All Forum Posts by: Leo R.

@Caleb Olaez we could write a book on this subject, but a lot of it boils down to: are you bringing enough value to the table to justify your mentorship? In other words, why should a mentor (who is presumably very successful, and whose time is presumably very valuable), spend their time talking with you?

That's the question you have to answer. 

Keep in mind that a truly successful real estate investor has probably quantified the value of their time--and (if they're truly successful), that number will be high. For example, they may value their time anywhere in the ballpark of $500 to $15,000 per hour (or more). So, if they're going to spend that time with you, there has to be a compelling reason. That reason will be different for each potential mentor--some mentors will want a monetary return on their time, others will want leads, some will want you to solve problems for them, some simply want the satisfaction of helping you (it's not always about money), some might even be willing to mentor you if they like your sense of humor or personality...but point being: you have to figure out what the mentor wants, and then decide whether you can bring that thing to the table. If you can't provide the value the mentor wants, then it's probably not a good fit (similar to any other type of relationship, there has to be a good fit between mentor and mentee).

Often, you can get a sense of what types of things a mentor values just by talking with them, asking good questions, and and listening. For instance, you can ask questions like "what are your favorite and least favorite parts of being a real estate investor?", "what are some of the biggest lessons you've learned as a real estate investor?", etc. Their answers to these types of questions can give you an idea of what they value, and how you can bring that value to the table. For instance, if a real estate investor repeatedly says things like "my property manager is so unreliable", "managing my properties is a real headache", etc.--that may be a clue that they need help with property management--if you can solve that problem for them, now you're bringing value to the table. 

Also, keep in mind: even a mentor who's willing to help you simply for the sake of helping you will, at some point, weigh the pros and cons of helping you. If they decide that the drawbacks of helping you outweigh the benefits, it's game over. Each mentor will have a different threshold for this--for some, a minor annoyance might be enough of a drawback for them to end their mentorship. Others will have a much higher threshold (and you might never reach that threshold). But everyone has their limit--so, it's worth consistently evaluating whether whatever value you're bringing to the table is worth your mentor's valuable time. 

Before you go out looking for a mentor, you'll want to study up on REI as much as possible, and gain some experience (e.g.; experience with property management, REI analyses, experience with a trade, etc.), so that when you do meet potential mentors, you have some common ground and some applicable skills. You'll also want to closely consider what your goals are, what your strengths and weaknesses are, what you want from a mentor, what types of things you're able to do for a mentor, etc.--so that you appear prepared for mentorship.

Good luck out there!

@Alex Clark I have experience with both, and I'd 100% recommend a house hack over OOS investing for a beginner, no question.  I've written about this on the forums plenty of times, so here's one of those posts:

I've house hacked, BRRRR'd, rehabbed, and been involved in just about every other REI strategy out there, and in my opinion, house hacking (a single fam or small multifam) is the single best way to get started in real estate investing.

Why? Because, house hacking can produce great returns, it’s highly flexible, it teaches you essential RE investing skills, but (compared to more advanced strategies like BRRR'ing, flipping, wholesaling, or out of state investing), it is comparatively lower risk, simpler and more beginner-friendly—and therefore has a higher likelihood of success.

Here are the top reasons house hacking is the best way to get started in REI:

1. A HH can produce great financial returns. Specifically, a HH can substantially lower your living expenses, while increasing your income. Lowering your expenses while increasing income is the fundamental recipe for building wealth—and a HH can accomplish both in a single step! A HH lowers living expenses (which is usually a person’s biggest expense)—living in the smallest room in your own house might only cost you $500 per month, whereas renting an apartment might cost $1,000-2,000+ per month (not to mention the $500/mo you spend to live in your own house is partially paying off your mortgage, whereas the money you spend on rent is gone forever). A HH also produces income and adds to your net worth—you can get cashflow from rent, property appreciation, mortgage pay down, and tax benefits. Since it’s your primary residence, you also get access to one of the greatest wealth-building tools ever created: a 30 year, fixed low interest, low downpayment mortgage. When executed correctly and repeatedly, house hacking can be very lucrative, and there are multi-millionaires who built their fortunes on repetitive house hacking!

