All Forum Posts by: P.J. Bremner

@Kim Durst

Such an interesting question, but like everything in life it's all relative.  This has changed over the majority of my investing life.  When I first graduated from college, I chose to move back home for a few months until I bought my first property.  I lived in it, rented spare bedrooms out and did that 4 homes in a row.  When I moved out, I went to an apartment in a higher end area.  I specifically looked for a location that was under-market.  This owner is older (75+) and doesn't raise the rents, EVER.  I'm in an A class area for $1,300 per month (we have a roommate paying $800 as well), 2 bedroom 2 bath where a comparable unit at market rates going for $1,600 - $2,000 depending on how new it is.  There is NO WAY in hell I could ever get anything in an A-class or B-class area for remotely close to this price point.  A mortgage in this area would be $120k++ out of pocket and the mortgage would be north of $3,000.  My room rental business model isn't as attractive at this price point, so I went out of state to continue my investing.

That being said, my wife and I are planning on having kids next year and I've already committed to her that we would purchase a house.  I know we are going to pay way too much for it, but this is an emotional choice, not a smart investment.  She put up with the apartment life for a few years so we both compromised lol.  Happy wife happy life!  I think it all comes down to what you want out of life and what you're willing to do to get there.

It is pretty interesting filling out apartment applications when you own several properties locally and 40+ units out of state, then having to explain why you have well over $1M in mortgage debt, but don't own a personal residence lol.  

@Courtney M. No problem!

I definitely like the smaller multifamily.  Anytime I get a chance to spread out my risk, generally take it.

I started out house hacking a single family, it's certainly doable.  The problem most people face is they are not willing to sacrifice their privacy to get ahead quicker.  It's not a bad thing, but I wanted out of my job ASAP so I made the sacrifice personally.  I lived in 3 out of the 4 properties that I house hacked - with 5 or 6 other people at times lol.  My 3rd property is 3,300 sqft, similar to yours.  I have 7 rooms there and collect just shy of $6k on it.  Unless you have little ones running around and need the privacy and safety, you might want to check out renting rooms out to students/young professionals to get a head start.

@Courtney M.

Everything you've mentioned sounds very reasonable, with one exception - your timeline (in my opinion).  It sounds like you and your husband have a great mindset for moving forward with your investing, which is probably one of the most important things.  I also think that going out of state right now is probably the wise choice if you're trying to build cash flow.  There are still ways to do it locally, but I think you need a ton of capital to scale them in a meaningful way (room rentals, air bnb, etc).

Back to the timeline, my personal opinion is that it's not very realistic based on the amount of capital you have at hand.  I'm not saying it's impossible, I just think for a beginner to get up to $10k in passive income will either take more time, or more money upfront (or if you're able to raise funding from others, but I don't know too many people who will trust a beginner with their cash, nor do I think it's very ethical to invest other's money if you don't know what you're doing).  When I plan out my future goals and objectives, I try to put a plan with conservative numbers to back them up.  For example, if I were in your shoes and I wanted to be at $10k/mo, this is what I would be up against:

Goal - $10k / month net passive income

Available capital to invest - $20k / year

Target minimum metrics (arbitrary numbers, you can set more aggressive or more conservative)

Cap Rate - 10%

Cash on Cash - 20%

25% down payment per investment, target house price ~$80,000 (this assumes you need $0 for holding costs, closing costs, repairs, etc. which clearly isn't the case, but to keep the numbers easy)

You buy a house in year 1 for $80k with tenants in place and earn 20% cash on cash that first year - $20k * 0.2 = $4,000.  Not bad at all!

Next year you add another house for $20k out of pocket, make another $4,000 in passive income.  You've also saved up the $4,000 from the previous year (assume you pay 0% income tax, which is possible on rentals).

Starting year 3 you have $8,000 from cash flow from house 1, $4,000 from house 2 for $12,000 which isn't quite enough for another loan, but you buy another house with the $20k saved up.  Add another $4,000 per year in income.

