All Forum Posts by: Diane Menke

Thanks guys you are helping us flesh this out. Best way to do it is write it down and find the holes. Then find the answers to fill the holes.

I can see you all are more adept at the financial maneuvers than I am. I know from watching folks in my remodeling business that this is where the money is made - understanding and managing money.

Jon's example quoted here is a model I have used already and I have had success with personally - no other members just me securing a loan in the name of my LLC. I do have a commercial lender I work with already who has said this would work for them -

<The investors don't have a direct interest in the property, with that structure. Just an interest in the property.>>

We get the 75% ROI when I calculate "in money". Is there an acronym you guys use for that? We get about 75% (or more) at sale on a flip and we get 20% annually in rent on a hold.

So if I put 30K cash in on a buy to flip using a loan for purchase and construction, we will get at least 22,500 back in profit after expenses are paid. Thats a 12 month venture this market.

If I put down the same 30K on a rental, we know we are looking for 6,000 net rental income annually or $500 positive cash flow per month.

Adam does this explain our results a bit better? I'm going to chew on your explanation of ROI a bit more today. Tell me if I am missing something please.

J, the puzzle of getting money out so to pay folks is one I am still chewing on and so I am glad you brought it up. When we run the project ourselves we get paid at refi or sale. A limited member sitting on the sidelines is not going to like that so we need to create the system to pay them and put it in the docs.

If we run with Jon's example, I can get people paid off at a fixed % rate in either 12 or 24 months through a sale or a refi (in this market 24 months seems more prudent). The time frame and the return we got on our cash would suggest an annual fixed interest rate of between 10 -12% for limited members is doable.

We would only be rolling manager member earnings back into the LLC. I think its best to have limited members re apply after every time period for now. Thoughts?

We only want to work with savvy folks who can understand financial statements. We do want to stay on the right side of the SEC and my lawyer partner is looking into the fine points of doing so this Friday. We would run it all buy our CPA before hand as well.

Again feel free to poke holes in what you see. This is very helpful.

Thanks very much
Diane Menke

Today our domain name was locked in and some initial data placed there.

Photos of our sturdy not glamorous rental props will follow next week or so, along with tenant support information.

Props for sale will be shown on this site. We have one money maker for sale now.

More than likely we will post information for folks there who would like to become members in our investing LLC.

We want to form an LLC which will locate REO's for flip at 75% ROI minimally, or hold and rent at 20 - 30% ROI. These are returns we have exceeded previously when investing our own dollars, so we feel confident.

Description of our property LLC -

"It will (in all likelihood) be an LLC with two classes
of members: member-managers and limited-members. So just call it an LLC." (I quote the lawyer partner here)

We will be creating this entity soon (its quick) and put a prospectus together in the next Q which we can present to potential members.

Its my goal to put about 75K of my own cash into the LLC, becoming its member manager, and find a matching 75K from others who wish to be limited members.

What would a reasonable ROI for limited members be? Is there a baseline folks would consider good for a flip or a rental? Do they care if its a flip or a rental at all? Maybe they just want to see their 10-15% and not be bothered?

I would like to set this up as a 12 or 24 month cycle (like a CD) , with the option of closing it earlier (via a sale to cash out) if the returns are there and we can get into the next deals = make more money. To avoid taxes can we do 1031's out of this and into the next deals?

I'm guessing I am missing some issues here so I appreciate your feedback while we continue to flesh out the details of the system.

With appreciation,
Diane Menke

Keep 'em coming boys. I learn so much stuff just from reading your banter!

Sounds like the next deals will close soon the rate you are moving!

Thanks very much all.

Diane

Barry,

It seems to me you have 2 ways to look at the prospects. Cash Flow and Equity Development.

Can you buy a property to rent which will bring you added cash flow so you can get into a nice first home and a second rental property in 5 years? What do the rental properties go for in your area? What would your positive cash flow be from them? Can you get a $500 or more positive cash flow from a property? More?

I think you can probably do that but you have to do some RE shopping to see if its true. You want to shop for cash flow but also "soon to increase" hidden equity.

I always buy the house I live in under market value. Usually its what we call "an old lady/man house". Its cosmetically or stylistically challenged. Then we fix it up.

I look for neighborhoods that are changing or moving up. The area where I live now is emptying of retired folks, and young families are moving in. Many "hip" amenities are moving in too, raising property values. The local schools are great so its cheaper than living within the city and paying for private schools. If we live here 5 years we know the property value will come up a lot since there is pressure from folks wanting to move in.

