All Forum Posts by: Paul Novak

 Very cool story, thanks for sharing!

Bruno, good question and I am glad you asked because this is a law I was unaware of.  My wife and I have used both Zillow and Apartments.com to have candidates apply.  Both of those websites charge the tenants more than $25 and we require all adults living in our units to pay and fill out an application.  For our last single family residence we had a young married couple move in with a brother, all three applied.  We have never had an issue using those services.

We make sure to do initial vetting of our candidates and a showing before we have them apply to not waste their money unless we want to move forward.  The other positive, at least for apartments.com is if they fill out an application it's good for any other unit on the site for 30 days without having to pay the fee again.

Not that it matters for the law but another thing we do for tenants after they are selected is do a gift basket that exceeds that in which they paid in application fees.  I find tenants really appreciate that little extra touch on move in day.

Hey Max, nice to meet you and welcome to Bigger Pockets!  This is a great place to connect and learn from others.  I am about an hour and a half from you in Sheboygan.  I have been at this since 2021 and have acquired 5 properties 7 doors in that time span.  Similar to you my wife and I do most of the work on our properties ourselves.  Getting into real estate has been a game changer for us financially and something I have grown to love.  If you ever have questions or are looking to bounce ideas off another local investor let me know.  I would be happy to share any of our systems, processes, or learnings.  Good luck on growing your portfolio!

It's about an hour north but I have attended multiple meetings for the Lakeshore Landlord Association in Sheboygan.  They meet on the 3rd Thursday of every month.

 My guess is that our situation is different; different end goals, W2 income, home prices, market conditions, strategies, etc... but I can share my journey and what I look for in my current market along with prices.  As I go through my examples below know that I have a savings rate north of 50% on my W2 income which I invest into real estate to keep it growing.  I also reinvest all cashflow back into the business to keep it growing.

I started investing in 2021.  The first step I did to raise capital was refinance my primary residence.  I went from a 15 year loan to a 30 year loan, locked in my interest rate at 2.85%, pulled out $111K in equity, and lowed my monthly mortgage by $20 per month.  This was my seed money to start my business.

Aug 2021 - My first rental property was a side by side town house that required me to put down $55K and generated $950 per month in cashflow.  I also stuck about $10K into renovations leaving me with $46K.

Feb 2023 - Our second property was an upper and lower that we had to put down around $50K on.  It had tenants so we weren't able to do renovations.  Those tenants are still there today and this property generates $890 per month in cashflow.

June 2023 - Our third property was a single family home that we put $85K down on and stuck another $20K into renovations. I pulled $35K from my wife's roth IRA principle and took out a $50K 401K loan for the remaining down payment. The $20K rehab we funded with income from our W2. The purchase price of this property was only $170K. I putdown as much as I did to generate cashflow. I also looked at the $401K loan as icing on the cake because I could afford to take the hit on my biweekly paycheck and besides if I wasn't paying back the loan I would be using the cash to invest in real estate anyways. While it would only take 5 years to pay the 401K loan back the increase in cashflow would be locked in for the next 30 years. While many in the real estate community would frown on locking more equity into a deal then required for me it gave me extra breathing room if the market flipped and my cashflow on this property was $920 per month. We paid back the 401K loan in 8 months and best yet paid all the interest back to myself vs. the bank.

Aug 2023 - I went to my local bank and got approved for a HELOC on my primary residence. Even though I just refinanced property values have increased so much over this time span that I was able to get approved for $90K.

Mar 2024 - My wife and I found another deal, single family home, but our original capital was gone. This time we put down $85K, $50K from a 401K loan in her account and the other $35K we borrowed from our HELOC. I hate using the HELOC because I am losing money on interest but I wanted to keep growing. This property generates $740 per month in cashflow.

Oct 2024 - This was the last deal we purchased. Because the IRS requires you to have no more than a $50K loan balance on your 401K over a rolling 12 month period I had to wait to do another loan even though I had mine paid back in full from when we took it out in 2023. Because of that I put this down payment on my HELOC. We put down $70K. I have been working to pay this back and it's now down to $46K as of writing this. By the end of March I will be able to take out another 401K loan from my account which I will to pay off the remaining balance. While I will be able to pull $50K I will only pull what I need to pay off the HELOC. At which time I will start paying the interest back to me vs. the bank. This property generates $580 per month cashflow.

