All Forum Posts by: Moe Khan

Hey y'all. Long time BP member here and I figured it was time while I had a slow day to detail my story.

Back in 2016 I was finishing up my Masters in Education at Texas A&M while dating a woman long distance and chose a high school teaching job in San Antonio for the better of that relationship. Well - a week later she called and said she wasn't flying down to see me (the morning of her flight). So I was stuck - in San Antonio... and all of a sudden had way too much time on my hands. I was mindlessly scrolling Facebook shortly after this and saw a friend from HS (who was not the best kid nor the most intelligent) accepting an invite to an event called "How to make $50k in a month" and I figured it was the biggest scam ever. Well - it wasn't... and he was the teacher/speaker. I reached out and wanted to know HOW - as that was my entire YEARS salary. He said two things - Rich Dad Poor Dad & BiggerPockets. Let's just put it this way guys... my life would never be the same.

I went to countless REI meet-ups, watched countless podcasts, read so many books (after going a decade having never read ONE) and I got obsessed. I moved to Dallas at the end of that school year and finished my real estate classes to become a realtor on the side while I was teaching my second year of high school. I had learned so much in San Antonio and failed so many times in acquiring a property that it was less than 60 days in Dallas and I had my first property - a duplex with my VA loan. It may have taken me 5 months to close my first deal - but I wound up closing 6 in the next two months & I knew at the end of the school year it was time to take the jump - to become a realtor full time.

I'll spare you guys the rest of the story but it's been incredible... just some of the feats I've accomplished are:

1. Sold over $100M in real estate & built a team only to tear it all down and be basically solo again.

2. Traveled the world.

3. Accumulated over $400k a year in passive income.

4. Become a multi-millionaire.

5. Acquired over $5M in real estate - which includes the path of buying a duplex with my VA loan, a SFH 5 months later with a 1% down loan, a 4-plex with my VA loan 2 years later, built a custom dream home with an AirBnB suite, completed a horribly over budget BRRRR SFR, completed another SFR that went way over budget, sold my quad for a 4-unit office commercial space, sold my 4-plex for a luxury cabin in Oklahoma AND most recently bought a brand new home to use part time while visiting my girlfriend/future wife in Florida.

All of this wouldn't have ever happened if my butt didn't get dumped. I can tell you - everything happens, truly, for a reason. But you have to put in the work and absolutely grind & hustle. Make sacrifices. I feel like my consistency and discipline over the past 5 years is truly what has led me to where I am today.

I'd love to answer any questions - help out the newbies or even educate the well versed. AMA! (ask my anything!)

Hey @Chris Farinella this is a great question. 

Let’s start with a basic example …and assume we are paying cash. I’m going to use markets in Florida as an example.  

You have a $200,000 house in Central Florida that rents for $2,000 a month..2,000 / 200,000 = 1% a month in gross rents. 

You have a $400,000 house in Tampa that rents for $3,000 a month …3,000 / 400,000 = .75% a month in gross rents

You have a $900,000 in St John’s County, Jacksonville that rents for $5,500 a month …5,500 / 900,000 = .61% in gross rents.

Notice that the higher price point you get..the lower the rent / price ratio…making farther away from a 1%+ deal

Let’s assume that in this market taxes and insurance combined is 2% of purchase price per year. 

$200,000 x 2% = $4,000 
$24,000 yearly rent - $4,000 = $20,000 $20,000 NOI / $200,000 purchase price = 10% cash on cash return.

$400,000 x 2% = $8,000 
$36,000 yearly rent - $8,000 = $28,000 $28,000 NOI / $400,000 purchase price = 7% cash on cash return.

$900,000 x 2% = $18,000 
$66,000 yearly rent - $18,000 = $48,000 $48,000 NOI / $900,000 purchase price = 5.3% cash on cash return.

**not factoring in PM expense or reserves**

Adding leverage can also boost returns and this example above will hold true with financing when comparing apples to apples cost of capital. 

So why is the cash flow less in the higher side of the market? Simple ….for every $100,000 increase in price point the harder it gets to achieve that additional $1,000 in monthly rent. I am speaking very general with a long term rental approach as I know creative / short term rentals can fetch more rent. 

Also a majority of the demand for homes at higher price points are people who are owner occupants which buy homes not because it’s an investment but because they need a place to live. This can drive up price …

In most markets you have a balance of appreciation vs cash flow and you are usually sacrificing one for another…however not in all cases as the goal is to find markets with healthy amount of both!

Investment Info:

Condo buy & hold investment.

Purchase price: $155,000
Cash invested: $49,000

Gorgeous corner unit in the heart of Chicago.

What made you interested in investing in this type of deal?

I invested in my home

How did you find this deal and how did you negotiate it?

I found the unit myself and did my own negotiating.

How did you finance this deal?

Mortgage

Lessons learned? Challenges?

Living in my own property and working on the little day to days. Not get overwhelmed.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Lender and attorney

@Jack B.

An interesting comment was how you only have 45 days to ID the replacement property(ies)

There is a really good work-around for that problem that goes like this:I am a CPA for hundreds of real estate investors. I also own a series of buy and hold commercial and residential units. We (my wife and I) are about to put a property on the market, and we will end up with a lot of taxable income, so we are planning to see if a 1031 works. Since it will take a few weeks to get the sign up in front (short story for another day) and we expect 60-90 days on the market, we are looking now. If its 30 days to get the sign up, 60 days on the market and then 60 more to the closing table, that's FIVE months I have to look for replacements! Then I have 45 days from the sale date to officially identify them and 180 days to close. 

You know how you know the menu real well at your favorite restaurant, and it doesn't take you long to order? Same thing here. We look at the inventory every day, so it wouldn't take us a really long time to identify replacement property even though we have 5 mos in the above plan before we have to start thinking about naming our replacement properties!!

Then there's a really cool thing called a Reverse Starker Transaction which is when you buy the replacement property BEFORE you sell the relinquished property. The IRS doesn't want you to get penalized and lose a deal before you close, so they let you buy it even if you have not sold the original (relinquished property)

Anyway, we're starting and the 1031 will be the way to go for us as of this writing anyway. Stay tuned...

Jim Kennedy, CPA