All Forum Posts by: Nikunj Merchant

Thanks for the replies! I'll set something up with you Daniel

Hi BP Community, 

I'm at a point in life where I'm considering getting a financial advisor to advise me on the science behind portfolio construction. I very much enjoy managing my own money, and I'm above average when it comes to understanding personal finance and so I'm not looking for active portfolio management. Rather I'm looking for someone who can take a look at my overall asset pool (across stocks, bonds, real estate etc.) and advise a scientific way of constructing a portfolio that I can then manage and review with her/him periodically. As a result, I'd be looking at flat fee advisors (i.e. they don't charge a % of assets under management). Experience with alternative asset classes (private equity, crypto, etc.), tax strategies, and international diversification strategies is a bonus.

The main reason I'm looking for an advisor at this time is to help make managing my money a scientific process rather than an emotional one. I'm at a point where I could potentially make new investments but right now I'm making decisions because "it seems like a good idea and the math checks out on this individual investment" rather than analyzing what this does to my entire portfolio and net worth. 

The biggest challenge I'm facing is that most financial planners seem to focus solely on securities. While they may say they can "advise" on real estate, they either mean REITS, real estate funds, or something similar. I'm yet to find someone who has their own real estate portfolio and can say "Ok, looks like you have $X in stocks, have you considered purchasing a single family home?" or "By making this specific single family/multifamily/STR purchase, you will increase/decrease your overall portfolio risk to ______". The way I think about it, I'd expect someone advising me to at least own what they're suggesting and have personal experience in creating holistic financial plans for their clients.

Do you have a financial advisor that has real estate chops? How do you work with them as you grow your portfolio and what kind of advice do they provide on this front? How much do you pay and how much value do you think you've obtained?

Finally, if any of you is really happy with your advisor, please send any recommendations my way! California (where I live) and Texas (where my real estate investments are) would be ideal states, but I don't really care where they're based as long as they're good at their job.

Thanks for all your help!

Hi @Sheen Jowl,

Good to hear that you're considering Houston; it certainly is a good market to be in. Scientifically speaking, hurricanes are certainly a threat - in the last few years, Houston has had more "500-year" and "100-year" style storms than ever before. Harvey especially did a number on Houston. But for the number of homes that did get flooded, there were several that didn't - up to you to decide if the glass is half empty or half full.

There are ways to mitigate your financial risk - look for properties outside flood zones (keep in mind that Harvey saw flooding in areas that were considered not to be flood zones but I'd argue that these maps become more accurate the more data we get). Additionally, flood insurance is commonly available and ensures that for an extra few hundred bucks a year, you're covered both for damage and loss of use (i.e. missed rents). 

Hope this gives you something to consider!

Hi @Corey Stubbs, here are my two cents:

Is it a good market for BRRRs/flips? Technically yes. From a mathematical standpoint, you should be able to find opportunities that get you a solid return. However, competition is unbelievably intense at the moment with very little inventory (https://www.recenter.tamu.edu/...). Almost every SFH will have a bidding war and most will go significantly above asking price. This is true even for wholesale opportunities. Again, that's not to say opportunities aren't available, you just need to be very active and look hard.

Solid rental scene? As @Matthew Rolf mentioned, it's very solid. Wide variety of renters, locations, etc. and generally a very good rent:price ratio.

Good contractors? Just like anywhere else, there's the good ones and the not so good ones. Given how massive Houston is, you can certainly find good people. Folks on this forum should have several good recommendations.

Hot Layout? Generally depends on what your investment strategy is. Based on your questions, I'm assuming its single family. Anything from 3/2 to 4/3 sells will often go on contract either the day it's listed or very shortly after.

Hope this gives you a lay of the land! Best of luck!

Hi @Andrew W., to answer your questions:
1) 15% CoC is difficult in Houston at the moment. It's not impossible because there are definitely opportunities. It's just that there is an insane level of competition going on, with most homes going above asking price. While competition in multi-family is lower, there is very little inventory in the 2-4 plex space at the moment. Property appreciation is fantastic though - I've got properties that have appreciated 11-12% in less than 6 months. You can still make good overall returns (cash flow + appreciation + principal paydown) , but if you're specifically in it for the cash flow, you might find better returns elsewhere.

Also, you may have a little trouble if you're thinking of replicating your strategy from Appleton here - something you should know about Houston (and several parts of Texas) is that the weather + soil composition often leads to home foundation issues. I'd wager that most homes in Houston that are very old will have some kind of structural issues. These are fixable, but often a very expensive proposition.

2) With regards to rehab work, I haven't understood your question entirely. Are you trying to figure out if you can have work done on properties while they are rented? As mostly others have said, you can certainly do whatever rehab work you need to, you will have to inform your tenants and work with them in a reasonable manner. 

3) Lenders here are pretty good if you take the time to shop around. You'll likely have to talk to multiple banks and mortgage brokers, but in the end, you should be able to get favorable terms.

Hope this helps! 

Hi @Nicholas Hill, are your properties mostly single family? Based on what you're saying, it does sound like a flat fee company is a better fit for you. 

