All Forum Posts by: Michael Hoover

Hello all,  

    A local landlord in my area has offered me an owner-financed portfolio and I am attempting to decide on moving forward with or running and would love your thoughts.  I currently own 18 single-family homes in the same area (1.9m value, Cash flow avg 320 per unit). I normally purchase very cheap homes, remodel, refinance and rent. (brrrr).   

           I personally know this landlord and have had sit-down conversations with him periodically over the last few years.  All properties are within a 2 mile radius in a tiny MS town. This town is very small in population (population trend not growing) although has a community college that is less than half mile walking distance from ANY of the properties (community college population is growing at WELL above avg rate(dorm rate 850mth)).    

     - Each of the apartments and homes have tenants currently.        

- The properties are in C to D condition with an occasional B- condition. A bit More maint expected than the BRRR homes I currently operate.

     - Current rent rates are roughly 200-250 cheaper than what this market could support "ONCE" homes had some love. 

17 doors,  Total mth Rent 9,600    (avg 564/mth)

Consists of: 

- 1 apartment - 8 door, built 1980, not beautiful but functional. Consists of 3 buildings each different style.   4400mth total rent produced.   400k ask

- 1 duplex, 1triplex type homes - 5 doors, really old home (1940ish) currently in C to D condition. 2600 total rent produced, 155k ask

- 2 Single family homes - 2 doors, really old home (1940ish) currently in C to D condition. 1800mth produced, 150k ask

- 2 Tiny home sheds- 2 doors, 800 total produced mth.  40k ask. 

There will be little to no detailed records of expenses as this is quite an old-school landlord that is not willing to dive into the nitty gritty. (maybe I should run) 

Owner has offered to finance the entire amount of 745k with 6.5% rate and 15 year term.  (i have not negotiated price any as of yet)

$6533 loan pymt mth. 

Taxes $667/mth

Insurance;  estimated at $1000mth, The Current owner owns and does not have insurance. (I will be getting quotes)

6533+667+1000= 8200/mth Prin,Int,Tax,Insurance

9600- 8200= 1400/mth cash flow.      17doors/ 1400= $82/door. (as is condition)

Across the portfolio I feel my crew can improve the properties and increase the portfolio output from 9600 to 12600/mth. For an expected improvement cost of 180,000. 13-month completion time across the 17 doors.  

Recapped-

PITI cashflow post remodels = 4400mth.

Money in deal 180,000 (renovation cost only)

Next step

- I feel I will likely refinance after renovation on the apartments to recapture at least my 180k reno cost for the portfolio. This will cost 1700 mth at 8.59 rate. 

This brings flow back down to 2700/mth with zero money in and 13 mths time. 

I'm still pretty undecided on the deal. I self-manage all my homes and the added workload from my current 18 SFH to adding 17 more "doors" could be substantial.

My current process (BRRR one home at a time) has a net $1400-1800/mth increase per year in cash flow, plus roughly 90k-120k sweat equity added per year.

 This deal should increase cash flow by 2700/mth over a 1 year time span and an increase in sweat equity by atleast 150k. 

 

****There are so many things to still consider, But please give any insight/ advice or potential ways to better structure this deal. or tell me I should RUN. Please give me your thoughts.*****

I have 14 single family home loans spread between 2 local banks. Each of these are 5yr ARM(amortized at 15 or 20yr). Is it possible for me to still acquire Fannie and Freddie style loans or does the 10 cap still apply to me even though I have ZERO loans through these institutions?

My loan choice may not be the smartest although, Reasons this has been the route I've taken so far.  

    -  The values on my market is generally around 100k per home and often a little less.   I have had lenders not interested in my loans due to under 120k financed amounts. 

    -  Quick and easy through local bank, avg. complete cost to close through attorney + loan fees $1400.    Local bank performed in house appraisals for free. 

I am looking for alternative lending options as Rates have always seemed a bit overpriced in comparison the numbers I find online. Last loan quoted. Dec, 2023,     8.59%  5yr arm   -  20 yr amortized        .

Any recommendations of good, cost effective, lending solutions would be helpful!       Thanks for your Time and Insight! 

