All Forum Posts by: Randall Alan

@Cody Godfrey, I've been through underwriting 40 times... always made it through.  If your guy has 15 years just breathe easy and presume it will fly.  He's probably been through it 1000 times in 15 years...  Even if held in house, compliance is there to just make sure the originator did his job right... didn't fudge the numbers, etc.  It almost always works out fine.  I haven't had one crash out that got to underwriting.  I have had them crash before they got there though.  Usually you know up front if there is going to be a problem.  

Randy

Underwriting is about compliance... they are there mostly to make sure the I’s are dotted and T’s crossed so that the loan can be sold on the market.    Your broker knows what the basic rules are, and usually  wouldn’t even put it into underwriting if they thought it was iffy. 

Typically my feedback from underwriting is that they want more /better documentation... they seldom come back complaining about You... it’s usually more about the proof of things... source of funds, income, debts, etc.   

So if your broker is good... meaning they know how to put a deal together for their underwriter, you should be fine. 

Typically the broker will reach out to underwriting if they had any questions as they put your file together.  Once it is to underwriting it usually gets through it unless your broker missed / misunderstood something.

Randy

The thing is, Fannie Mae (your broker really) wouldn't have brought the LLCs up until they became an issue. I believe they would have counted any personally guaranteed LLC loans against the 10 count limit FM holds you to... but as long as you were under 10, they would not have been a factor, so would have flown under the radar of needing to be mentioned. Just my best guess. @Kris Mann, would the properties under LLCs have put you over the 10 property limit with FM?

Randy

I have 40+ rentals. So I know that game.  I think I get the basics of what syndication is:  In essence, crowd-sourced funding for real estate managed by the syndicator.  I get the upside is they are more hands off... what is the management overhead like to the typical investor.  How do the returns differ versus the straight 'owning rentals' game?  What are the risks to an investor? I'm not a big fan of being out of control of my investments, for fear of losing funds to scams, poor management, high  priced repairs, etc.   Anyone care to give the good / bad / ugly sides of syndication for all of us to know?  

For where you are at - renting seems like a real waste of money.  The quickest way to stop wasting that money would be to buy something you can live in and rent out another part of it (house hack).  This is doubly beneficial in that it eliminates your cash outflow for rent, and let’s you shift that money towards more savings.

After that, it depends on if you want to manage your own rentals or not.  We do, which drives us to only want to invest locally, so we can keep tabs on our properties.  

I think most here would say that there is little need to have a goal of paying off your primary... so I would only make the required payments and take any extra available funds and save  them towards your next purchase, allowing you to develop your next income stream as quickly as possible. 

Investing out of state necessarily means hiring a property manager, which automatically translates to “lost profits” you could have kept if you would have managed them yourself.  So while you are in the building phase of your RE career, I think it makes the most sense to self manage.  When you are ready to slow down and not have to handle the day to day,  then look towards property management.  I think PM is sort of a big time management question... if managing your properties is getting in the way of things (enjoying life, making more money, etc) it starts to justify PM.  If on the other hand you think you would notice the sucking sound from your bank account if your PM took 1 out of every 3 of dollars of your profit, self managing is probably for you.  How do you get to 1 in 3, you ask?  

If you make 300 profit on a $1,000 a month rental, and your PM takes 10%... that’s 10% of $1,000, or $100... so you are giving up 1/3 of your profits for PM on a leveraged property.

If your property is paid off it at least lowers the percentage because the profit level is higher on a free and clear property.., so the same $100 might be out of $700 profit... making the PM’s cut 1/7th of your property, or 14%.

Randy 

Filling our units was one of our biggest fears getting started.  That fear lasted about 3 days...

Our RE software platform (Rentec Direct) broadcasts our listings to Zillow and their affiliate websites.  This is literally all we have to do to generate more than enough traffic to fill our units.  I don’t know the steps to do this outside the platform we use, but I’m sure it probably: go to Zillow, click “List Property”.  We have to pay a few dollars a day to list our properties, but it is really cheap, considering we only have to leave the ad up for 2-3 days to get the number of referrals we need to fill the units.  It’s Soooooo worth it!

Randy 

 There are plenty of books to walk you through a lot of your questions.  Also search YouTube for videos on any subtopic that might interest you... like estimating rehab expenses, or whatever. 

At its core it’s total costs versus total rewards.  

Basic Costs include Principal, interest, taxes and insurance.

then you compare that against  total  income you will receive at your rental rate, subtracting for maintenance reserve, and possibly capital expense reserve. 

Subtracting your yearly expenses / reserves from your yearly income gives you your Net Operating income for that property

Comparing NOI of one property versus another gives you the ability see which property will deliver a better return.

