All Forum Posts by: Michael Gonda

Quote from @Michael Gonda:

Hi everyone

My business partner and I have 25 - 30 single-family homes and multi-tenant properties.  

-  All of the homes/properties have been renovated and have been in service for a number of years (meaning we have a strong history as successful  property owners/investors)

-  All of the homes are higher-end rentals in very good neighborhoods 

- All but 4 homes are completely paid off with no mortgage overhead or LOC debt

-  All homes have a very consistent rental history with very low vacancy

-  All homes are turning a profit and our pre-door numbers are very good

Because the homes are almost completely paid off, we have a good deal of equity in just sitting around.  We would prefer not to sell anything off at this time and plan on owning these properties for a few more decades (although we have considered selling some for various reasons). 

A rough back-of-the-napkin calculation yields about $3.2 million in available equity across the entire portfolio.  

Q1.  What would you do with that equity?  

Q2.  How would we go about getting cash from the equity?

Q3.  With interest rates as they are, and knowing they are probably going to start dropping over the next few quarters, is it best to wait on any kind of finance for a year'ish or are the rates not going to come down enough over that period to make a huge difference?

Thoughts? 

Thanks in advance

Ok so you refi and then what seems to me it only makes sense if you can generate quite a bit more in income than the 7% rate your going to be paying.. what would you invest in ?? Also keep in mind your going to be ready for round two of cap ex in the coming years probably 10 to 30k per house ..  I can see pulling the cash out if your going to buy a business that can make you significant money.. but to just pull it out to have it not sure why you would do that.

It would be useful to know what state you are in. 

Separately, if you're getting $1400 a month on a 230K house with very low vacancy, there may be room to increase rents. 

You said you were short by $50k a year? If you could optimize by $200 a door over 25 units, that would be over $60k a year. That might get the job done. 

But like Jay said I would not underestimate CapEx and unit turn costs.

Alternatively, you could cash out a little bit, say $500k, and do private lending on your area of expertise, single family homes. You can earn $50k a year doing that, even after paying 7%, and you'll earn even more as rates go down. Again, would be helpful to know the state. 

@Michael Gonda

It ultimately comes down to what you want to achieve with the equity. Do you want to have a very low LTV, with steady cash flow? Or do you want to tap into the equity tax deferred and re purpose into other assets? Grow or stay the course.

If you think there are going to be opportunities for great deals, then refinancing some equity out would be a good idea. If you want to scale to bigger assets, then selling some and rolling the money into that asset may make sense.

I would talk to @Dave Foster about 1031s, and look over all options.

I know that I would refi the equity and buy the next deal.  That i how we've been able to scale to over 1,700 units without investors, by refinancing our deals and repurposing the equity

God Luck!!

Auguri

Gino

@Michael Gonda It sounds like we were/are in a very similar position to you. We sold our business back in 2010 and put all of that money into buying houses. We then stopped buying and worked more part time and lived off of our rental house income as it was all free and clear. A few years ago we decided that we needed to, and should have sooner, grow. We sold some of the houses and 1031'd them into small muti unit (2-5 unit) properties. These properties had good value add options as they were all ugly and still looked like the 70's inside. Like you, we fix up our units to be very nice inside to get the better tenants. Even with the properties having a low cap rate they still immediately were generating a higher income than we were getting from the single family rentals, plus once we renovated the units it was even better. The first one we did 3 years ago was a triplex and it is now generating 3 times the income that the house was. It was a straight swap $ for $. We are currently looking to expand again and are planning to tap into that equity that we have (similar to your equity ratio it sounds like) and buy some more small multi family properties as we find them. We want to keep our portfolio loan to value ratio small as we also like the safety of it. You could also sell some of the houses and do 1031 exchanges into multi tenant properties. If you found a larger property, say a 20-30 unit property, you could sell multiple houses and 1031 them into it or do a mix of houses and a loan. The beauty of the houses for a multi tenant property is that often the numbers do not have to be great on what you are buying, but you will still see a bump in income. I will send you a pm so that we can chat in more detail about what we are doing and actual numbers. 

 Sounds like you could quit the stressful job now and finding a more relaxed job that pays 50k to make up the gap shouldn’t be that hard.

Quote from @Michael Gonda:

Hi everyone

My business partner and I have 25 - 30 single-family homes and multi-tenant properties.  

