All Forum Posts by: Ryan Webber

Dawave, your exit strategy is always the most important aspect of a deal. Before you buy, have a thorough plan of what you are going to do with that property, and how it fits into your investment strategy. I would also recommend having a back up plan if your first one falls apart, and a back up to your back up plan. Eventually something will go very differently on a deal than you are expecting, and its good to have some ideas of what you will do when it does.

In reference to my personal "magic" formula for rentals, it is 2% of sales price should be the monthly rents, or taking it from the other side, I am looking for a monthly Gross Rent Multiplier (GRM) of 50, or more commonly expressed as an annual GRM of 4.2. A GRM is an appraisal tool that is found by taking the price divided by the annual income. I use a monthly GRM to quickly determine if a rental deal makes sense. I take the monthly rents minus utilities multiplied by 50, and that should be the most I am buying it for. If it hits my initial monthly GRM calculation then I will take the numbers and crunch them through an actual income/expense statement.

Now whether a monthly GRM of 50 is feasible in your market or not is a whole different issue. In some markets it just isn't feasible, and in some markets initially it seems unfeasible but the deals really are there for someone hungry enough to find them (as in my market). Either way using a GRM to prequalify rental deals is a quick and effective way of being efficient in looking for deals.

Now as one of your "take aways" accurately stated, if your primary exit strategy is long term rentals then reaching your rental numbers is definitely more of a priority than buying at a discount. Not that buying at a discount is a bad thing at all, but it should shift on your priorities list. And if your rental numbers are aggressive enough, you will naturally be buying at a discount when something hits your numbers. Everytime I have bought something at my rental numbers, it has been bought at a strong discount from fair market value.

Exit strategies for beginners? Well, that would depend on a couple different factors. Starting capital, future capital, time capabilities, financing capabilities, risk tolerance, and investment goals. If you wanted to go into some of those factors more for your personal situation, then I could probably help focus your strategies more.

As for how I got started and grew. Starting out my business partner and I had under $10,000 to start with, but we had some capabilities to carry construction costs (via my partner’s small construction company). I had little future capital capabilities, but I could just about commit 100% of my time. I had fairly good credit, but didn't have the capital to do conventional financing for many deals. My initial goals centered around developing my passive income to a point that I could live comfortably ($4,000 per month) without having to work much (less than 40 hours a week) and without having to work for someone else. My partner and I decided to focus on rehabs to build capital to fund rentals. We focused my deals through hard money lenders because of our low capital. We bought a duplex for rental purposes with about a $1,000 out of pocket, and then we started doing rehabs (fix up and resell) to build up capital to fund more rentals.

We sucked at rehabs initially and didn't make much money at all on them, but we learned and began buying more rentals in the meantime. After a handful of deals (four rehabs and 6 rental units) and about 18 months, we came across an opportunity to buy a 16 unit apartment rehab project. Initially our exit strategy for the apartment building was to fix it up and hold for rental income. In the meantime of buying it, I was stumbling into wholesaling houses. We ended up funding 90% of the apartment rehab with wholesaling houses. By the time we had completed the apartment project I found out that it was worth twice what we bought it for. We sold it, and bought 3 more apartment buildings, all the while taking the wholesaling business to a whole new level. We are now shifting our portfolio towards carrying notes and hard money lending, and we continue to wholesale and rehab houses.

Yunghova, in reference to your question about 80% ARV, depending on your exit strategy, buying at 80% of ARV is normally very risky. I would recommend buying at 70% of ARV minus repairs unless you have a low-equity exit strategy such as lease optioning, carrying the note, or long term rental.

I'm in Texas also, and I'm just not feeling you on this one. I haven't seen any increases in insurance or property taxes in the last four years of my investing, and my rentals have done very well.

Now don't get me wrong, I am moving a good amount of my portfolio towards carrying notes but not because I'm not making money on my rentals. It's because of the hassles. I've grown to a point that I am looking to streamline my business, and its worth giving up my equity for the consistent low hassle payment.

Remember, also, one of the major downsides of carrying notes is that your equity will only decrease from that point on. In 10 years if that property has appreciated 5-10% a year, that new equity is not yours. Your profit potential, THEIR balance, was frozen at purchase and will only decrease in the meantime. If you hold a rental for 10 years, that equity is yours, and YOUR balance owed has decreased in the meantime, which increases your profit potential on the property. All the while you were making money on the rents.

There are several advantages and disadvantages to both sides, and weighing those for your personal investment goals is important.

Also in reference to the specific deal, I wouldn't necessarily agree with All Cash that financing the deal is suicidal. For me personally the numbers are kind of tight, but if after all your expenses (including maintenance and vacancy) you could expect to make atleast $100 per unit, then I don't think its all that bad a deal for that low of an investment.