@James Hamling     Stern words...  but likely much needed to get my mindset in the correct mode.            

Biggest take aways: 

1)Self-employed mindset must change to Business Manager/owner mindset-   (first off, my above/previous number display,I admit, was a bit horrible, largely due to me trying to be brief) Although your advice on the way I look at profit is very much needed!    I have read, re-read, ran numbers, and read again to make sure I completely understand the reason that this IS a necessity for me to grow.         

      My record keeping is very documented, traceable and clearly separated between personal and business although I very much do need a mind shift to see and compare it as a business owner vs a sole business operator.   I am/will be reworking my numbers so I can see my business at a different(better) angle and with this view I will likely be able to make better decisions to move myself toward a management role.   (slowly)       This makes perfect sense to be able to better compare my replacement role wages.    Thanks again for the great advice to help me shift my view and take off the blinders.      We don't know until we know and this is all new territory for me. Thank you for helping me break down my own roadblocks!

2) Admin Hire/general assistant-   Cloning myself indeed would be an infinite step in the forward direction. Great comparison!       I asked you to convince me that I need this position and that this position would be worthwhile, this only being a topic on my mind for the past 48 hours yet I have seen numerous more daily tasks I would love to offload to this future member of my team. Growth could be so much easier with these weights lifted off my plate! Super exciting.

     My biggest concern:   adding an everyday expense to fill personal assistant position, without a direct path of how my revenue will increase.  Currently, I feel my biggest choke point in my operation is the completion time of the renovations, everything else I could speed/stream line pretty easily.    I have also been considering a few other RE opportunities that do not require my renovation times, previously these new directions have seemed to be a little out of reach, perhaps with an assistant these could become possible.  

   I am now convinced that the personal assistant/property manager role is one that will be on my semi-immediate radar.  This really could be an opening of light, a reduction of stress, buy a bit of my time back so I can focus on growth instead of just keeping everything moving.   

   #Q# I am trying to imagine how a personal assistant role would look alongside my life? How it would work in the beginning? and how I want it to be set up in the end?      1)Buy them laptop and have them shadow me even to the job site? 2) set them up in my home office (which is where I normally perform 90% of the tasks that they would take over.) 3)Buy/ convert a property into my away-from-home office?          I know everyone's opinion on how this role would be laid out is very specific to the person but any insight or guidelines on how you feel this position is best laid out would be very helpful.   

   #Q# How do you recommend filling this role? Someone you personally know, or job search? 

Thanks again for all the great INFO!   I have plenty of additional work and research to do to implement these new pivots. Without this discussion from you all these pivots would've surely came much slower and likely not even be on the vision board.  Thank you is no longer even the right words, but still, "thank you" for your time in sharing your wisdom.                       

 GREAT Advice. Thank you for taking your time to spell it out, taken to heart!          

Takeaways,   1). Make changes slow enough to pinpoint deficiencies. 2). Create mini-me for Property Management/general assistant role.  3). Create mini-me for Project management, material coordination.      4) I don't own a business (yet) I own a Job, (currently high risk because everything depends on me).

My input/ Questions. 

Topic 1). I pinpoint and compare the numbers, on my performing properties, past renovationions ,  as well as overall business profitability over time, very frequently, which I believe helps me better spot future better deals and sinsable routes to take my business.          The biggest negative to this is I feel I am only comparing to "my" properties and "my" past renovations. I have very little way of comparing with other investor numbers, which leads me to question myself, and my performance.                  I feel behind at times seeing the lighting speed movement of Headlined advertised Investors, Yet also compare myself to the common W2 employee and feel like maybe I am super speed in terms of wealth accumulation.          With this in mind, Your Recommendation of change slow enough to weigh outcomes is heeded advice!

2) and 3)      Hiring to replace myself-    I have a long-time worker that has seen 8-12 of my remodels and IS turning into the mini-me of the job site. (so valuable having someone who knows how I want the remodel to look at the END). We have recently discussed the value that is being seen as she"slowly" replaces my tasks at the Jobsite. I've also gave vision to the vast hourly raises that could be expected as she moves toward fully replacing me and managing others that take the more petty tasks,  (slowly moving).              

