All Forum Posts by: Sonny Dhillon

What is it costing per sq ft there in Texas currently to to a full build out minus the land? I was just quoted ballpark on a 10k building 1.2 to 1.3 mill just a shell mostly with only 2 bathrooms.

Hi @Ramtin Roghani, Lite Industrial is in heavy demand and great investment considering lower construction cost. As @Paul Moore mentioned Lite industrial / flex building is great investment. we are building one in DFW metro and it is quick process to build too.

I think I am going to move to REI Hub. It does have a cost, but not as much as Quickbooks and it still has a Real Estate focus. I also like that you can setup your own account structure which Stessa was lacking. The only issue I am having right now on REI Hub is with importing a property management statement. However, the ability to setup my accounts and correctly account for things is outweighing.

It's really incredible to think that, despite all the market knowledge and experience in real estate investing, no one was able to predict a major crash coming. It's almost as if those who acquired $100 million assets were blindsided by the downturn while we outside of the industry could clearly see it from afar. And yet, even with months or years to find a solution, these people are still struggling to get back on their feet. It is for this reason that it is so important for real estate investors to stay informed about what's going on in the market and look out for potential risks ahead of time. This way, they can be better prepared for any unexpected turns that may come their way in the future.

100%.    I don't see an "opportunity" playing out in this as many are having knee-jerk reaction to of an '08' style event. I don't know why that's where minds automatically go at any turmoil. 

If one could throw together a fund, maybe get a few billion together, now you got something, striking out to provide some form of bridge finance too commercial operators. Most commercial properties facing this "credit crunch" are good operating properties, I think people miss this fact. It's not all just vacant office spaces. 

And for that vacant office space, say a 150k sqft high-rise, those could potentially be converted into say residential units. Or more of a mixed use type structure. I am betting many are waiting on incentives to do such, some tax-credit for conversion funding of what-not. 

FYI for those not in the know; at big $ / development level when we say "tax-credits" it's not a write-off for the developer, it's a funding channel system long used by the government to provide supplemental funding for developers. They issues "tax-credits" that are then sold for $, thus limiting the investment requirement by the developer.    

Industrial is where my money goes. Plenty of mom and pop sellers, all my stuff is 5 year fixed debt. 

@Gino Barbaro - I have been in commercial for 10+ years and started with a $230k mixed use building and built up over the last decade. I started small in each asset class and learned from making a lot of mistakes. I am not advocating over leveraging or even risking other peoples money. I have always been an advocate of start within your comfort zone. The one thing I advocate to all that I mentor is to stress test deals. How much additional vacancy and rent decreases can the deal handle? It seems that some in the MF world believed the arrow always goes up and to the right. There is no doubt that a syndication bubble has been brewing for years. The fact that I hear, "we never exptected the fed to raise rates" is shocking. I think the MF space is overcrowded and it has become too easy to become a MF syndicator and put other peoples money at risk. People were bragging about OPM as if it was a badge of honor vs. the highest level of responsibility. We are seeing the fallout with paused prefs and capital calls and I think MF has a lot more carnage on the horizon. Don't get me wrong, CRE will certainly take a hit but when we buy value add at 18% coc, we have the wiggle room to absorb economic headwinds. Respectfully - Ash

 Nothing wrong at all.  Right now I think that looks like my best option.

Hello all, 

I am a partner of a real estate investor group working out of Oklahoma City. We have a 5 (or less) year goal of hitting $50k/Month in passive income, via property cash flow. I am trying to map out a reasonable/practical strategy for achieving this goal. Here are my thoughts. 

1) In order to scale quickly in the beginning, without leaving a bunch of money in our properties, we are using the BRRRR method. We have been purchasing homes at the $50k mark, investing around $40k in rehab, and cash-out-refinancing at an ARV of roughly $145k, taking out 75% to pay off debts. With this, we break even on the refinance and end up with no money left in the property. In these scenarios, we still have 25% equity in the property and it cashflows. This is great, however, cash flow is roughly $200 for these properties (when we calculate actual cashflow, including cap-ex, vacancy, repairs, etc.) Considering our goal, we would need to do this 250 times. This vehicle/style of aquisition is working nicely for our short term goal but its fails to deliver on our long term goal, most likely due to the 5 year (self imposed) time constraint. That would be a lot of properties to process in that relatively short amount of time. Doing so would require more infrastructure and thus, more expenses, etc.

2) In light of this, it seems obvious to me that commercial properties are the most practical way to hit such a high level of monthly cashflow. Not that you couldn't simply BRRRR/purchase 250 SFH.. but that is a lot of property and comes with its own risks and difficulties. So, the long term goal must be apartments (assuming we want to stay in the residential/rental lane.) I can imagine owning 5 50 unit properties.. or something like that. Assuming these properties also cashflow at a rate of $200/door/month we would hit out goal. But, how would we purchase these expensive properties?

