All Forum Posts by: Matthew Thompson

@Aaron Mazzrillo thanks for explaining the private lender system in more detail to me. It seems like something that would take some time to fully master, not to mention making connections like you said. 

@Chris Sukala I'm actually considering a variation of the BRRRR method, but instead of normal renters, going for vacation rentals/AirBNB. The downside is that it is almost a full time job, but, as I said the whole point of doing this is to escape my current career so I'll have some free time on my hands. Vacation rentals easily have a 2-3x ROI over long term rentals- of course they require far more work on the owner's part. Certainly not a passive income source.

@Chris Sukala good to know, thanks for your input. My only difference is I want to do this full time as a means of escaping my current career. So, the whole income thing is more of a problem. I have saved up a good amount of cash but the lack of income (at first) seems like it will pose a problem.

Great posts again, I learned a lot from this thread. I think that real estate investment through the BRRRR method or otherwise is something you learn through doing. It might be hard to understand how it works, but with so many success stories, it has to work if you think about it and are creative. I can't wait to get started when the time comes.

Thanks for the replies everyone. Regarding the BRRRR strategy, that was the object of my skepticism. Is it viable if you are investing in property as a full time job? I am under the impression that in order to use the BRRRR strategy, you need to have a pretty solid traditional income with an acceptable debt/income ratio in order to qualify for the refinance step because you can only safely/profitably make money from bank loans. That being said, even if you made a million a year, at some point the banks would stop lending. How many times you can refinance-repeat is based on your traditional 9-5 income.

You'll be in trouble if you have a dozen rentals financed by hard money lenders at 10-15% APR with balloons due on each. Again, you can cross your fingers and pray that at some point a kind and/or reasonable local savings and loan will allow you to do a traditional refinance, but, maybe they won't. I keep talking about these less than ideal hard money loans on these terms because that is what the book brought up as an option to keep going once you exceed the threshold deemed acceptable to banks. Is there another option here? Can I really get a 30 year, 4-5% fixed APR, no balloon, ~75% financed loan with private money?

Hey everyone, thanks for the replies. I've learned so much on this site through the information given by people like yourselves- which is worth a lot of money I only I hope I can pay it forward one day with my own advice. 

I am interesting in buying an apartment complex for around $800K with the view to add value and raise overall worth to around $1M. I have 20% cash to put down. However, I have no experience in this field other than podcasts, youtube, and this site. Should I forget about qualifying for a loan or is there a way? AFAIK, I would need to procure a commerical real estate loan but getting this with no experience is unlikely.

Thanks

Matt

Hello, I just finished "The Book on Rental Property Investing". I enjoyed reading the book, I found it very inspiring and informative and I appreciate how the book shows you real world examples on how you can build your real estate fortune.

However I see one major problem that is like a 800 lb gorilla in the room. Financing. The book tries to deal with this, but I don't see how you can make money unless you get low APR fixed rate non balloon mortgage. In other words, a traditional bank loan.

Essentially, you can really only go as far as your income allows. You can buy a (potentially) 150K SFR for 80K and spend 20K to renovate it. You can then straight flip it or rent it out. If you make say, 80K a year you can do this two or three times before the bank will start refusing you loans.

Sure, other ways to get money do exist. Maybe you have a rich buddy, or maybe you can find a loan shark, I mean, hard money lender, that will set you up with a 20% APR loan with a balloon due in 2 years (because you're going to 'season' the property and refinance right?). The fact banks usually only count income from rental properties at 75-80% of what you're actually getting should throw up a red flag.

Some people do pull it off though. It's possible yes. Basically the people who pull this off aren't just property investors but loan brokers. In fact I'd argue that it is in selling loans to banks and securing profitable financial arrangements that they make their real money. Without that skill, they are just holding a few properties and making 10% or so APR per year on that, which would not be enough to live on.

I'm still interested in property investing. However, I think I am going to stick to straight flip and sell or perhaps paying cash for properties and rending them out while slowly acquiring them over the years. 

Another option I've considered is putting 20% down on a $800,000 MFR complex (10-20 units), but that would require commercial financing, and since I have no experience, I don't think I'd be able to qualify for a commercial loan. Correct?

That is, unless someone can explain to me how I'm wrong here. I'd love to be wrong. I'd love to quit my job and live life on my own terms. 

