All Forum Posts by: Sam Bates

@Michael Sawers I agree with the other guys that you need everything in writing and I'd recommend an LLC. I did a deal with my brother and we kept everything professional and so far we have had zero issues.

It is up to you how much you want to split the percentage of ownership. I did my partnership 50/50 because my brother's name was on the loan and he paid half of the associated costs for the project. In your case, since you are investing all the money you might want to take a larger percentage. You could also treat your brother essentially as a property manager and pay him a percentage of the leases and a monthly fee for managing the property.  

You will also need to take into consideration the repairs and maintenance that goes along with the house. What is the percentage of R&M you pay versus what he pays. Over the tenure of you owning the house the R&M could be a significant expense. This should be written out in the operating agreement. 

@Mike Mefferd to echo what some have said I would get a securities attorney to create you a PPM, operating agreement and LLC's. We create two LLC's for each property we purchase or develop. The property goes into the first LLC then we have a managed member LLC. The investors deposit their funds directly into the LLC the property is in.

I believe the structure should be deal specific and it should benefit both you and your investors.  I want to build long term relationships with our investors so we usually split the deal 80/20. Many syndicators will charge an acquisition fee that gets paid when the deal closes and a capital transaction fee paid out on the back end of the deal. You can also collect an asset management fee for managing the asset. If you start putting in a lot of fees or taking more and more of the deal people could become apprehensive to invest with you because they feel like they are getting nickeled and dimed. 

For the pref question I'd typically advise against it unless you are doing a large deal. $20MM and above. We are working on a large development project now and this will be our first pref. The only reason we're instituting a pref is there are a lot of upfront development fees that we do not want to carry ourselves. 

You asked about repairs, I would recommend putting together an extensive capex budget and either having the loan cover the repairs or raise additional funds to cover the repairs. A potentially big mistake is thinking that your operating income will cover your expenses. Especially, if you start doing distributions your investors will become accustomed to the distributions then they stop for a couple quarters to pay for repairs the investors could get frustrated with you. 

As far as distributions. This will be up to you and investors. Once you have consistent cash flow with minimal repairs I'd recommend every quarter. Before you get to cash flowing on a normal bases I'd try to push off all distribution so you don't have to have a cash call down the road. The only distribution I'd recommend before you are consistently cash flowing is if the property has realized income then I'd do a distribution to cover the investor's tax liability.

Hi Tisha,

Can you send me all the details you have?

Thanks,
Sam

@Shalante Davis I've only used local hard money lenders in the Dallas area. I haven't used a HML since 2011 or 2012, but I know there a lot of national companies that are good with reasonable rates.

@Shalante Davis I've used multiple hard money lenders for past projects and these terms are better then any I've seen. The only thing I would questions is ARV at 65%. Many will lend up to 70 to 75%. Some HML have maximum ARV percentages that they lend on so lenders in MD could be capped at 65%. If the 65% is an issue for you I'd do more research to see what other HML are giving in the area.

@Darius LipseyThere are many ways you can add value to multifamily, but I would need more information to give you the best plan to implement. However, one of the easiest ways is to update the units and increase rent. You mentioned it is a C class property in a B area. I would think be upgrading the units you could increase rent. You mention the tenants are low quality. Why are they low quality if they have been paying consistently? Typically, when I inherit a property I’d rather put my own tenants in the property because I know my screening process. If you renovate the property and the tenants can’t stay because the rent is too high it could save you future headaches.

Again, I don't know all the details, but if the property cash flows after all expenses (capex, maintenance, PITI, property management, etc) are taken into consideration I wouldn't consider it super risky. The two concerns I would have is if you feel like rents are softening or will soften in your area and can't cash flow with lower rents. The second concern is not being under capitalized and not having either reserves or capex built into your budget. When this happens you have to take the cash flow and use it for R&M or capex and this kills your return.

@Mike Quinn That is somewhat of difficult question to answer because each property is different in terms of size, cost, location, etc. For commercial or multifamily properties the value is derived from the net operating income a property produces (cash flow) and the cap rate of the property/area/class of property. We base our asking price on these factors.

The last property we sold was for $2.235MM. The next property we are looking to sell we hope to get around $8MM for the deal. We are going to start construction on an apartment later this year that will cost roughly $23MM to build so we anticipate the sales price to be over $30MM. We have also sold properties for a few hundred thousand so the price is deal dependent. I know this is a vague answer, but I hope it satisfies your question. 

@Mike Quinn, 
Welcome to the BP community and you have made a wise decision to invest in real estate.

Single family rentals can be a great way to invest in real estate. I started out with SFRs and then moved to flips and now I invest in multifamily, hotels, and commercial real estate.

Since the Texas economy is on fire, rental rates have increased, but housing prices have also increased dramatically making it difficult to find great deals. This is one reason I’ve switched to multifamily/commercial assets. There is less competition with multifamily and these assets create economies of scale that SFRs cannot provide.

My company has developed multiple apartment complexes and commercial buildings throughout the state of Texas. If you are interested I would love to discuss our current invest opportunities. The last property we built and sold provided a 41% ROI to our investors in 14 months.

If you want to stay with single family rentals I can provide you some name of great property managers/turnkey providers that can help you find properties in TX.

Sincerely,

Sam Bates 

I understand it is a tough decision and can be a time consuming decision to come to a conclusion. It is always personal preference and my pro/con list might not indicate this, but when I went to self-employed my life changed dramatically for the better. I feel like I can make an impact on this world much more than I ever could being an employee of a company. For me, money isn't everything and I believe I can do much more with the time I've now gained than I could when I was working consistently 60 plus or more hours a week. 

Pros

• I fill fulfilled and fill like I am completing one of my purposes in life. 
  • I'm able to create jobs for people that might would not have the same job if my companies didn't exist. 
  • Helping passive investors save for retirement and better futures. I am confident my real estate investments will perform better than any savings instrument and or stock/mutual fund over a long period of time.
  • I am improving the community that I live in by either renovating dilapidated houses or building new homes/commercial property.
• Flexibility to focus strictly on real estate when I need to and have ability to take off for important events with family friends.
• I do not have any kids yet, but I get to spend a lot more quality time with my wife and when we have kids I will get to build into them more than I could ever imagine with a W2 job.   
• Volunteer and give back more than I ever had the opportunity with my W2 job.
  

Cons

• I didn't think I would get stir crazy or claustrophobic by working from home, but it is completely different than an office environment. Some days I have to go and work in a public place to get fresh air and interact with more people than just my wife or people I have phone calls & text with.
• Pressure to produce. This is a great thing as well, but it can be stressful from going to a consistent pay check every two weeks to only my passive investments providing monthly income. 
• Health care - Health care is obviously much more costly when you are not working for a corporation. We changed from a wonderful employer sponsored plan to a high deductible plan.

@Linda Young This is personal preference and depends on the flip (sales price, neighborhood, profit of deal, etc.) I would recommend new appliances on almost all flips because they will help the property sell quicker plus it's another wow piece to your deal. However, if it is a lower end property and the comps do not support new appliances it might not be necessary.