3) I am thinking the best way to purchase those may be by leveraging the equity in our BRRRR SFHs. Example: We continue to BRRRR properties for a year or 2. Perhaps we accumulate around 25-30 of these (at our current pace, this is very reasonable.) We save all of the cashflow along the way. We pair that cashflow with a bunch of refinancing OR dispositions in order to pull the equity out of our SFHs and move it over to a down payment on an apartment. Basically, we leverage the equity in our SFHs to invest in commercial properties - making our BRRRR strategy on SFHs an equity game.. and our commercial apartment strategy the actual cashflow mechanism.

Of course, we could just skip #1 (the SFHs) and start with purchasing apartments in the first place. Maybe even a BRRRR apartment.. and this is not off the table. But those deals are much more rare and financing is more difficult for us. So, I do not want to bank on that. We will take it if we find it (and can manage to pull the deal together) but I dont want to rely/hope that we will find such a deal.

These are all just thoughts on how to get to $50k/month in cashflow, for a group of particularly determined individuals, in 3-5 years time. I am posting here for feedback. Tell me what you think. Do you see another path? Has anyone here achieved such results? I am looking forward to picking this apart. 

@Bob Vollmer

a.  Do you plan to do more Self Storage?  If not, don't do this deal.  If you do, then the learning part of this is worth it, if the numbers come close.

b.  Market strength- Someone has to be the low-cost provider.  Thats your strength in this market.  Do a rent rate analysis on the 80 10x10's.  Don't worry about the other sizes, you don't have that many.  Even with your future rate hikes are you still the low-cost provider by say $20/$40 per month?  You're not competing against the other new locations.  6,000 people, this is a market of around 400 units; Count the number of units existing.  Are there lots of people outside the town?

c.  Financials:  Change these figures to boots on the ground.

Rent-  $62,000 per year, don't use your "improved" numbers.

Insurance- $2,500

Prop tax- $5,000

Maint.- $3,000

Electric- add.  $2,000

Camera and alarm system- $500 per year, about $25,000 up front to install.

Gate and fence- don't do, tear out the old fence and do something that looks good. $0 per year.

Management- you, do you live local.

Water/fire hydrant- don't do.

Old portables- either 20 foot cargo containers for $4,500 each if available, or $7,000 for 8 x 20 portable metal. No property taxes, permits, or fire hydrant.

Depreciation expense- do as much year one write-off to get up front cash flow, from reduced taxes.

P/I at $2,500 per month at say 5% interest = $2,625 per month times 12 = $31,500 per year.

Income taxes= $?????

After all of the costs above, depreciation- then add back for cash, income taxes, interest expense; let's say cash flow of $45,000.

Less P/I of $31,500 per year.  Keep in mind each $2,500 you pay in each month, your building equity.

Net cash flow of say $13,000 per year.

Is this a good deal?

No-  $550,000 less $75,000 down.  $2,500 per month would be about a 16 year payback.  Better than most investments but not within our parameter of 8 to 12 years.  Now take the $2,500 per month, add in the additional Cash flow of $13,000 per year, for a potential payment of $33,000 per year; then a payback of $550-$75/$33= 14.39 years.   

Yes- Still not where I like, but you are building equity in a market where stocks and bond don't look good and fighting for SFH/MFH deals is hard and you need appreciation as your goal. Most importantly though, back to my first question, are you going to do more than one deal? Then the learning will be worth it.

The Deal:

a.  This is off the market.  Lock down the deal.  Make an offer, with a due diligence period of 45 days.  Put down a redeemable deposit of $10,000 to lock the deal down.

b.  Lock down the rent roll first.  Do the rate comparison on the 10 x 10's next.  Make sure you will be far enough under market to attract the Cost Conscious.

c.  Offer Starting point- three-day offer, Total of $530,000; $75,000 down, 5% interest, 5-year balloon, with $2,000 per month principal payment plus interest, $100,000 noncompete agreement as part of the $530,000; Everything is negotiable, explain that to them.  I would start with the overall number that works for you, then work your way up.  IE change the $530,000 as needed.

d.  Break the offer down as follows, do an asset purchase and not a company purchase:  This will help support a Cost segregation for tax purposes.  This is the last year you can do 100%.

- $100,000 Noncompete agreement- 15 year amort life, thus you can write off in year one for tax cash flow, loss carryforward if not used.

- $200,000 Concrete pad structures- keep as much away from this as possible since longer depreciation

- $100,000 portable buildings- based on conditions, do 15 year life and write off.

- $20,000 roads- 15 year life or less write-off

- $10,000 fence- 15 year life or less, write-off

- $100,000 land- keep as low as possible since you can't depreciate.

Talk with your Tax person and see if you can do year one tax write-off.  You're a real estate agent?  Ask them about your professional standing.

Keep a little cash on the side for repairs.  a.  Doors, b.  Road, c.  Paint, d.  Roof overlay.

If there is a lot more demand and this is in a great location, use it as your advertising.  Then find a spot out of sight you can send people to.

Calculate your Failure:

Do a few Failure scenarios.  Then determine if this is acceptable.  Most people never invest, not because of the profit or success potential, but because of the boogey man or failure and they don't wrap their arms around it.  Failure can still be positive cash flow, just not as good as you projected.  But at least you started down the road.

Start small and Make Your Big Mistakes Early.