All Forum Posts by: Richard Low

Do you mind explaining more what you mean here with an example?  Are you doing primarily buy-and-hold or more flips/development?

I'm a big Dave Ramsey fan, so I've been struggling with how much debt I personally want to take on in Real Estate.   Right now I'm a 4th yr dental student and over my career I want Buy and Hold RE to be one of my primary investment/retirement vehicles but I know that I can get there with leverage faster than by saving up all cash.  I'm trying to develop a thought process/system that allows myself to step back and measure my current risk from leverage and compare that to the buy and hold opportunities in the market.

Here's my system that combines some of Dave's basic advice with my own thoughts on when to buy/deleverage/wait and see:

1. 1. Start from a spot of personal financial security (Dave Ramsey baby steps 1-3)
   1. a. No personal debt (credit cards, car payments, student loans)
   2. b. 6 month emergency fund
   3. c. Properly insured for your circumstances (Term life ins, home/auto ins, disability, etc)

For me, I'm not going to buy any investment properties until I'm past step 1.  There are too many ups and downs, random expenses, and illiquid assets in RE investing to be struggling with personal finance.

1. 2. Measure exposure vs income
   1. a. Instead of a debt to income ratio, I want to know my:
   2. Total Income - (PITIs + Costs + Family Budget) = Cash-Flow  
   3. b. In my mind, my financial stability is going to depend on my ability to my ability to pay my debt service and costs while surviving a dip in income.
   1. - This ratio alone isn't going to determine my decision to buy a property or deleverage, but it's helpful to keep in mind as I move to the next steps.
   2. - One hypothetical is a 50% rule.  If I lost 50% of my personal + rental income (vacancies, disability, recession, etc.), could I service my debt, costs, and put food on the table?  How long could I do this past my 6 month emergency funds?  
   3. - In addition to having a personal 6 month emergency fund, I plan on having a 6 mo fund for my dental practice and each property.  This buffer might seem excessive, but for me it's essential to be able to sleep at night and ride out the bumps while leveraging myself.
2. 3. Analyze the market
   1. a. Is the RE market down, inflated, or ambiguous?
      1. - In a down market it's time to increase my rate of acquisitions and tolerance for debt.
      2. - In an inflated or ambiguous market, it's time to slow my rate of acquisitions, look at de-leveraging by selling less desirable properties and paying off my personal mortgage followed by my properties with the best long term rental prospects.
3. 4. Analyze the deals
   1. a. Ultimately, if the cash-flow is good enough and the financing available, I would probably pull the trigger on any truly good deal.  And even if I'm relatively de-leveraged and in a down market, the deal still has to make sense.
   2. b. If there are no good deals in my market, it's time to partner up with someone on BP in a good buy-and-hold market.

Putting all of this together is how I'll make the decision to buy or de-leverage.   I know this is a lot of hypotheticals and many people would call me over-cautious, but it seems like many people underestimate the risks of leverage and get burned in RE when the market turns and they're in too deep.  

Please share if you have some real-life examples or any input!  What measures / metrics / systems do you use to make sure you're not over-leveraged?

Thanks!

It looks like John has done way more with this than me. I ended up not doing this mailer and getting my license instead.

Karen Margrave to be honest, not the best but it's better than nothing. I was the onsite manager of a fourplex for 1.5 years and the night manager at an assisted living home for a year before that. I'm bilingual, I just passed my state/national exams for my RE sales license, and I've managed websites. I've also sold security systems door-to-door (applicable to selling leases) and been the repairman for another apartment complex.

Sharon Hiebing, that's a great website, thanks for the tip. I found a few postings on there that I've responded to.

Brian Burke, you're right by saying it would be awkward to approach current property managers who I would be replacing, but if that was the case I would ask them if they're planning on moving on in the next 6 months or so. If not, oh well. You miss 100% of the shots you don't take. I'll definitely call up large and small multifamily management companies and keep submitting resumes on craigslist.

Will Barnard, I like the OOS owner idea + vacancy idea. I mean, what does an owner have to lose if they have 10%+ vacancy, they're essentially getting free work. On the other hand, if vacancies are much lower, that's missed income for them.

How would you look for OOS multifamily owners? Tax records or something like list-source?

Brandon Turner thanks for the reply, that's exactly the confidence boost I was looking for. Now we just have to find a complex that will accept a full time student and new mom as managers... this won't be as easy as I thought, but I'm going to give it my all. We have nothing to lose by trying since we won't rent out our house until we've found a job.