For me when looking for new rentals I look at properties that I like and would be proud to add to my portfolio as the first step.  Next I work with my wife on what we feel comfortable we could rent it out for.  Then based on purchase price and escrow I back into how much money I would need to put down to reach my cashflow goal.  At a minimum I want to generate $500 per month on every property I buy to keep the business afloat.  If I feel the down payment requirements are too high for my liking based on the property I will pass.  If not I will make the offer.  While cashflow isn't my primary goal while I am growing I still want enough that the business sustains itself without requiring my W2 income to keep it afloat.  This strategy has worked out really good for us and allowed us to borrow limited income from other people for down payments.  I also have a taxable brokerage of about $50K that I try not to touch just incase of emergencies.  We are now at a point that we can save about $10K a month for real estate.  In our market we can purchase turn key single family homes for anywhere between $200K and $250K.  Those properties are 3/2 properties with garages in B Class neighborhoods.  We can rent these properties for anywhere between $1,800 to $2,000 per month.  I know this doesn't crack the 1% rule but because we are putting more than the minimum down we still cashflow.  While we are focus on saving right now we continue to try and purchase a minimum of 1 property a year.  Hopefully this makes sense and helps.  If you have more questions let me know.

Ethan, good question. I used my comment more as a generalization then practical application. I am not saying that a BRRRR's always have negative cashflow, that isn't the case. My point is that I see many people trying to find deals where you pull as much equity out of the deal as possible and still get cashflow. I just don't see where the properties in my buy box allow for that option. I need equity to cashflow, sometimes north of 30% down and I don't feel that is a bad thing. I just want to temper expectations of new investors that are being told that you can buy a property with 5% down and generate cash flow, or they can flip a house pull out there entire investment and cash flow. I feel if there is too much information out there like that when new investors start analyzing deals and they don't see the numbers work like many describe it discourages them to the point of passing on good deals or passing on real estate investing all together.

I am still new and didn't get started until 2021.  I only have 5 properties and know I have a lot to learn but from my experience to do this takes cash.  I have taken a more traditional route with conventional financing and a high savings rate from my W2 vs. creative financing, house hacking, 1031 exchanges, and other methods.  My main point is two fold, you can invest in real estate in any market at any time you just might have to change your approach, and don't think that there is a magic bullet that you can do this with no cash.  This is a capital intensive business.

Marcus, you are just south. I invest in the Sheboygan area. I agree with your assessments. So much content I see about ways to put as little money down as possible or doing the BRRR method so you can purchase a property and then pull out all the equity so after it's rehabbed you can get all your capital back out. I am not trying to knock those approaches and obviously they have worked great for many people but I feel the market is different then it was in the past. Personally I am not finding deals that could support those strategies in my market today based on my current skills and available time. If I took that approach I would have negative cashflow which isn't a good sustainable business model. I am okay with limited cashflow while I'm in my prime W2 working years but not negative. My business still needs to sustain itself. In my opinion that leaves me with two options. Sit back and wait for the market conditions to flip to where those strategies would work for me, or adapt to the current market. Sitting on the sidelines for me isn't an option. Knowing I'll be holding onto these properties for the next 30 years plus I have no issues with my strategy. I also am not looking for cheep properties in bad locations that could turn a quick buck. I want properties that I am proud to own and if I was personally looking for a rental I would be willing to rent. Obviously that isn't a requirement for most to buy a property but it's something that's important to me. Because I purchase properties like that I feel we attract tenants that we can relate to which helps us on the property management side with communication and working through issues.

I do think that meeting with a tax professional could be helpful. Both from how you want to structure your rental property business and how to handle things from a tax perspective. I say this from experience. Everything worked out okay but we received advice from our CPA after forming our LLC that we should have structured things differently but by the time we met with him it was already done. This could have been prevented if we would have met with him first.

I feel it depends on your investing horizon but I don't mind the stock market as long as you don't plan on using the money right away.  I personally like index fund investing in funds like VOO.  I do like real estate but I am not sure $20K is enough to get started. 

For me I wouldn't use all that $300K to pay off your current property or for a down payment on your next property.  I do plan to pay off all of my rentals to increase cash flow but not until doing so would generate enough cash flow to hit my FI goal.  I personally would use some of that $300K for your next property but not all of it.  My goal is to generate a minimum of $500 per month cashflow to keep the business going through maintenance requests and vacancy without having to tap into my personal income.  Again that's just my advice, there isn't a right or a wrong answer, it depends on your future goals.  Also while there is no guarantee rents will continue to increase in the future I believe there is a good chance they will.  With that in mind your property that's not cash flow today has a chance to in the future without paying it off.