Some things are personal preference... like what NOI for a property is worth pursuing. For me the line I draw is $300/door/month. If I can't make that, I'll pass on the deal. Obviously the higher the NOI, the more you are drawn to the deal!

You will find some that think they don't need to worry about NOI and they look for just market appreciation. Some will even tolerate a negative NOI. I personally think that is crazy... why overpay for a property to the point that it loses money??? So it's about being smart with your investments. Just like with everything you do in life, you get better the more you do it. Your first purchase will be exhilarating, and probably scary... but the next one will be way better, and so on. Consider partnering with someone local to you as a way to help you look over your first deal in person. Maybe they do a walk though with you and you buy them dinner, or whatever... real estate investors are a pretty friendly bunch.

Hanging around BP is another great way to get smarter.

All the best!

Randy

So we have come across several that good.  They aren’t the norm... but we do find them regularly at $75k/door, and the numbers still work really well at that level.  But most of our best deals have come from wholesalers.   

We regularly find $50,000+ equity deals from our wholesalers, though frequently the purchase price is higher than the one mentioned above.   Found great ones on Craigslist as well.

We will call snipe signs all the time and ask them to put us on their buyers list.  We get multiple emails a day from people who have off market properties to sell.  We will call “for rent” signs we pass and ask if they have any units they might be interested in selling.  Just constantly be looking and you will come across the great ones from time to time. 

Randy 

See my response in this thread regarding Rentec Direct:

https://www.biggerpockets.com/...

We are at 41 properties and pay about $150/month, and absolutely love the platform.

Randy

To answer your question, you have to buy a house with equity in the deal.

Here's a real example:

 We bought the above house for $44,000 off a wholesaler out of probate.  The wholesaler made $10,000 on the deal (which was a part of our $44k price)  Its a 1953 block home, Structurally sound, and the city had rehabbed the property as a part of a community improvement effort in 2004, so new electrical, re-plumbed, etc.

The floors were a mix of stick on laminate, and other ugly things... the bathroom and tiny kitchen were functional, but dated, and it had 3-4 damaged doors where people had kicked them in, or who knows what since it had been empty.  

If we flipped it, we would definitely need to redo the bathroom and kitchen... but for a rental they would fly.

We put in new waterproof plank flooring, replaced the doors, blinds,  and spent about $600 to get some simple plumbing and AC fixes done, and replaced the electrical outlets and switches with updated ones...  all in about $5,000.  It is really descent little rental after those minor fixes.  It's certainly not a 2000's home by any means... but for a rental I really don't care.  So when we can have a property ready to rent in a week with a call to a few contractors, we consider that pretty turn-key.   We are renting it for $1000 a month, and believe it or not, our tenant... who moved in on day 1 of us owning it, is doing the rehab because she has some background in the field... that was a huge bonus!

So how do we get the equity out?  The biggest part of the answer is that there has to be equity in it when you buy it.  Look at the Zillow!  $112,000.  We paid $44k, with under $50k all in after quick fixes.  So we are sitting with $62,000 in equity on day one of this purchase.  

If I really wanted to, since I used cash, I could go to the bank, and if it appraised at the $112,000, the bank would loan me up to 75% of the appraised value ($84,000)... so I could literally pocket $28,000 with 25% equity in the property and collect $4,227 a year in net rent including a factored in reserve for repairs / maintenance.  

The figures look like this:

Taxes: $1,016, Insurance: $745.  Reserve: $100/month.  P&I:  (84k @ 4% 30 years)= $401/mo

Rent at: $1,000

Cash flow Cash purchase:  $753.25/mo

Cash flow @ 75% financed:    $352.25/mo

We are mostly into holding homes, because we are always looking to grow our cash flow, so we will hold this one and net $9,039 a year off a $50,000 investment (18% cash on cash). 

Not all our deals are this good, but it just goes to the point that you usually have to buy them right to really reap the big wins! 

Funny story:  We were approached by this wholesaler looking to buy one of our properties.  That deal ultimately fell through, but they knew we were a buyer of properties, so called us when the one above came through their office.  So building your relationships often have unexpected rewards!

As for what we bought, when, and how... We started with Duplexes... because we liked the safety of having the other tenant paying the rent in the event the other side ended up empty.  We especially liked properties that had two duplexes on them (we have two of those).. .because we got 4 doors for one loan.  After we got to about 12-15 doors we stopped worrying about "what do we do if someone moved out", and started looking at single family houses.  The reason is that there was enough cash flow coming in that we could absorb a vacancy here and there.  This actually had a very positive side effect of giving us way more deals to look at, because duplexes and bigger are far fewer and in-between.  By this time I had started figure out that our best deals were the one that will cash flow the most, and those were the ones with the least amount of money in them.  Pretty simple concept, right?  Figure out what this is for your market and you will do well!

Randy