2. House hacking is highly adaptable, and can be combined with other strategies. As you gain experience, you can combine a HH with other strategies to maximize returns—I've done HH's that turned into various types of value-add plays, BRRRR's, STRs, flips, etc. Often, this is done to adapt to market changes. For instance, I have a property that started as a HH; when rates increased, re-fi'ing wasn't an option, but the property had a layout and zoning that was conducive to adding an ADU—which I did, greatly improving the property's cashflow. Nobody can predict the market, but good investors know how to adapt to whatever the market throws at them, and HH’ing is a strategy that is highly adaptable.

3. A house hack will teach you the essential skills you'll need to succeed in RE investing. With a HH, you learn how to analyze properties & markets, how to find an investor-friendly agent, how to spot value-add opportunities at properties, how to engage in a strong due diligence process, how to screen tenants, how to create a strong lease, how to manage the property, how to build a network of contractors, plumbers, electricians and other pros, how to manage the book keeping of the property, etc., etc., etc. If you want to succeed in RE investing, getting this experience will be critical! There are some lessons that can only be learned through experience, and A HH will provide incredibly valuable lessons that no mentor, real estate course, book or podcast could ever teach (though, I'd still recommend reading up on relevant RE resources, listening to podcasts, etc.).

Moreover, a HH allows you to learn these lessons in a context that is often lower-risk than more advanced strategies (like out of state investing, flipping, etc.). Make a mistake with a house hack and you might experience some inconveniences and lose a few thousand bucks, but you can usually survive. Make a mistake with a flip or out of state investment, and you can easily go bankrupt (especially when you’re first starting).

Plus, if you decide to do one of the other strategies in the future (such as BRRR'ing or out-of-state investing, etc.), you'll be much more prepared to do it if you have a few HH's under your belt--a ton of the lessons you'll learn from a HH can be used to succeed in other areas of real estate ...in fact, I'd say that a HH should be a necessary prerequisite to the more advanced strategies (like out of state investing, BRRRR'ing, flipping, etc.)!

4. Compared to other strategies (like out of state investing, flipping, wholesaling, etc.), a HH is ** relatively ** simple and ** relatively ** lower-risk, and therefore has a higher chance of success. I always use this analogy: would you tell a beginner skier to ski the most advanced terrain on the mountain? (obviously, no; a beginner could get themselves killed on double black diamond terrain!). Beginners should start off on beginner terrain, where they actually have a chance to learn and succeed. A house hack is like that beginner run—you'll fall down a few times, and learn in the process (but you hopefully won't get yourself killed!) …on the other hand, flipping, BRRR'ing, wholesaling, and out-of-state investing are more like double black diamonds—they require a lot of experience, and a single mistake could have dire consequences.

The fact of the matter is: real estate is a high-stakes endeavor, and the more advanced strategies (like BRRR'ing, wholesaling, flipping, out of state investing, etc.) can easily bankrupt a beginner when they're executed poorly.

Although HH’ing is a strategy that's good for beginners, it’s not just for beginners—there are plenty of very experienced RE investors worth many millions who continue to HH, because it's such a powerful strategy.

Now, having said all that, house hacking is not necessarily easy, and it’s definitely not risk-free (if it were, everyone would do it!)...it's just easier and comparatively less risky than the more advanced strategies...House hacking still takes significant due diligence, skill in analyzing the market and the property, time and effort to learn about tenant screening and property management, the ability to anticipate appreciation/depreciation trends, etc., etc., etc....and even with lots of skill and preparation, things will still go wrong (vacancy, plumbing leaks, bad tenants, unanticipated capex, furnaces that kick the bucket at the absolute worst time, etc.)--but that's the nature of the game. As James Brown sang: you gotta pay the cost to be the boss.

Good luck out there!

@James Back I've experienced late payments a few times (but luckily, it's a rare occurrence for me). In this situation, you 100% want to find the easiest legal way to part ways with the tenant, and pursue that strategy as fast as possible.

Your lease should have a comprehensive section describing what happens when a tenant is late on rent, and the fees that will be charged if rent is late. This section needs to be based on local laws about late rent fees. The laws about late fees, and whether a landlord can deduct late fees from a security deposit, are different in different states, so you'll need to design your lease accordingly so that it's not in violation of any local laws/regulations. Assuming your state allows you to charge late fees, charge the late fees exactly as described in your lease every time rent is late--no exceptions.  ...if your lease doesn't already have a section like that, have an attorney help you add one...

