All Forum Posts by: TJ P.

Going to revive this thread a bit. Was wondering this exact thing. From what I gather, it's simply what we've all been conditioned to do. My biggest concern was tenants knowing my name. Seems it doesn't take much to create a business entity account and then "co-mingle" funds in some way. The illusion of an impenetrable LLC is just that- an illusion.

I often fall into the TL;DR on this and related topics but I actually read the entire thread. I won't claim to have all of the answers as my experience with the last "burst" still has ramifications on my current investing approach (Foreclosure AND a short sale to my name). 

Personal lessons learned during that time though, show a certain pattern of dominoes lining up. I was one of the guilty-gullible in the early 00's that had the "Buy now or be priced out forever" mindset, signing a very short- term ARM with little down just to get my piece of the American Dream.

I love analogies and this period of the current "recovery" reminds me of a scene from the original Jurassic Park movie. The paddock that contains the raptors is surrounded by electrified, reinforced enclosures. The stereotypical wary Brit animal expert is fascinated by the creatures as they poke, prod and throw themselves into the fence and wall. The new arrivals to the island ask "Why?" He responds, "They were testing it". Obviously, chaos-theory sets in and all hell breaks loose.

As another poster mentioned above, the last burst my have been a once in a lifetime occurrence. These cycles are simply RE raptors "testing" the enclosure. Where sub-prime lending is replaced with another not-quite-as-nefarious practice. 

 Did not know that but, here it is.

That's what I've "seen" in the deals I've had presented. And the below market wasn't much and a few of the outfits didn't allow for wiggle room. An approach from at least one TK I've seen is that if the appraisal comes in for less than asking, then they will adjust.

@Moses W.

Just wondering why holding for only 5 years?

I agree with @Alex Deacon on this one that you should be buying at or below market value (The TK company should have purchased with enough buffer to complete the rehab, sell to the investor and STILL make a profit below market value).

Sure thing. So just for a benefit of everybody that may read this (not many I presume, but hey, can't say I didn't try), I have one of my sheets opened now.

It's laid out as rudimentary as can be. First column on the left has:

- Month/ property (ie- 1. SFH 70K (1)) This represents the month purchased/ what type/ how much/ total units owned

- Cash Flow  I have my own rule where if I put 20% down, I'm going to get 200/m CF. It's TJs 20/200 Rule™. This takes into account the 50% rule and that the purchases will be obtained for 50-70k per door

- W2 Contribution It's exactly what it says- How much OOP $ can I throw at this thing every month? The current tab I have is named "3K Compounding" and it includes current W2 AND a state retirement I'm waiting to pull out. Thus, with those, I can put 3K starting out per month into savings.

- Equity Biggest variable to say the least in this formula but has to be considered- esp if you're into BRRRR and cyclical markets. It doesn't always have a value in every box but is used often in later years to pull cash as needed.

So for this particular tab, that's all I have. Other scenarios have additional entries such as Side Hustle, Yearly Bonus, Spousal W2, Inheritance, Settlement, etc. Basically, every possible/likely varible that will put cash toward these things.

I keep a running total for every month and for simplicity, I don't include lag time (One month to acquire a new property and next month CFing).

So after the purchase of the first property (70k), it looks like this:

Month 1   Month 2    Month 3     Month 4     Month 5       Month 6

CF 200      400            600            800             1000             1200

W2 3000    6000         9000           12000         15000           18000

So, by months 5-6,  I can rinse and repeat. This = three properties the first year; 4-5 the next and then exponential after that. Further down the rows, I have adjustments for rent increases, W2 increases, kids leaving the nest, etc. It obviously won't/can't go exactly to  plan but I hope to be within a few months either way. 

Agree and glad to see you address this. I'm still (barely) in the camp of "Any return is better than no return". It's been several years since I've owned rental property but the tax benes from that time were awesome. I make a decent W2 now and i want to keep as much as I can in my pocket. That's why TK seems to be my preferred path as opposed to notes and HML. If you put enough down, maintain a W2 job and hold long enough, you really can hedge against most of the likely contingencies.

I'm hoping we're at the peak of this current cycle. I have friends who went all in during the last down-market (2011-ish) and are rolling in it now. I plan to be ready for the next trough and will see a glut of 1.5- 2% on real "B"  properties.

Thanks for asking this @Rabih El-Khoury, this is my kind of thread.

Great answers from the folks as well.

Here's my take and plan on this:

The B&H paths to prosperity you mentioned- OOS, BRRR, TK(?),are exactly the route I'm going. I'm currently doing some HML with friends/fam and waiting for some credit issues to fall off and also just got permission from the wifey to look for a W2 job out of this not-so-affordable place so that I might actually have some disposable income to play with.

How's that going to happen? Well... I plan to B&H SFH and smalls multi's for the first few years. I "invested in myself" for a while and can now command a decent W2 salary. I have spreadsheets on top of spreadsheets with various contingencies that show me being able to contribute between 3k-7k a month. If you were to take the median there, that's 50k a year I can use. My targets are "B" properties that can be had for 60-70K. With 25% down, I'm in for apprx. 17k with the rates I'm seeing. This equates to 2-3 properties the first year and exponential growth after that. I would be purchasing every couple months by year 5 after that. My calculations only go out to year "8" but by then, I've hit my freedom # of 12k net/month. A quick mental extrapolation says that 24k/month is possible even with my assumptions.

One key here is what has been pointed out already in this thread- what rent ratio can you get in the current markets? If these 70K properties are at 1.5%, then you're easily CF with your >1000K rents. These are getting tougher and tougher to find though in this market. I'm seeing 1.2% with some borderline "B-" areas(that I'd prefer not to be in) and investors are snatching these up with the "buy now or be priced out forever" fervor that was prevalent prior to the last crash. 

The other is what  @Steve Vaughan stated above with this little gem:

I'm still smarting from buying at the wrong time and place over a decade ago. If I could go back in time and slap and strangle decades-younger TJ, I would. I could then reap the rewards of better investments obtained just a few years later and would likely be well on my way to your #'s and beyond.

 Some thoughts and ?'s for you.

According to my calculations(plenty of variables) using the #'s you provided, this deal appears to CF somewhere between $150- $190/m(you may have put this in the thread but I missed it). I think this is possible due to the very low taxes and ins in AL. So the question I typically ask with these kind of TKs- Did/does it concern you that it doesn't even meet the 1% rule or is the fact that it CFs is what you were going for? 

I understand that TK companies have to make a profit but with the market "tightening", I am seeing/reading a lot about OOS investors plunking down larger down-payments to make the #'s "work". Personally, I am doing some HML with friends until some credit issues resolve then will likely go the TK route. I spend a lot of time in AL (went to school there) and hope to move back eventually. I worry some that the #'s I want to get (20% down/ $200m CF on B properties/areas) may not be available in cities I want to invest in ....or at all. I hope that you'll keep us posted on additional acquisitions; they are very helpful.

 And these were all in/around St. Louis?