So you have to look at the big picture with "5 year eyeglasses".

Seems to me you are in no hurry to move to a home so why not get the rental prop together first. You will need to have 20% cash for that to happen. Whats the best way for you to get that cash together really fast? Can you sell a car or take some PT work on? Then buy under market value and for high cash flow.

If your cash flow is good, you might be able to buy a 2nd rental prop within 24 months.

I think thats a nice plan to increase your income, your net worth, and not increase your monthly expenses for living until you can afford it. Do that later when you have added income from rental property + equity you can perhaps cash out to buy your first home or renovate it.

I think if you can develop a "what if" balance sheet and income statement, you can play with the scenarios to confirm this is a good way to go. Thats what I do to make my decisions about which move is best. Works great.

Now get the cash together and do your research.

D

Folks I can give you a CPA referral. Ping me.
Diane

Ivan would it be cheeper to go with new awning units? I mean if you consider your time + hardware + curb appeal of new energy efficient windows?

We use a lot of inexpensive vinyl windows for flips and rental houses. For keepers we use a lot of Marvin and Weathershield windows and some other lower priced ones too. But these are good names for new units.

You can get great hardware answers at a local store I use but they supply builders all over the US via their web site where you can see the items and they have great staff to answer questions. Ping me if you want that info.

Diane

Catherine I am with the others about the lease option idea to unload the non performers.

Ditto the management company. Fire the rats. You will have to get all your ducks in a row, know the facts and then get tough with them. Or have your lawyer get tough with them. You have one right? Ours charges $150 for a letter to go out and it always seems to work.

I don't think you should expect to be CPA or do your own tax filing any more. I don't know why people will try to do this themselves. Would you drill your own teeth?

You have property now in several states with up tick and downticks in income, lots of tax impact there. If you do a refi or sale, again, more complicated taxes. Spend the money for a GREAT CPA. You will be able to plan for taxes, business growth, all kinds of great things.

The accounting classes for you will be a bonus because then you can keep your books which WILL save $ because you can work with the CPA when he/she inputs the info. They will for instance have you shift allocations on occassion so to save you tax dollars. I'm telling you its SO WORTH IT. Hire a pro.

Just like any profession there is Art involved in interpreting the application of the laws and principles. A CPA with RE experience and small business experience will get you on a good foot so you can move forward in a positive fashion. Our CPA cleaned up all kinds of messes and now we run like a REAL BUSINESS!

Best is not to panic. Look at all your options. Plan and then execute.

Have you spoken with a reputable realtor in the areas where you are thinking of selling or having rental shortfalls? What are the comps? Can you get a corporate tenanant, grad students, military, hospital employees, how about a teacher or a police officer?

You can tell a lot about rent rates from Craigs List. You can even list the places there for rent.

Any chance you can just up the rent by $50 or $100 per unit? Throw in a ceiling fan or two to help ease the hit?

Diane

Bill thanks for the explanation of wholesaling. Can you flesh that concept out a bit? I see your company covers all areas of the potential deals, realty, management, construction, rentals...

If you did not own a realty company, how would you locate the property to wholesale? Through a realtor? Other? And to market it?

I think my greatest successes have come from learning to listen to experienced people and then putting into practice what they have taught me. A great source for me has been SCORE and our business peer group. Lately I have been learning a lot here on these forums.

I had always wanted to get into RE but I had done nothing until 1998 besides buy my home. Once I understand what a HELOC was, I was off. During the following years I was lucky to meet many helpful professionals in RE, accounting, legal who are still on my "team".

Learn and do. Do and learn.

Diane

I read the RD PD books and I found them helpful both in motivating and in illustrating of how balance sheet and income statements work together.

As I develop the thing I see is knowing how to understand your finanical statements is key to any serious growth.

A great book for this is Thomas Ittelson's 'Financial Statements" by Career Press. In this book you follow the creation and development of an applesause company, from the simple financial statements at it conception to later more complicated satements that come with growth.

Good business practices are a must.

Enjoy the read.

I don't have any rentals where we have to pay utilities. Thats on our tenants. We rent SFH's and the tenants have the utilities switched over in their names.

If you can change the systems to do that I would do it right away, since there is no insentive for them to concerve if you pay. For example if its gas heat in your name and electric in theirs, change it to electric heat.

Otherwise you should be able to get records of use for the properties/units from the utilities. Plan on 15-20% increase each year and build it into the rent.

Good luck
Diane