-  All of the homes/properties have been renovated and have been in service for a number of years (meaning we have a strong history as successful  property owners/investors)

-  All of the homes are higher-end rentals in very good neighborhoods 

- All but 4 homes are completely paid off with no mortgage overhead or LOC debt

-  All homes have a very consistent rental history with very low vacancy

-  All homes are turning a profit and our pre-door numbers are very good

Because the homes are almost completely paid off, we have a good deal of equity in just sitting around.  We would prefer not to sell anything off at this time and plan on owning these properties for a few more decades (although we have considered selling some for various reasons). 

A rough back-of-the-napkin calculation yields about $3.2 million in available equity across the entire portfolio.  

Q1.  What would you do with that equity?  

Q2.  How would we go about getting cash from the equity?

Q3.  With interest rates as they are, and knowing they are probably going to start dropping over the next few quarters, is it best to wait on any kind of finance for a year'ish or are the rates not going to come down enough over that period to make a huge difference?

Thoughts? 

Thanks in advance

You know, I used to worry about an ever increasing deterioration in income to equity ratios but as I get older, I am more and more comfortable with dead equity. Yes, I can take cash out and try to invest in higher return projects, a sort of carry trade, but the reality is that increasing return on equity generally involves more risk. 

So If I were you I would congratulate myself on success and question do you really want to take on additional risk or incur not insubstantial transaction costs to transition from what you have. Putting credit lines in place might make sense to have the capital available if a sure fire opportunity comes your way, but I would learn to get a certain level of comfort with paid off mortgages too.

Quote from @Michael Gonda:

Quote from @James Hamling:

Quote from @Michael Gonda:

Quote from @James Hamling:

What you describe here @Michael Gonda is the perfect scenario for Turn-Key offerings, right. 

But you want to keep going for a couple decades, and mention interest rates. PERFECT! That all paint's 1 very nice picture. 

How about we put it all together and evolve your position UP to "Bank".     Offer the properties Turn-Key, to upstart investors, on seller financing (C4D). 

Now, you've "evolved" yourself in things where your no longer involved in the operations or the operational expenses. Gained capital via the assorted down payments. Retained cash-flow. Profited from current rate environment. Can be structured in a way that you retain maximum flexibility in ability to refinance, sell notes, or utilize as colterol for future endeavors etc etc.. 

We all know the term OPM, and the profit potential of Other Peoples Money, well take a page out of the Banks playbook and tap OPL Other Peoples Labor..... 

20% down, that's a fair bit of capital. And best part, it doesn't cost you a dime in interest, right. And, you have all that TIME restored, for other deployment. 

 Hi James

That's a really interesting idea but.... 1. I wouldn't know how to start on this and 2. it makes me a little nervous giving over our proprites to someone else like that. 

But I see the value in the idea. 

So how does something like this typically work?  It seems to me that someone would be purchasing a business not just rental properties right?  As the value of that arrangement would be above the appraisal amounts alone, someone would be purchasing the whole shooting match. 

And then they would still be paying interest in the properties also.  Would that be more or less interest than a typical bank loan?  I would assume it would be a good bit more than a bank's interest rates. 

This seems interesting but I would need to think it over a good bit. 

There can be a lot of details to this, and one can easily get lost in the details but pull-back and keep vision of the fundamentals as it really is rather simple. 

You'd be selling an investment property or properties to a buyer, value based upon what it is, turn-key investment property, and instead of going to a bank for financing, you are the "Bank" financing there purchase. 

The details can be many, but all stands upon this fundamental basis. 

Now keep in mind everything is negotiable, because this is where things can really get fun with math. 

Say fair market value today is $250k, and a person doing DSCR will be around let's say 8% all said and done. Well, what if you say $350k but at 5%. Too many get tunnel vision on just the % and completely forget there is 3 factors to how the #'s wash-out; the rate, over what time, on what total amount. Yes, you can make a lot more doing a lower rate on a bigger amount. Or or or..... There is so many ways to spin the math it's almost endless.

When I approach these I start with looking at what it would cost one, the current fair market value, to obtain such a property. That's my base price. Now, I equate a value or "premium" for the benefit of the Turn-Key status, things are know, renter in place, things are done, we have removed theory and projections to provide a buyer a known, that holds value. What is the value premium? 

Next, by providing financing option to buyer, again that holds value. What value do we assign this value Premium? 