If that is the case, then I guess that would mean that lower income MF really is too good to be true. You'd probably be better off buying nice SFR property, or, just buying a lot of SPY exchange traded funds and letting them sit in your brokerage account.

Any other thoughts on this? I think 65% expenses "in a good year" would make me look elsewhere.

Wow, so many good posts here. Very interesting stuff. Thanks to everyone, I've learned a heck of alot reading this. 

Financing seems to be the main problem in making money here. And paradoxically, unlike most businesses, you make less return the more debt free you are. It's like the financial twilight zone, but it totally makes sense. 

@Robert Seed, I like the idea of owning a single C class 25 unit complex, as you mentioned- but as @Curt Smith mentioned, getting that commerical $500,000 loan for a first time investor might be tough. Is there any kind of loan I could qualify for that I could get my hands on that property with 100K and no prior experience? 

AFAIK (maybe its state dependent) but I read that 3-4 unit dwellings aren't seen as commercial property and can be easier to finance. However, does that mean I would have to 'season' each property over 2 years before I can get another one? Meaning it would take 10 years of running these properties before I could actually get my 18% of $100K?

@Thomas Franklin, motivated seller financing and buying as an LLC seems perfect, but I am guessing that is a rare situation that would not be always available.

Asset protection is really important. I am also planning on building a house with cash (maybe financing a small portion <$50K for tax purposes). I plan to live at this place for the rest of my life and I don't want someone taking it from me with the help of a lawyer. Going down the LLC route has its obvious advantages, but then I take it as an LLC you need to take out a commercial loan- and this isn't really a good option for a first time investor. So, I'm thinking FHA/conventional for the first property with a really, really good insurance policy. That is unless there is another way?

Right now my plan is to start small. I have a decent job now working in a cubicle but I hate it, my plan is to quit it. I will have very few expenses (especially with the paid off house or tiny mortgage) and have a few income streams the properties being the biggest. I'll be living modestly at first, but I would like to increase those streams as time goes on and I find my footing. 

Hey all,

First time poster here on BiggerPockets. Lately I have been reading a lot about multifamily properties. They seem to be much more profitable, dollar for dollar invested, than single family properties and possess a number of advantages from the investor's POV. However I am hoping the whole thing doesn't end up being too good to be true, or there is some huge disadvantage or roadblock that explains why the market has such high returns.

I noticed that lower income multi family properties have a much higher rent to purchase price income. When I first started thinking about buying property for investing, I was dreaming of a beautiful antebellum estate somewhere in the Charleston, SC. Okay, I don't think I have the cash to float that anyway, but we can all dream right? Turns out, the actual ROI per year on such property was around 4-7%. Why? Well, more liquidity means lower rents. People with money typically pay less for money. Look at NYC where its not uncommon to get 2-3% returns on investment properties. So anyway, I started looking into the economics of buying properties in the 80-120K range and the ROI was around 15-20% per dollar invested.

How do I get 15-20%? Say you invest 20K down on a 100K property, and that property has 4 units in it renting at $400 a month. I have actually found these properties myself on zillow and realtor.com. That's $19200 a year in rent. Now, apply the 50% rule. That's $9600 a year. Subtract mortgage and taxes ($4560+$1300). That's $3739 a year in profit. $20000/$3739 = 18.70%. That's almost triple the return you will get from running a single family home in an established market. Also that is after applying the 50% rule, which is a very conservative way of estimating rent loss, repairs, evictions etc. I think it might even figure in taxes too, so my return might be even higher than 18.70%. Paying cash for the property is actually less profitable, the lower down payment you make, the more profit you make as the real gains are to be made from the difference between mortgage and rent. Putting 50K down only yields a profit of 11%.

So... is this a real thing? On paper it looks great, but I may be overlooking some major risks that explain the high (potential) profit. 

Also, you would obviously need to acquire a large number of these. Nobody is going to be able to quit their day job on $3700 a year. That brings up the issue of financing. If I have saved 100K to invest in 5 of these, how do I get a bank to lend me the other 80K per house? The first and maybe second one will be easy for someone with good credit, but I have never owned more than one property at once and I'm not sure how this kind of financing works at all. I'd also want to keep acquiring them once I figure out what I am doing and turn them over to a management company, to create a large passive income stream. How do you keep the ball rolling once you run out of your initial savings?

Thanks again and I look forward to seeing what people on here think about this topic.

-Matt