniel Levine

Sounds great to me!  :)

@Joe Villeneuve

Great to hear that Joe ! I guess it also depends on what you want and who you work with. Personally, I really prefer multi but everyone is different so :) Also, I would find it more difficult to find partners willing to put their credit on the line instead of just loaning me more money. Both ways are good. You just have to go with whatever makes you feel more comfortable :)

@Daniel Levine

@Mike Carino (here's a good way to rinse and repeat)

Hi Daniel! 

This strategy is a really good one when it comes to growing your portfolio. However, doing so with Single Family Homes (SFH) will make you hit a wall at some point where the bank won't loan to you anymore. In the US, I think it's around 10 loans/ person. I live in Canada, we don't have this kind of limit nor the seasoning thing as far as I know (but that's not the point). Here's a solution regarding your strategy as it is the one I want to use as well :

When you hit that wall, the point where you can't have loans anymore, let's say you have 10 loans for 10 SFHs, here's what you can do:

Sell them all, cash out, buy an apartment complex with a commercial loan (since the financing doesn't take into account your personal debt ratio) and start all over again with SFH. See, let's say after 3 years, you have 10 SFH worth 100K and financed at 80% (80K loan) and 20K equity in it.

Sell them. This will leave you with 200K (10x20K) (I won't consider tax for this example).

Of this 200K, take 150K and buy a 600K apartments complex (let's say a 8 units since I don't know your market).Put 150K down and finance the rest with a commercial loan for 450K. 

Keep 50K of the 200K and start again building your SFH portfolio following the Buy/Rehab/Rent/Refinance. But this time, you have a 8 units bringing in additional cashflow, appreciation and mortgage amortization.

Take note that selling all your SFH might not get done in 2 months...Also, you'll have to deal with the tenants or sustain empty homes while trying to sell them, pay commissions to broker, etc. Personally, I suggest you to sell maybe 3 at a time. This will surely not be as easy as it seems...but hey, we're talking about real estate, nothing is easy.

Also, assuming you bought all you SFH without your own money (private money), you now have a 600K apartment complex without even touching your own money. ;) Isn't real estate the most wonderful thing in the world?

Best regards,

Kevin

@Alex M.

Additionnal comment for Alex M. 

LLC will protect you from personal liability, lawsuit and you have some tax benefits. However, it is a bit more expensive to set up. As I said in my previous response to James, it depends of where you want to go with your partner.

Are you getting in business on a long term basis? Do you consider doing multiple deals together? If yes, consider setting up a LLC and become equity partner of the business.

Are you partner only for this particular deal? You might want to get a JV for the deal, but do not give up a % of your futur company for a single deal. It would a bit silly.

About the waterfall structure, it is quite a complicated one and unless you work with a qualified advisor such as a Lawyer regarding the structure/paperwork of those kind of partnership/loan, you might want to stay out of it. You have to have multiple loans to multiple people/business with different contracts and so on and so forth.

From what I see, it will be more of an equity partnership than a private loan. Waterfall is mostly for loans.

As for reducing risk of your money partner, try to get a bank loan secured before getting into the project. What I mean is :
Let's say you want to flip a 100K $ home.

Money partner brings in 125K $ (home + rehab) ALL-CASH.

You secure a loan (from the bank) of 80% so 80K$ without financing the project with.

IF the project goes south, here's what you can do to reduce your partner lost :

1: Sell the home ASAP and pay him back.

2: Bring in the 80K$ from the bank, and payback 80K$ to your investor. Therefore, his involvement is now much less and his potential losses are reduced. Unfortunately, on your side, you are stuck with a loan now. But hey, if you plan well and do your homework, project won't go south  :)

Best regards,

Kevin

@James Palin

Hi James! 

Personally, I think that it all comes down to what kind of deal you have with your partner. Some of them will just provide the full amount of cash required, step out, and then cash-out 50% of the profit at the end of the project. Some of them will get involved in the ''day to day operations'' such as rehabbing a flip, for example. There really is no golden rule. 

Your 50/50 is quite standard. You see this kind of JV mostly for very begginner with no money as well as experienced investors looking for additionnal capital. But when it comes down to the terms of the JV, it really depends. Some investors will ask 25%, 50%, 75% according to their investments criterias or the trust-relation they have with the REI.

After all, even if you had 10% of a 20K $ profit, it's still better than 100% of 0 profit since there would probably have no investment at all without this JV (considering you don't have the money yourself). Remember that using other people's money is a great way to leverage your investment.

Also, you don't have to give away 50% of your whole company  (if you have one) to the other investor for a single deal. You can juste jump from deal to deal with different partners and JVs for each one of those deals. On some deal you can get only 40% then the other one you'll get 70% while still owning your company at 100%.

I hope this helped you!

Best regards,

Kevin

@Jason Mak,

Remarkable. Thanks for sharing.

I hope hearing about your other projects! 

Best regards,

Kevin

@Evan D., Hi Evan and welcome to BP.

As you, I'm 21 yo with a some money pilled up. Aside what you should do, here's what I think about taking risk.

We are young, we have close to no payments and obligations. If you want to take a risk in your life, now is the best time, definitely. Either you go with flipping to build wealth quickly or buy&hold, but break that analysis paralysis. I've been stuck with that same fear for 3 years now. Lately, I've been listening to BPs podcast and finally broke the barrier. I started taking actions, reaching out to realtors, calling home sellers, going out to see houses and buildings to find my first deal. As a results, I made already some contacts and developped a small network. I got 3 people looking for deals for me now. If you ask me, just get out there and take actions. Sitting in front of your spreadsheet won't get you far. In fact, I did get NOWHERE in 3 years of analysis paralysis.

As for me, my investing strategy looks like this :

Flip or BRRR (look for it on Biggerpockets) small single family homes to build fast equity and wealth. Then, at some point where the bank won't loan anymore to me due to my debt ratio being too high, I plan on selling the SFHs I have, cash out, take a big chunk of that money and buy an apartment complex ( 6 units and +). Then, with what's left, I'll start again with flip and BRRR until I can buy another big apartment complex and so forth.

I hope this was useful.

Best regards,

Kevin