Starting year 4 you have $12,000 from house 1, $8,000 from house 2 and $4,000 from house 3, total of $24,000 so you can buy 2 homes this year.  You buy 2 for $20k each and add another $8,000 per year in passive income.

If you continue with this pattern, you will own 7 or 8 homes by the end of year 5! That's 8 x $4,000 = $32,000 per year in passive income. This brings it back to my original thoughts, that perhaps your numbers are a little aggressive because we made some very big assumptions here - that you will have $0 extra out of pocket expenses, $0 holding costs, and that 100% of your deals will be amazing and consistent 20% CoC.

You could always try to BRRRRR your deals and keep the cash moving faster. You would have to wait 6 months between purchases so you can pull the equity back out, but it's an amazing way to do it! That would speed you up a lot, but I still don't think it would be $100k in 5 years. Plus, finding BRRRRR deals isn't that easy in this market and often times it takes more out of pocket cash to do them (not always, but in my experience it does. I've done 3 in the past 10 months personally and I know others who have done a few each).

I'm certainly not trying to deflate your balloon, I hope i didn't come across that way! I'm just a very analytical person and have been in your shoes before. It's so difficult to really know what to expect if you've never been there before. I had a huge amount of luck play into my success, I started in 2012 and did room rentals when I could buy stuff in SoCal for $250k and get $5k per month in rents per house. There is no way I could achieve the same numbers in today's market, so I went out of state and started to BRRRRR properties. It definitely has taken a lot more money that I expected, but the results are great and I've recouped almost all of my cash back after the first set of purchases. That being said, if I was in the same financial situation as when I first started out and tried to do what I did in today's market, I probably would have lost my @$$. Several things came up that cost way more than expected - I spent $350k between 3 duplexes when I originally budgeted $300k for. Fortunately everything has appraised for right around $500k and I was able to get most of my capital back, but again if I didn't have $$$ sitting in reserve I would have been in a tough spot.

The only reason I bring any of this up is because it's so awesome to have big goals and be financially free, but it's not as easy and quick as most people think it is. Even if everything penciled out okay for a 5 year plan, you would still have to consider the intangibles - evictions, vacancies, extra rehab that you didn't expect, building up 6 - 12 months in reserves for each house, personal expenses that come up (getting married, having kids, medical issues, etc.). I have read a couple of your posts and I can tell you're very smart person and seem to have the drive that's required to succeed in whatever you want to. My personal opinion is that if you continue to add more income this year than you had in the previous year, you're on the right track. I can tell you I've hit your goal and exceeded it by a fair amount, and my goal is just to add at a minimum of $1,000 in passive income each year. I will probably do more, but I wouldn't be upset if I came in at $1,000 because I know how much work and money goes into making $1,000 each month. Always remember, if you get a stable investment setup that pays $1,000 per month, it will continue to do so forever (assuming you save up properly for CapEx, vacancies, repairs, etc.) without anything extra from you. Keep on pushin forward, I'm excited to see where you and your husband will be in a couple years!

@Courtney Radmall

I spent a lot of time vetting the contractor and the property manager.  I have been running my own comps in SoCal for years so I felt comfortable getting ballpark figures (although it certainly takes time to learn another part of the country, it doesn't quite translate the same) so I didn't vet the agent as much.  Oddly enough, the agent and property management company were the same and through vetting my contractor I was told by several people to NOT use their company for anything - I wish I heeded their advice lol.  I switched property management companies before my purchase, but still used one of their agents because we had already written a couple offers and I didn't want to waste his time.  You live and learn, plus accepting any mistakes that happen as your own.  He gave me misleading comps and used some pretty shady tactics, but at the end of the day I'm the investor so I took responsibility and learned from it.

My advice on vetting - get a few references from the person you plan on using, then ask those references for more references.  You want to talk to people that know subject person, but were not hand selected references who will probably be biased.  I usually go 2 or 3 references deep to find out the truth.

After doing a handful of deals out there, I can confidently say that I have the right team in place now for the bigger projects, but definitely start small if you're not going to partner with others for starters.  The mistakes are MUCH cheaper lol.