Al Williamson, you're right. This should have been two posts.

My wife and I are looking to manage an apartment complex as live-in managers, but I'm not sure where to look. I've responded to job posts on Craigslist and next week I plan to start contacting apartment complexes and asking if they have on-site managers. What size complexes should we be looking for?

I also plan on going to the AZREIA and announcing our interest at the 'haves and wants' session. Do you think it would be worth it to contact property management companies or commercial brokers? I'm about to take the state/national exam tomorrow to get my AZ license, should I just try and work for a management company or stay independent?

Any other advice or people I should reach out to here on BP?

My wife and I are thinking about renting out our current home and find a job as an on-site manager couple. We live in NW Phoenix around Glendale/Peoria.

I'm bilingual, am about to finish my RE license as per Marty Boardman's suggestion, and have managed a four-plex and nursing home both as an on-site manager in the past, for a total of 2.5 years.

Do you think starting off as an on-site manager would be a good way to get more RE experience? I'm a graduate student and my wife is due late next month with our first child. We have 2 more years until I finish school and she's up for it, but we're not sure what to expect or if this is a reasonable goal. What are your thoughts?

As a separate question (maybe I should ask this as a different post), we would like to rent out our current home and manage it on the side while working as live-in managers. Here's the numbers:

2200 sqft (built in 2007, master-planned community)
3 br 2.5 bath

30 yr note, conventional 4.125% interest rate
Principal $180
Interest $420
Taxes $108
Insurance $45
Total PITI: $755

HOA: $148 (includes landscaping and 3 pools)
Total with HOA: $903

Market Rent: $1250

I know that $350 isn't that great of a margin, but we're willing to manage and repair it for the next two years. Since it's relatively new, I don't expect as many major repairs, but we still need to be prepared. I have Brandon's book on renting your primary residence, and I'm just looking for insight.

I'd hate to sell it right because the Phoenix market is hot and our home has gone from $130k to ~$200k since we bought it in April 2011. I think the next two years still holds some increase and I'd hate to miss out on that if we can keep our home cash-flowing in the meantime.

I started the "I joined the Flip2Freedom Academy today" thread a while back, and since then I've continued to listen to the BP podcast and finish up my RE license. Renting our home and managing a complex would be great for us right now since we don't have the capital or time to invest in RE in other ways, but I would love input from BP members on our plan!

My wife and I sucked at budgeting for the first four years of our marriage (two years in undergrad together and the first two years of grad-school). We tried Mint, spreadsheets, but we mostly just winged it. We fought about money and overspent. Then we'd swear to be better the next month. Even little purchases can be a point of contention when you're living on a limited budget and going into debt.

Last October we bought a piece of software called You Need A Budget aka YNAB. YNAB has a iPhone/Android apps to log your purchases wherever you go and if you forget, it only takes me about 15-20 minutes every week to catch up. Budgeting has to be simple and flexible if you want to stick with it. YNAB excels at both. It had a small learning curve, but after the first couple of months we had it figured it out. We haven't fought about money since.

Well, that's not true - we did fight about my wife going to the dentist a few months before I started working in our school's dental clinic and could have seen her for free. She won and we spent the money, but it was no biggie because there was room for it in the budget and for her it was worth the peace of mind.

Anyway. We've put our RE investing plans on hold for now, but essential to our future plans is having cash to invest. Budgeting and living below your means is the original 'creative financing.' It's not sexy, it takes discipline and patience. But for us that's where it starts.

Some people from YNAB's forums have used YNAB for their small business. It unfortunately can't replace quickbooks for accounting/tax purposes so those people double-log their transactions and swear that it's worth it.

YNAB is on sale right now for $40 instead of the normal $60 until July 22nd, 2013. Check out their website (youneedabudget.com), read the '4 rules', and download the free trial. If you like it, pull the trigger and buy the software while it's only $40. We bought it at $60 and it has paid for itself 20x over.

I have no connection to YNAB, I get no kickbacks, this is a breakdown/review and I hope this doesn't violate forum rules. I'm actually buying a couple copies myself during this sale to give as gifts.

Enjoy!

If I have a friend who works in a commercial RE brokerage, does he still have the ability to sell my house? This is theoretical, otherwise I would just ask my friend.

I would assume yes, but I think it would depend on the brokerage and what they allow. Sorry for my ignorance, my initial google/BP searches weren't turning up the answer!