Now terms value premium, what value do we assign to the interest rate given? To the length of this conveyed financing? You mention long term, ok let's say 10yr which is a really long time, that certainty of a decade has value does it not, ok let's assign that value. 

Now we ask, is this offering market viable? What do the numbers look like end of day? 

As mentioned, it's changing one's seat from a landlord Investor to being a $-investor. 

Yes, you could take on new financing, start doing that manner of things. your still a Landlord, still in those operations. This above mentioned strategy is a way to fundamentally change that picture, that is a kind of middle road approach. You are transferring various liabilities, namely maintenance and operations aspects from you too a buyer. gaining some liquid capital (down payments), while retaining control of assets. 

Risks, for most part are similar to any tenant placed. The various "what-if" on neglect, just like with a tenant it's violation of contract terms and you take the applicable legal actions. 

The biggest "risk" is them performing, because at end of term that means they complete purchase of property. And reality is, EVERYONE sells only question is when, ya never see a u-haul follow a hurst..... 

So if you really wanted to, this is a potential option. 

Or, you could just sell, now, today, standard sale. I think that's foolish given your position, but hey it's an option. You could sell now and try to 1031 into something "next". 

Or, rearrange debt, refinance things which there is many options to this. 

A lot hinges on what your desire for your next chapter is. Some just want to call it a day, hire manager, there happy getting what they got, paying down debt, that's it, done.     Some others seek to 1031 into that centralized apartment complex and end there journey there. 

What's your "next"? Do you like being a Landlord as you are now? Would you rather be the guy who facilitates the next best Landlords and profits from such? Or getting into commercial? 

C4D is a very powerful land of investing few ever speak of because the barrier to entry is high for the "noob", and because fact is who want's to groom competion, lol. There is a reason Black Rock has an entire division dedicated to just selling C4D. 

 Hummmm.... this really is an interesting idea, James.  Thank you!

Lots to think about.

My first question is, where do you even find a buyer like this?  I am not sure how to advertize this as an option out on the market.

And is something like this fairly common?  I mean, from a buyer's standpoint it seems like the numbers would be a little tight... but probably workable I suppose.  Our business model back in the day was to use hard money lending for start-up costs. Eventually, we became self-funded, so this isn't something I have any experience with. 

Very interesting idea though if we could find buyers. 

 Yes, it's just a melding of 2 common things; Turn-Key and Seller Financing, both of which have been around for generations. 

How to BEST do it, well as a professional who works in such I am going to say get with a professional who specializes in such. Because we know what were doing, no guess work involved, and we have those established connections for how to best connect with such buyers. network, network, network, right. 

Heck, depending on what ya got, where, I got buyers now for ya. 

But yes, many many potential buyers for such. Various HNW persons not a fan of the documentation prostate exam for financing, professional athlete's, those with small biz and really great at write-off's, all kinds of potential buyers.

As the saying goes, do what you do best and hire the best, to do the rest. 

So I'd say start by connecting with the "Pro" at this in your market...... ideally there is one I should say, not sure where you are. 

I assume next question would be how to identify one like myself, well versed and experienced in such?     For that I'd say Title Closing Agents, if someone called in my markets and spoke with my primary ones about who does these "jazy" things I bet they'd point me out, or would at least pass on your info. Best way to find who's actually doing things. 

Quote from @Michael Gonda:

Quote from @James Hamling:

What you describe here @Michael Gonda is the perfect scenario for Turn-Key offerings, right. 

But you want to keep going for a couple decades, and mention interest rates. PERFECT! That all paint's 1 very nice picture. 

How about we put it all together and evolve your position UP to "Bank".     Offer the properties Turn-Key, to upstart investors, on seller financing (C4D). 

Now, you've "evolved" yourself in things where your no longer involved in the operations or the operational expenses. Gained capital via the assorted down payments. Retained cash-flow. Profited from current rate environment. Can be structured in a way that you retain maximum flexibility in ability to refinance, sell notes, or utilize as colterol for future endeavors etc etc.. 

We all know the term OPM, and the profit potential of Other Peoples Money, well take a page out of the Banks playbook and tap OPL Other Peoples Labor..... 

20% down, that's a fair bit of capital. And best part, it doesn't cost you a dime in interest, right. And, you have all that TIME restored, for other deployment. 

 Hi James

That's a really interesting idea but.... 1. I wouldn't know how to start on this and 2. it makes me a little nervous giving over our proprites to someone else like that. 