@Courtney Radmall

You bring up a very valid concern, some areas do have some appreciation though.  My personal philosophy is to only rely on the factors which you have a direct impact on - cash flow being the chief one.

For myself, I would never buy a turnkey rental in this market, because the length of time it would take for you to recoup that cost is insane. However, if you can find a property that needs a lot of work, be all in at 70% - 75% of ARV and have great cash flow, then I would be much less concerned.

Here is a scenario I try to run my investments through before making the commitment:

If I had to sell the property shortly after buying it (less than 12 months), would it still make sense as an investment? Let's say you buy something at full retail off the MLS, or even worse a turnkey provider who sells at above market prices, then you would be in the property at 100%+++ of ARV (figure in closing costs, holding costs until tenants are in, minor repairs, etc. you will always be well over 100% of ARV). 6 months into the ownership you have to sell for whatever reason. You will lose 8% - 10% on the listing cost. If you want to sell the property quickly, you will have to offer it at below market, so maybe another 5% - 10% below ARV. Let's say you own the house for 110% of ARV and you will net 80% of ARV after selling it and paying fees, you will have taken a 30% of ARV bath on the house, certainly not an ideal situation.

If, however, you found a similar property that was distressed and own it for 70% of ARV, you would essentially break even or come out of pocket slightly to sell it off quickly. That can translate to a tremendous amount of money. For example, I own a duplex in Shaker Heights that I am all-in for $100k and it appraised for just under $150k last month. If I needed to fire-sale it, I could easily dump it for $130k or so and still make a net profit on it. I don't plan to, and essentially I own the house for free because I was able to pull out 97% of my money back out (I had a couple months of rent collected without a mortgage, so more than enough to cover the extra 3%).

This is a very long-winded way of saying that appreciate, to me, can be an irrelevant factor IF the deal is structured properly.

@Candace Noel

I'm in total agreement with you on getting into a good, symbiotic partnership.  If I could go back in time a few years, I would have sought out a partnership before taking on certain projects as it would have saved me quite a bit of money and headache.  That being said, I still came way ahead and learned a ton, but I feel like I could have done more with less money outgoing.

My main concern is how you find a partner and vet them.  There are a few disgusting people out there who are looking for an easy opportunity, so my question to you is: How do you find the right partner and when will you know it's the right partnership?

It sounds like you're on the right track though, for sure.  

@Elaine Lai

I currently own several units in Cleveland, 2 of my duplexes are on the west side in Lakewood and another in Cleveland right on the border of Lakewood.  I had a hell of a time finding a good agent, blew through 3 or 4 and finally found an awesome duo that work hard and are straight shooters.  I always run my own comps, crunch numbers and then ask them for the real numbers and am frequently disappointed to hear the truth lol BUT I'm very grateful that they don't pad numbers or try to get my to buy something that doesn't pencil out well just to make a commission.  They are in this for the long haul.

I also know a couple of great contractors that I've spent roughly $500k with in the last year and a half or so between the two that I can recommend.

As for the auctions, I have not gone personally, but I know some experienced investors that used to go before the market became supersaturated.  I ran into the same issue locally (SoCal) where you get these inexperienced investors (I call them idiots, but that's semantics lol) that watch HGTV and think they can flip homes.  They bid up the properties to the point where there is no margin left even at an all cash acquisition and then proceed to lose their @$$.  I'm sure you can still find something there if you search hard enough, but then you have to evaluate how much time you want to commit to that strategy.

I've had decent luck with the MLS finding properties that are in need of significant repairs. My Lakewood property was a huge mistake on the acquisition side thanks to my inexperience and a snake-oil-salesman-RE-agent pushing for a commission, but because the property was in such bad shape I was able to still come out with $40k in equity from acquisition. I just finished my BRRRR refi last month on that property and another one in Shaker Heights (east side) that has about $50k in equity - also an MLS deal.

I've also been able to find some off-market deals here and there just by networking with people.  You would be surprised what you run into when people know you have cash and the guts to spend it.  Just make sure you vet the people you plan on working with extensively!