As others have mentioned, the late rent alone is reason enough to want to part ways with these tenants. Moreover, the situation with these tenants will probably only get worse, not better--in my experience, when a tenant is repeatedly late on rent, and is OK living in filth and with bugs, that's how they'll always be--they're not going to magically start being responsible, paying on time, and cleaning up your property.

You may not need to go through the whole process of eviction--there are often easier, faster ways to get a tenant to leave (e.g.; cash for keys)--but again, you need to follow your local laws on this topic...but, it's worth studying up on whether there are legal ways of getting a tenant to leave other than the full eviction process (I suggest that ALL landlords familiarize themselves with this, even if they've never had an issue with a tenant).

Once the tenant is out, rehab the property (which may include a deep clean or a more in-depth remodel), bring in the pest control guys to eradicate the roach problem, and try to bring the property up to a level that will attract responsible, reliable tenants who won't cause this type of problem again.

Good luck out there!

@Mike Maxwell  I'm not a lawyer (so take this with a grain of salt and consult a lawyer before making any moves), but I believe that in some states, the ESA laws apply differently to different types of landlords, and there are sometimes exemptions for certain ESA requirements.  

For instance, small scale landlords with fewer than a certain number of properties may be exempt from some ESA requirements in certain states. ...so, it's worth familiarizing yourself with those laws in your area, and seeing whether you may be exempt from certain ESA requirements...

Good luck out there!

@Garrett D. re: the old (but still working fine) furnace. I've experienced that scenario many times, and just experienced it recently.

In general, I've always kept old furnaces in use as long as they're working fine, but it's obviously a dice roll.

A few weeks ago, a furnace at one of my rentals bit the dust. Of course it happened the moment I left town (first time I had left town in 4+ months), and of course it happened on new year's eve at 6 pm, and OF COURSE it happened when a cold front was approaching. I swear, it's like the damn thing KNEW the absolute worst moment to kick the bucket--not a good scenario. Luckily, I have an absolute rock star HVAC guy who handled it. I also had a plan in-place to take care of the tenants in this type of scenario (I have space heaters, generators, military blankets and other supplies on standby for emergencies)...but, without a plan in place, and the best HVAC pro in the business to respond at 6 pm on New Year's Eve, I would've been in deep trouble...needless to say, I gave my HVAC guy a serious tip for helping to save the day...

In this case, the furnace could be repaired for about $1,250, or replaced for around $5k. At that point, I had a decision: do I sink $1,250 into a 25 year old furnace (that would probably have more problems on the horizon), or do I bite the bullet and pay $5k for the new one? In this case, I got a new furnace, because I figured that sinking $1,250 into an old furnace would be a poor use of money. Was that the right choice? Who knows...this business is filled with uncertainties...

Good luck out there!

@Steven S. 

I think that, for the purposes of discussion, the exact mechanics of the models are less important than the fundamentals of how and why people should use projection models. Yeah, your model will be different than mine, and yeah, you probably won't understand my models without looking at them and spending a lot of time learning to understand the inner workings of my models, my portfolio and my strategies. 

Heck, it's taken me YEARS to refine my portfolio, models and strategies, and there have been plenty of times when even I wasn't completely sure which model was the best...there have even been instances when my model was producing projections I didn't understand (and I built the thing!). 

If you were to look at a screen shot of one of my models, it wouldn't be clear what's occurring (partly because there are hidden layers with unseen variables and calculations that aren't visible on the top layer). Also, my models have plenty of weird quirks that I understand (because I built it), but which would be completely unintuitive to someone else... Not to mention my models are constantly changing. So, the exact mechanics of my models are not not something that can be easily conveyed in some screen shots on a forum post.

Sure, I could show you a very simple model that anyone could understand at a glance (e.g.; rent is X today, it will increase at 2% per year, and will therefore by Y in year 5), but my real estate portfolio, strategies, and broader investment journey are a lot more complex than that, and so my models are more complex, and won't be easily understood by someone looking at a glance. 

Likewise, I probably won't understand the inner workings and intricacies of someone else's model in just a couple minutes of looking at it on a forum post. 