    (last 24 hour thoughts... I should Pair this worker who knows how I like my remodels to be finished with the same hired mid-level handyman team that I've had do small individual tasks in the past yet I don't trust the handyman to understand my vision for a whole remodel)   Together they might be complete... (exciting!) 

 I have made Zero progress as to implementing a "general assistant" for property management tasks.           The management so far I handle and record through excel spreadsheets/ text message to tenants (all automated payments).           Somehow I don't see enough replacement value to hire someone for this role yet.      (please convince me otherwise!)        Tasks I would delegate.. A)record and send confirmations for payment, B) Assist with next home search and acquisitions. C) Handle late payment reminders/push for payment.             (these tasks I commonly spend only 4-5 hours a month actively performing so don't see a lot of value.   ALSO Yes my mind does wonder to "It's 6 days late, I wonder if they made their late payment yet" and "I wonder if I am missing a deal I should be catching", "O crap my phones dead and we just had a wind storm, I wonder if any tenants have been trying to reach me".           Some of this stress could be delegated....       

#Q#   What other value should I be seeing in this future member of my team?

My previous W2 was the lead over very time-sensitive, high value maintenance projects on Offshore oil rig (subsea department) where the extremely remote environment requires perfect planning(middle of ocean) . Through this I had leadership training and better still real world experience on how to run a team, I feel people under me like working for me and I am very strong at coaching/teaching (forward movement for all). This is now 4 years ago so I need to re-tap into some of this previous energy of running a team of mini-me's.     I know I've lost a bit of this in my Do-it-all start in real estate the past few years.      (Thinking of it now) I remember how much I enjoyed operating an efficient team under me, I definitely have to re-tap into this past skill and enjoyment of getting tasks knocked out efficiently. 

#Concern#    Between my renovations and performing rentals(cash flow) I am at around 250-290k of wealth growth per year. ALTHOUGH ~200k of this is directly going into my portfolio equity as I am not selling homes, only cash out refi after renovation, Leaving only 90-100k to support my family of 5. My current family spending I consider to be "semi penny pinching" at 7-9k /mth. (90k/yr). Cashflow has been the focus of my portfolio and is currently at $5200/mth (63k/yr) but STEADILY rising.   

    My fear is with these numbers I don't know if a General assistant makes since yet? (please convince me).          I DO see the value in Renovation Project Manager (Mini-me) as this has been ""THE"" main choke point on speed.   I am currently limited by how fast I can complete remodels, I seem to always have 2-3 homes purchased in line for rehab just only one me to fix them all. 

4) I own a Job, I don't own a company:      I know this is something I want to move out of, at least gradually.  I am not convinced that I have enough income yet to step out and pay others to do what I do.                      So far my business structure (homes purchased) has proven cash "equal" or cash "profitable" on each home while always gaining equity.    If this were all hired out I am not sure my deals are deals. Not sure I would have the cash to pay out the work and turn cash profit, sure I still gained 30k in equity but that doesn't pay my hourly workers, (nor my 90k/yr family expenses).          I am currently having to use my do-it-all work to pay for my family income, my investments (cash flow) is not "yet" covering the expenses, but we are getting closer and closer....              (your thoughts PLEASE! Am I holding myself back!? )

As always, THANK YOU for sparking my mind into these different topics of growth!    You all are becoming the investor Friend/ Neighbor that I've Never Had! 

With your SFH 3/1's around 300k in your area, what kind of cash flow might you expect from these on avg!? I've purchased a few "Near" ready-to-go homes but when figuring the numbers I know my rental rate maxes around 13-1400/mth even on a super fabulous home. This has left me with a top-end target price of around 110k to even be able to consider paying the Loan, tax, and ins and still have room for cash flow. I Would think at your higher home price rent must be considerably more as well?

I have, and commonly do use my past results to predict 1-year and 3-year future positions. This is what keeps me with the drive to keep on keepin on. Even at the same rate I am currently moving these numbers get big with a few years of time.