But I see the value in the idea. 

So how does something like this typically work?  It seems to me that someone would be purchasing a business not just rental properties right?  As the value of that arrangement would be above the appraisal amounts alone, someone would be purchasing the whole shooting match. 

And then they would still be paying interest in the properties also.  Would that be more or less interest than a typical bank loan?  I would assume it would be a good bit more than a bank's interest rates. 

This seems interesting but I would need to think it over a good bit. 

There can be a lot of details to this, and one can easily get lost in the details but pull-back and keep vision of the fundamentals as it really is rather simple. 

You'd be selling an investment property or properties to a buyer, value based upon what it is, turn-key investment property, and instead of going to a bank for financing, you are the "Bank" financing there purchase. 

The details can be many, but all stands upon this fundamental basis. 

Now keep in mind everything is negotiable, because this is where things can really get fun with math. 

Say fair market value today is $250k, and a person doing DSCR will be around let's say 8% all said and done. Well, what if you say $350k but at 5%. Too many get tunnel vision on just the % and completely forget there is 3 factors to how the #'s wash-out; the rate, over what time, on what total amount. Yes, you can make a lot more doing a lower rate on a bigger amount. Or or or..... There is so many ways to spin the math it's almost endless.

When I approach these I start with looking at what it would cost one, the current fair market value, to obtain such a property. That's my base price. Now, I equate a value or "premium" for the benefit of the Turn-Key status, things are know, renter in place, things are done, we have removed theory and projections to provide a buyer a known, that holds value. What is the value premium? 

Next, by providing financing option to buyer, again that holds value. What value do we assign this value Premium? 

Now terms value premium, what value do we assign to the interest rate given? To the length of this conveyed financing? You mention long term, ok let's say 10yr which is a really long time, that certainty of a decade has value does it not, ok let's assign that value. 

Now we ask, is this offering market viable? What do the numbers look like end of day? 

As mentioned, it's changing one's seat from a landlord Investor to being a $-investor. 

Yes, you could take on new financing, start doing that manner of things. your still a Landlord, still in those operations. This above mentioned strategy is a way to fundamentally change that picture, that is a kind of middle road approach. You are transferring various liabilities, namely maintenance and operations aspects from you too a buyer. gaining some liquid capital (down payments), while retaining control of assets. 

Risks, for most part are similar to any tenant placed. The various "what-if" on neglect, just like with a tenant it's violation of contract terms and you take the applicable legal actions. 

The biggest "risk" is them performing, because at end of term that means they complete purchase of property. And reality is, EVERYONE sells only question is when, ya never see a u-haul follow a hurst..... 

So if you really wanted to, this is a potential option. 

Or, you could just sell, now, today, standard sale. I think that's foolish given your position, but hey it's an option. You could sell now and try to 1031 into something "next". 

Or, rearrange debt, refinance things which there is many options to this. 

A lot hinges on what your desire for your next chapter is. Some just want to call it a day, hire manager, there happy getting what they got, paying down debt, that's it, done.     Some others seek to 1031 into that centralized apartment complex and end there journey there. 

What's your "next"? Do you like being a Landlord as you are now? Would you rather be the guy who facilitates the next best Landlords and profits from such? Or getting into commercial? 

C4D is a very powerful land of investing few ever speak of because the barrier to entry is high for the "noob", and because fact is who want's to groom competion, lol. There is a reason Black Rock has an entire division dedicated to just selling C4D. 

@Michael Gonda If you’re not interested in selling your properties, consider selling a portion of your equity instead. You can bring in cash partners—silent partners who stay in the background—who will invest and receive a share of the cash flow, while you benefit from the upfront cash infusion. Another strong option is to refinance. The money you receive from refinancing isn’t taxed as income, since it’s considered a loan, making it a very tax-efficient strategy.

For potential partners, focus on individuals with cash looking for returns, inflows, and tax benefits. When pitching the deal, highlight these aspects. Whether through refinancing or bringing on partners, it’s ideal to play in the multifamily market or look for distressed single family package deals to continue expanding your portfolio.

@Michael Gonda You guys really hustled. Congrats on the success. Cash-out refinance a few like @Joe Villeneuve mentioned and enjoy. I'd do the same thing if we had 25 units!

How did you pay off the properties so quickly? We make an extra payment on each rental per year (doesn't help the numbers) but we want to get them paid off faster.