All Forum Posts by: Robert Haney

Amy, cash flow varies drastically based on many factors as I assume you know.  So it would be best to list your criteria and ecpections.

I have 3 rentals with 30 yr. mortgages and 6 with no mortgage.  I cash flow $400-$500 on the ones with loans, and about $900-$1000 on the wholly owned.  Rents average $1400/mo.

The return on cash for rentals with loans is about 25-30%. Where owned homes is about 10% (I think the national ROI on real estate is about 6-7% without loans.).

Don't consider me average to set your expectations. I buy properties at discounts (not MLS) that you may not be able to do.

If you pay retail price (MLS) for a property in Sugar Land with a 95% mortgage, your chances of cash flowing from it as a rental 3 years from now is extremely low. I assume Cypress is likewise.

Welcome and best wishes.

You have not requested any input.  If you were looking for some then you may want to clarify.

I have a friend that I sometimes partner with on flips.  We have a very good relationship and share information and contractors freely.  He has 15 rentals and has had success with section 8 on a few of them and said I should consider it.  He only rents to single mothers with small children.  Small children keep the mother qualified so they can stay in the property for years, whereas older children turning 18 disqualify the mother much sooner.  He saves a lot by not having the vacancy and make-ready costs associated with higher turnover. 

Beware that one missed item on a government inspection means repairs and re-inspection and lost rent while waiting approval.  

Also, some tenants will not pay their part of rent expecting you to eat it, which is sometimes done in the market.

I have been approached fairly frequently by section 8 inquiries, but have refused.  My houses rent quickly at full price with full deposits for 120% to 200% of a month's rent.  That would be very difficult to get from section 8.  ( If you have a better than average product you should get more than "standard" security deposit.)

I am weary of tying myself to government programs.

You got advice to find a good realtor.  The chances of that approach being successful is about 1 to 2% at best.  Lifestyles Unlimited recommends you finding 20 realtors.   You chances will improve to about 5% using that approach.  The reasons for these low success rates should be obvious, but it is not to many people.

- realtors make the most money off mom&pop people who want to sale or who want to buy, which is 95% or more of the market. No you and me.

- if a realtor finds a smoking hot deal should he a) take it himself  b) take it to a family member.  c) take it to a known friend/investor that he knows for certain will quickly close the deal for his full commission, or d) take the deal to you?  I'll let you determine the answer.  But hint: it is unlikely to be you.

- the average realtor does not even know how houses can purchased at the prices successful investors actually purchase them.  

I could go on and on but I don't have the time.

I wish you luck.

If there are bars on the windows in the neighborhood don't buy.  

If you feel the need to carry protection into the neighborhood don't buy.  

If you can't estimate repair costs comfortably within 10% don't buy.  

When rehab is done if you couldn't sale it for 10% NET profit don't buy (Yes, I assume it will be a rental, but EVERY RE deal should be profitable on day one).

Over-paying for the property is mistake #1.  

Landlords, as a class of RE investors, are typically guilty of this since their number calculation criteria naturally leads to overpaying.  I personally  know many investors who both FLIP and RENT houses.  Nearly all of them are willing to pay more, and do pay more, for their rental houses.  My strategy thinks this is crazy even though it can/does work.

Every rental house I buy can be flipped for a decent net profit ($15k to $20k on a $145k ARV house) after ALL costs. This reduces my money in the property, improving the rent return, and lowers my risk substantially. In short, I patiently buy flip properties for rentals to avoid the #1 problem. I buy in good neighborhoods (Two tests: There are no bars on the windows and I don't feel the need to carry a gun.); in Houston area the houses are $135k to $175k ARV; the monthly rent is about $200 more than 1% of the TOTAL COST. Example: Total all-in cost is $130k. 1% of cost is $1300. Monthly rent needs to be $1300+200= $1500/month. Notice that ARV is not in this formula. It does not matter since the property is flippable for profit. Even if a property will not rent for 1% of ARV my returns are excellent because I don't overpay for the property.

Purchase Formula: ARV minus Rehab Costs minus 17% of ARV = Buying Price that will work for MOST properties, but you still have to run the rent return criteria numbers.

I know landlords who pay retail prices for rental properties off the MLS because their rent return calculations pass. While this can work, why do it when flippers are buying under retail price every day?

Flooding is not a simple issue as rain does not fall evenly across all of the huge Houston metro area.  I live in Sugar Land and just last month on May 7th we got 6" of rain in 2 hours and 10" in 24 hours causing flooding.  This was worse than any period during Harvey.

I have a self-directed Roth IRA and set up an IRA LLC with a checking account for checkbook control. I'm the manager of the LLC which my self-directed IRA account owns.

Some Self-directed IRA Custodians (usually trust companies) in the custodian industry recommend my set up (legal structure & my management) and some warn against it. Those who warn against it (and some will not do it) do so because of the potential for an IRS audit and the risk of negative consequences from the audit.

1. If you have a "checkbook control" IRA LLC where you are the Manager please POST TO SAY SO and tell us how long you have had it.

2. If you have this set up HAVE YOU EXPERIENCED AN IRS AUDIT, yes or no?

3. If you have had an audit, please share and describe in detail: What caused the audit?  What did the IRS look at?  What was the outcome?

I have had my LLC for 3 years. I have not had an audit. I have attempted to follow the rules for operating and reporting. My Roth IRA LLC has grown nicely so that the taxes I paid to convert Traditional IRA funds to the Roth were well worth it.

Thanks in advance for your input to the poll.

Thank you very much Scott, Andrew and Michael.  I appreciate you taking the time to respond to my questions.

I'm in Houston TX area.  I have 3 real estate businesses I started 3 years ago. 

1)  Sole proprietor Fix and flip business: doing 15+ properties per year all cash with 6 to 9 properties in inventory.  

2) Sole proprietor Rental business: 6 rentals properties with 3 mortgages and 3 free and clear.  

3) Roth IRA LLC to Buy, Fix, Rent, sell after 1 year and repeat: 4 free & clear rental properties.

The businesses grew faster than I expected due to involving a family member to help. So my Sole proprietor start is about to turn into LLCs for asset protection. I also intend to convert my Roth IRA LLC into a series LLC to separate each rental and the cash and the next purchases.

That leaves decisions to be made as to the exact structure of the businesses:  

The Fix and Flip business which is an "operations" company using contractors to rehab houses and then buyers to purchase the houses (i.e. plenty of potential liability)

The rental business which owns houses in my personal name and rents them in my dba. (also potential liability from tenants & their guests)

That's the brief background.  Here are my questions:

1. I'm considering a single member series LLC taxed as an S-corp for the Fix & Flip business. While I'm concerned about having 10 or 20 bank accounts (one for Parent LLC and one for each series), what is a good practical operating and asset protection way to set up this series LLC? (I know there are many possibilities) Would a "management" series be one of the series that managed rental properties in a separate Rental LLC?

2. I'm considering a single member series LLC as a disregarded entity for the Rental business. Should there be a separate LLC to manage the rentals (lease, collect rents, fix and maintain, etc.)? Or would a "management" series be just as good? If so, which LLC would house the rental management series, the Fix and Flip series or the Rental series? Does it matter?

3. After converting the Roth IRA LLC to a Roth IRA series LLC, how would you handle the management of the rentals? One series for the "management" series?

Feel free to offer any guidance you see fit.