I am steadily critiquing and improving my methods and "buy box" of homes. I feel like a recent breakthrough was grading each of my past 16 homes with a focus on "time to complete" basis.  Previously I had a bit of a misconception that the more money made on a single deal was better but when comparing "days to cash flow increase" and "days to equity increase" I find it much easier to choose homes that move me forward as fast as possible. 

Overall found that with me being the do-it-all investor and contractor my "days to complete" is my biggest holdback, with this realized I found that I do best on homes that I do not complete super extesive house "rebuilds" even though these have been my biggest paydays.   

@Dave Foster-    Rent to owns, I currently have 4 homes with rent-to-own contracts (lease and purchase option).    These I have mixed feelings on for a few reasons.   

1. I am the sole person who did all the work to the home therefore if the sink leaks or if the door shifts and doesn't latch after a couple months in my head I know maybe I made the mistake that caused this and still somewhat feel liable even though all the contract states this is Sole Responsibility of the tenant buyer. (this kindof puts me in an awkward space and have "so far" always went to go fix the problem). Recently I got the call for the plugged sewage and tenant buyer calls me for this as well!! I have to explain that they Most-likely caused this and this maintenance should not be routed through me. This whole situation Makes for a nasty grey line with me being the contractor and the investor.   These instances are rare and haven't made for substantial problems but are a consideration on future R2O deals.                                                                             2. Purchase price- When designing out Purchase Option contracts most recommend putting a home price saying cannot sell for "less than" X amount but will be re-appraised at time of sell to determine what you can actually buy it for...(seems real grey again). I really tried to make myself feel like this was an okay way to do business but ultimately felt it was too sleazy to have someone sign a contract and not tell them a definitive number of how much they are buying it for.  So for me I put in contract a nice SOLID number that I am happy with and now it's set in writing. I felt this was more fair.     The deals could obviously still go sour if home values drop and they cannot get loan for the amount I've asked but this would've been the case with not "less than X" as well.

The benefit of Rent to Owns are I get 150-200 more per month than I would for a rent only scenario and have a solid number of what I am to expect when/if it sells. (I have not attempted to offer any Rent to owns since the interest rate spikes.)

Whats your thoughts?    I'm ready for the harshness on this one   :)

So nice to talk with others coming from the same start and mindspace!!   Your tips really enforce some of the feelings I've been tossing around. I really look forward to the time I can begin minimizing debt load to increase cash flow which gives the free money to pay for labor more easily. I am Currently ~59% LTV but feel this may increase as I sell and reinvest a couple of my poorer RoE properties. (high equity, modest to low return).

?Question? With the higher interest rates, Are you all still able to structure deals in your area at the 80%LTV and still cash flow?

What kind of avg cash flow, avg home value, avg LTV% do you see in your recent portfolios?

Mine..   cash flow avg 329, home value avg 99k, LTV% 59            16homes(rented)

 Yes, this is the obvious right answer and I think I'm getting toward this point although I still have to make each deal liquid cash profitable until I can make my cashflow reach my living expenses as this is my family's current only source of income.

I know I really need to put some serious devotion into finding a contracting team to handle my renovations.    So far I have had really bad experiences with the jobs I've tried to hire out. Very poor quality /unfinished work just for me to have to still complete myself. The struggle is real trying to find a "good Contractor".    (my search criteria has to improve)

I feel the very cheap home values in my area heavily contributed to the difficulty of finding good or even decent contractors, Is it possible home values in my area are too cheap to margin in what a "good contractor" would cost? 

Or ... Maybe I'm not even really finding "good Deals" in the terms most "investors" would see it? My good deals are only good deals because I don't have to pay the contractor's labor....

Average buy of 36k 

avg material cost of 18K

?Question? expected Contractor labor of same as materials?(Vaguely) 18k? 

36+18+18=72k

Avg After Repair Value 99k x .80= ~79k   
   (Although) Recently with the higher rates(last 3 laons at 8.59%) I find myself having to drop cashout LTV to 60-70% to keep ~300mth cash flow.

  99k x .65= 64k       (negative 6k cash, but still nice equity play of +35k)        

  As seen with above numbers it's still a good play using a contractor "IF" I didn't also need to keep the positive liquid cash on every deal to pay for my living expenses while not depleteing my working capital for the next job(s).     