Reasonably for most beginners, you will have to start small and work up to bigger and better deals. Something like a small, low risk, rental is a good safe place to start that will help you get comfortable with investing. Self doubts and apprehension are perfectly normal on your first couple deals, but remember to trust your numbers not your emotions. As you move onto the bigger and better deals each new investment level will bring those apprehensive feelings back in different degrees, but you will be building on the confidence that you built from your prior deals and your prior ability to work through and manage your apprehension. It's a process. Be patient and be diligent, and you will build the confidence that you search for.

What did YOU learn about it? Didn't you have a meeting about it? I've heard its a network marketing based real estate investment education business. That's a mouthful. lol.

So what's the program?

:lol:

That's a good name, Ryan. I like it.

Welcome to the forum.

Echoing Wes, some of the past postings can give you a real head start on your knowledge quest. There is so much to learn in this business, and you can learn a ton of it right here. If you need any of the gaps filled in, feel free to post your questions, and you will normally get a ton of insight and advice.

Happy reading. :D

I don't tip. I give repeat business. Tipping in my neck of the woods is only done for waiters or waitresses anyway.

I've seen a couple companies like that. Normally they are a network marketing company that specialize in selling education materials for real estate investing. I have not looked enough into them to determine the usefulness of their materials or the soundness of their companies.

For me personally, though I am sure that there is money to made in network marketing especially around real estate investing, I am making a very respectable income doing what I am doing, and I love it.

I would recommend with any possible business opportunity that you get all the facts you can without giving a dime and then weigh the risk/reward factor. Don't be fooled by anyone selling you the "magic potion" of any business opportunity. Building a successful business in any field will take YEARS of diligence and effort. That's the truth for a real estate investment business, a network marketing business, or any business.

A 1031 tax deferral exchange can defer payment of capital gains tax until you sell the other property. There are some particulars that you have to follow to qualify. If I remember correctly the property you exchange it into has to have equal or greater debt and equal or greater equity, meaning you have to have a loan on the property for atleast as much as you had on the first.

I seem to remember seeing a recent member who specializes in them. Wexeter. You might try to PM him to get details.

Ohhhhh, Hawaii is tempting, but I'm going to have to pass. I am expanding my business into some different areas right now and the next year or so is going to be crucial to its success. I appreciate the thought, though. I might have to take you up on that down the road.

On a business note, I would start looking for hard money lenders AND start making offers. If you get an offer accepted before you have your financing set up, you can look at wholesaling it to another investor before you close. Just make sure you provide yourself an out in any contract you get accepted. That will allow you to walk away if things don't work out for you.

We appreciate you sharing your post, Tony. :D

Dawave, it sounds like you might be looking at a "war zone" area, which I would recommend staying away from. If houses aren't selling at all in that area, then there is a reason. There is one area in my city that I will not buy in. I know that most investors won't buy there, and the retail market there is non-existent. Now right above war zones are blue collar, working class, lower end areas that can be a gold mine for investors.

In reference to your 80% of market value question, I would agree. Unless your market is highly appreciating and/or you have a low equity exit strategy (i.e. lease option, owner carry, or long term rental), buying a property for even 80% of After Repaired Value (ARV) is risky.

The main factor to think about is your exit strategy. If you were looking to rehab and resell, then after factoring in closing costs to buy and sell, financing costs, holding costs, and realtor/advertizings costs, you would already be sitting at 12-18% of ARV. So buying a property at 80% of ARV that needs lets say only 5% in remodeling is only going to make you a very expensive hobby.

Now if your strategy is long term rentals, like it sounds, then I would determine my rental number requirements and go off of those, with buying at a discount as a secondary priority. Remember that there are more factors than just what something can rent for. The appeal of the area will determine your vacancy rate and how well you can screen your tenants. If the area has an extremely low appeal (war zone) then you will be dealing with tenants that won't pay on time, won't take care of the property, and will leave on a moment's notice. So it may rent out for $450 per month, but you will have 20-30% vacancy and you will have to remodel the entire house every time a tenant moves out (probably every 6 months or less).

The beauty of lower end (not war zones) is that it balances ROI on rent numbers and tenant quality. You will always make a better rental ROI on lower end properties versus higher end, but you have to sacrifice tenant quality on the way down. Those working class areas provide a good balance between the two.

Buying a lower end property where you are barely cash flowing, obviously, is not a good investment startegy for the long term. If you are looking to buy a property that is not adequately cash flowing, you will need to make sure that you have a different exit strategy than buy, hold, and pray (that's my strategy with stocks, lol). I would only recommend buying a low or non-cash flowing property if my exit strategy included reselling or atleast refinancing to create more capital (as in a high appreciating area) or maybe if the current rents were drastically under market rents and could be raised.

In reference to your $30K per house and rents for $450 being a deal, I would have to say that completely depends on your market. In my market, I wouldn't touch a lower end $30K house unless I could rent it for atleast $600 per month. If a property is already rented for $450, I would be looking to pay $22K at most for it. I have a duplex that I bought for $36K and each side rents for $425, but in my market that's a deal. Each market is different.