Feel free to PM me for the references, I try not to post names and numbers in the forum.  I'll be happy to run through numbers with you on some deals I've done or am working on and look over some stuff you're considering if you feel that would help.  Talk to you soon and keep up the good work!

@Carlos C.

I must admit that I am biased against turnkey providers, not so much based on my own experience in buying from them, but more from looking at the deals they are offering and talking to several people that I know personally that have had bad experiences using them.  Here are some of the main issues that I have with them:

- They try to get full retail for their properties, or even above market.  Out of state investors won't know any better more often than not.  Compounding that last point, most people are used to home prices that are multiples of what they can buy out of state so when they see the lower price point, it's easy to get sucked into thinking anything at that price point is a great price.

- I've yet to see anyone that advertises with the proper amount of reserve savings each month. I typically pencil my deals with 5% vacancy, 5% repairs and 10% CAPEX. It may be a little higher than it needs to be, but these turnkey guys will include a 3% vacancy at best and ignore everything else. Their cash flow numbers are just not accurate over the long haul!

- Literally all of the people that I know who purchased properties from turnkey providers say that the property management SUCKS.  I've heard it being so bad that some decided to self-manage on their own from afar and had much better results... pretty pathetic.

- There is very little upside for the buyers on deals like this.  They pay full retail for a property that has little chance of appreciation (buying in areas where homes trade for $100k or less have much less appreciation).  If the market corrects even slightly, the owners will be buried alive in these properties.  They would have to hold onto them for 10 - 15 years or more to break even, and that's assume they don't have big ticket repairs to make like roof and mechanicals to replace.

My personal opinion, based on the deals that I have analyzed and the performance of the many turnkey deals that I've looked at from others, is that they simply aren't worth the money. While it does take more work and effort to get your own deals going and build your own team, the rewards are significantly greater. You can actually buy more frequently as well. If you have to save up $25k every time you want to buy a turnkey rental, then how many homes can you buy in the next 5 years? What if you were to find deals that would BRRRRR, how many deals could you do? In my experience, if you have enough cash to do one deal at a time, then you can buy and BRRRRR a property every 6 months. Let's assume the deal flow isn't guaranteed, so it takes you 9 months to find a property, BRRRRR it and start on the second property. You could grow your portfolio exponentially faster because you're not saving up $25k every time you want to buy another one. If you make a mistake, you have much more room in the deal to cover it (I don't look at deals unless I have a reasonable expectation of being at 70% ARV all in cost, so I have 30% more room or more than a turnkey deal).

Just something to think about.  Also, as I mentioned before, if you don't have a team built and you don't have the time, it wouldn't be difficult to find someone who is doing well in the market you're looking at and partner with them.  A lot of successful real estate investors have more deals than money to take them all on.

@Jeremy D Baty @Matthew Jure

If you have several properties, you can bundle them up on a single policy with a high liability coverage for less money.  I ran the policy by my close friend and business mentor who wrote the previous policy (he owns an insurance brokerage in SoCal) and he said he couldn't find anything wrong with it.  I currently have 7 properties bundled up in the policy (I couldn't get my 30+ unit multifamily in the policy because it was way more than the individual policy, so I'm not sure how that makes sense lol).  He said the more properties within the policy, the better the rate.

@Courtney M.  The IE meetup that takes place in Riverside is really good!  I've gone to it a few times and always meet good people.  It's a great place to network with people who are doing all kinds of real estate - flips, buy and hold, out of state, note investing, etc.  There are certainly tons of "lookie loo"s, but there are enough people in the room that are actually doing deals.  Like @Bob Prisco eluded to, I generally get more out of talking to people who are putting in work, as opposed to those who read/study but never do anything (but talk as though they are the experts, it's hilarious lol).

It's hard to break the "I can do it better" mindset!  The key for me was to find someone who has what I needed and vice versa.  Once you start to build your empire, your time will quickly fill up and you start to rely on others to free up your time.  It's a marvelous, symbiotic relationship : )