  I am close to reaching my financial freedom number at which point this becomes easy. My numbers have been at a steady increase since my start 3 years ago and on track to reach this amount of cash flow by the end of 2024.

 I know your answer is the right one, Can't Scale without Massive help. I'm not completely positive I want to massively scale, I want enough to provide myself with a really nice life and retire or at least slow way down mentally. I always want to grow but I no longer think I ever need thousands of rentals. I want to be simple, wealthy and happy (and always getting a little better).

Thank you so much for your time and advice! Please know It holds significant weight in my future decision-making process.

@Greg Scott

After your recommendation, I did compare my homes solely on a Return on Equity basis and do see that I have 2 properties that it would make great sense to sell and invest equity better somewhere else. One that is a no-brainer, can't believe I hadn't seen this clearer already (so thx!). Will be 1031 this one in 2024 for sure.   

My first and biggest goal has been to get cash flow to my family's spending budget therefore selling has always felt like a step back. Lack of on-hand cash has not been an issue as of yet due to my BRRRR's always replenishing my bankroll plus quite a bit extra due to my labor. I've tapped back into 401k as needed but this is nearing depleted at this point so the low RoE properties will work well substituting this extra liquid cash in the following couple of years.

      I feel my area is accustomed to pretty distressed rentals (once again lack of contractors), High rental demand but mediocre to poor tenant quality.    I really push some extras to give a wow factor, I feel this allows me to ask over the area's average rental price and feel this top-end rent has helped me acquire better-than-average tenants (scares off a lot of the trash).  High demand and nice photo advertising has kept me with an extensive waiting list of people wanting into these homes. At times I feel I could ask even higher rent rates and someone would still jump at it (this number has been limited by really only my conscious and wanting to keep long-term tenants).           

On your last point "beyond SF rentals" this is something I have felt weighing heavily for the past 12 mths or so.

      I've been studying and searching on value add Multifamily but haven't came across the deal yet that made me an "easy" entry into this(Likely because my lack of exp in this feild I am sure).

     Recently I've also felt the benefits of Large Lot country setting Moble Home community might outweigh multifamily in my area. Land is super cheap, Mobile homes widely accepted, and the consumer wants the home feel and seems will pay for it vs apartment.(rural area).   Buying new Mobile Homes with setup and utilities included also eliminates the need for my do it all labor.          

I'm here for you alls expertise so please let me know if you see flaws/better routes!,    I've read and watched RE till my eyes bleed but I've never had other investors to bounce thoughts with so this is a huge help for me! Thank you!   

Hello all Need advice (I think), Started in Real estate 3 years ago with 160k liquid cash to begin. I've always had the hands-on I can do it if anyone can mentally so my plan was always BRRRR (fixing ugly homes). Currently at 17 homes rented and 3 purchased inline for rehab. Always have had good credit and my previous job had me starting with 0 in debt. Family of 5 to support.

From the beginning, I've been doing every step as a one-man operation with 1 to 2 labor "helpers". Home search, to reno planning, to paint, to plumbing, to floors, to roof, to record-keeping, contract writing, and self-managing (all).       Feel I have backed myself into a more than full time job and in my baby rural town feel this might be the only way to keep this profitable.

I invest in my "backyard" of Central MS, VERY Rural small towns. BRRRR method primarily

16 homes rented, 3 in line

my average home purchase at 36k of mid to highly-distressed properties,

finished Reno appraised value avg 99K

Avg Loan to value 60% after the cash out refi 

Cash flow avg 329/each, 5200 total.

Porfolio value 1.85m,         Equity 811k.

I know I'm growing home numbers, cash flow and net worth so Feel I'm moving forward but finding a real mentor to show me how to be more hands-off would be GRREEAT.

Contractors in my area are nearly impossible to find. Tiny Handyman businesses have been unable to tackle full work scopes and hiring individual jobs doesn't pan out money-wise.      

Maybe I've grown to accustomed to the "Free labor" of myself? Looking for someone who has battled a similar mindset and how you escaped!?   

 Thank you for your time to help me out. For real!