Like I mentioned, my first models were TERRIBLE (poorly designed, not particularly useful, didn't provide me with much insight), but I kept improving them over the years, and they became more and more useful. I didn't start out knowing exactly what the model should look like, or how it should function, because those things weren't entirely clear to me until I began building my models and molding them to my unique needs. Instead of starting by saying "my model should include variables A, B and C and calculations X Y and Z", I started by saying "Ok, my portfolio and finances currently looks like this...my goals are X, Y and Z, and I want to achieve those goals in X years...how do I model that out?"--and from there, the mechanics of the model evolved accordingly.

If I had started by focusing on what the mechanics/variables/calculations should be, I wouldn't have gotten very far--it would have been like trying to design an airplane without first knowing what the purpose, context, acceptable limitations, performance requirements, etc. of the airplane were supposed to be...

I'd encourage beginning investors to focus on discussing and learning the fundamentals of WHY and HOW to use projection models, and dive in and actually create and refine their own models with the goal of learning through doing. The more a person does, the more they'll learn, and the exact mechanics of the model will evolve according to their individual needs.

@Steven S. my models project things like rent growth, property appreciation, net worth, etc.--see my original post for more details on the types of variables my models include.

...but, the type of models that work for me probably won't work for other investors, because everyone has different circumstances, goals, portfolios, variables of interest, risk exposures, etc., etc. (which, again, is why I ended up creating my own models from the ground up instead of trying to adapt someone else's model to fit my needs).

As I mentioned, I have "meat and potatoes" models that are pretty in-line with reasonable expectations (like 2% appreciation), but I also have more extreme "disaster" and "dream scenario" models. I obviously place much less weight on the extreme models (i.e., I don't make any life plans expecting repeated 15% YOY rent growth or anything like that), but it is still useful to run the extreme models to get a sense of what could happen in various disasters or big market upswings...sometimes an extreme model (like a disaster model) might show you that things wouldn't be as bad as you thought during a big crash (and now you can sleep easier)...or, it might show you that things would be much worse than you thought--in which case, the model at least provides a better understanding of how to prepare for the worst.

For me, the models are less about making a perfect prediction of what will happen in the future (often not possible), and more about gaining a deeper understanding of my portfolio's current position, and the range of possible outcomes that could occur for my portfolio over various time frames, given different variables (like rehabs, rent changes, refis, sales, acquisitions, etc.). In other words, it's more about improving my understanding of what COULD happen, not necessarily what WILL happen. 

It also helps me understand how to optimize my portfolio, how to capitalize on opportunities, and how to avoid mistakes. For example, I've run models that showed me that a particular rehab wasn't going to produce the type of return I originally thought, and that I'd be better off dropping that capital on a different property in the portfolio...  I've run models to assess the outcomes of certain moves (like buying, selling, refi'ing, rehabbing), and sometimes those models have revealed that the best course of action was to do none of those moves, and instead simply sit still and relax...

So again, for me, creating projection models is more about gaining a better understanding of where my portfolio sits, and the outcomes that could occur in the future--not necessarily about trying to make a perfect prediction of the future. Once I learn what possible outcomes could occur, I can create strategies to make the outcomes I want happen, and create strategies to avoid the outcomes I want to avoid. 

My over-arching goal is a portfolio with zero debt, enough equity to cushion me from pretty much any financial setback, predictable and significant annual increases to net worth, enough cashflow to sustain a very, very comfortable lifestyle and meaningful philanthropic initiatives (without any obligation to work a W2 job or bring in any other income), and which doesn't require more than one or two hours per week for me to manage. So far, I'm on track to achieve that goal relatively soon, and the projection models have been key in helping me figure out how to achieve that goal as efficiently as possible...so yeah, I can't recommend projection models enough--particularly to investors who are just getting started. If nothing else, you'll learn by creating projection models--and that, in and of itself, is usually a worthwhile use of time.

Yeah, an important thing to point out for the folks who haven't yet done any projection models is that an investor doesn't have just ONE projection model...I have MANY projection models, with different scenarios plugged in, and I'm constantly editing and improving my primary models...  My primary models have evolved over years of countless edits, re-assessments, new info, etc.

@Jay Hinrichs do you run any near-term models? ...stuff that's 6-24 months?

This thread got me wandering how many BP people use projection models, and how they approach projection modeling...  so I started another thread on that topic (I'd be interested in hearing people's thoughts on the issue). Here's the link:

https://www.biggerpockets.com/forums/48/topics/1164330-are-y...