Charging a tenant placement fee is a common practice (that I personally dislike). I agree with you that it puts the goals of managers in opposition to those of landlords. The only way around it (which worked for me) is to find someone trusted who really cares more about repeat business than short-term gain. I was lucky to find someone who actually is quite active in the BP forums

The company I use charges me a flat rate of $75 for properties within the loop and $85 for those outside. Their tenant placement fee is also a flat figure, ranging from $750-$1000 depending on property size and rent. I'm happy so far and have never had any issues. DM me and I can share some options

I'm curious to know how you're judging quality and which ones didn't make the cut for you.

@Joe Benyi I think in today's competitive market, $200 cash flow on a property doesn't sound out of the ordinary. However, I do think that there are better deals to be had. 

You may be looking at the wrong type of home - the type of home you look at depends on what your goals are at the moment. I'm assuming from your question that your strategy is to buy and hold rather than wholesale/flip. Take whatever I'm about to say with a pinch of salt since there are exceptions. Generally:

- If you're looking for a growth-style investment, you're looking for a home that's always going to be in demand. In this case, a 3-4 bedroom 2-4 bathroom style single-family home is a safe bet. This kind of home will have much more competition

- If your goal instead is to generate a maximum cash return, you may want to look at multi-family properties. Less competition but you have to deal with shorter-term tenants. 

In your specific example, there are a couple of things that make the math not work - a poor rent:price ratio and rather high HOA fees (typical for townhomes). Additionally, appreciation on townhomes is typically not as steep as SFH.

Traditionally, a 1% rent:price ratio is considered a good investment, however, such homes are getting harder and harder to find, especially in Houston. A 0.8-0.9% ratio may be "good" at the moment. Keep in mind that this ratio is just a rule of thumb and as the purchase price increases, the ratio will typically be lower. Basically, keep doing your full deal analysis to know if any deal is worth it to you.

In terms of what price range you should be looking for, that depends highly on what types of homes and neighborhoods you are comfortable investing in. I typically look at B/C class neighborhoods that are growing and look at homes in a lower price range, but that may not be you - only you can decide what your objectives are. 

Feel free to throw up a few more examples across different price ranges, happy to discuss and run the numbers with you. Hope this is helpful, let me know if you have any more questions.

Hello,

I live in California and am in the process of closing on my first investment home (which incidentally is my first home purchase) in Houston. As someone going through the home buying process for the first time, does anyone here have recommendations for a good insurance broker? I am looking for a rental dwelling policy.

Thank you!

Happy to connect with folks here as well. Based in California but looking at out of state properties in Texas, GA, FL. Spent the last few months focusing on Houston but really want to explore Atlanta. Would love to connect with other investors, realtors, etc.

@Gabriel G. it's great to see that you are being proactive about your financial future at a young age. Keep asking the right types of questions and you will certainly be successful! I have two pieces of advice for you - one that is REI related and the other which is a bit broader.

From an REI perspective, I second what others are saying around being frugal, saving money, and house hacking. House hacking, specifically, will be a great start, especially if you can find a place that you are ready to spend a few years at. Buy a duplex, do some of the fixing up yourself and learn the ropes while having your tenant pay down a majority (if not all) of your mortgage.

Apart from that, I strongly believe that if there's any piece of advice that you take away from this forum, I hope that it's what @Tushar P. mentioned in his comment. What he's saying is the reality you will have to face - it'll be many many doors before your "passive" income replaces your W2. Along the way, be prepared for hundreds of leaky faucets, stained carpets, broken tiles, and bad tenants/agents/contractors. If you're particularly unlucky (I sincerely hope this never happens), you may have to contend with the odd lawsuit. For as many people that fall in love with real estate investing, there are several who have moved away from it and/or have been severely burned by it. The closest you will come to a passive, hands-off investment is an S&P500 index fund.

My advice to you is to think of your life's goals holistically and keep reevaluating them regularly. Recognize that there are multiple paths to getting there (REI may be one). Don't be enamored by the thought of retiring at 30 - I don't think this is a "life goal" because it's still missing a why. The way you've phrased it seems to indicate that you've already decided, prior to entering the workforce, that you "want out" by 30. You won't realize it now, but you are putting immense psychological pressure on yourself to achieve something in 10 years that only a small statistical minority will ever achieve. This will become worse over time if you feel your goal is slipping from your grasp (I've some firsthand experience with this) and your desperation will steer you towards poor decisions. Don't do this to yourself. Keep thinking big but always stop to ask yourself why you're doing what you are and course-correct if necessary.

I can say with absolute certainty that your preferences will change as you grow and you may find that things that you thought important no longer are. If you're passionate about what you do, you'll be energized enough to deal with anything that comes your way.

Finally, be aware of the fact that you've come to a real estate forum for advice - there's going to be an inherent bias in the information you get here because everyone at BP is really passionate about real estate. There'd be a similar bias if you went to a stock investing forum and asked similar questions about stocks. You may or may not share that passion - take some time to explore whether you do.

Best of luck and I hope you are successful no matter the path you take!

- Nikunj