All Forum Posts by: Samir Shahani

I agree with you 100%. MFHs may do the trick even faster and provide many other pros including less volatility on the ability to service  debt, etc. 

 For the sake of simplicity I used SFHs. My post was long enough , I didn’t want to have to tier everything out.  

In real life , I do plan to enter into the MFH market in the near future.

@Michael Plante

Great point of conversation - "we each pick our own poison." My main point in my initial post was, very simply, to have a plan.   If your plan of flipping homes leads you to your "Critical Mass" point, then by all means execute on your vision vigorously.  My "Critical Mass" plan is strictly buy-and-hold and I have been able to create a plan on paper which allows me to obtain that goal. 

Just to clarify, I do not have enough income from real estate alone to scale into 117 units (and just to clarify even further, I do not plan to stop at 117!) The initial money to get the train moving is coming from our W2 jobs, we have a good start already and are trucking away to the goal(s).

Best,

Samir

@Michael Plante

Thank you for your response! 

I certainly understand and appreciate your lack of desire to want to close on a house per month.   I think that this is a very lofty goal and certainly should not be desired for everyone.

For me - its the "business home runs" that make tick.  Certainly, in my example, unless your lifestyle is obscene, 41k a month more than covers it several times over.  In that case, its not about money, its about "Business Home Runs"

As far as your question, no I have far less than 117 homes.  But we have a plan to get there in the not too distant future ... my next post will detail my plan , just thought I should leave something to desire on that front before I dive in :) 

Hi Everyone! Happy Friday (that has different meanings to different people!! :) )  Thought I would post a thought provoking post to solicit a lot of response ... let me know what you think!

For those of you who have read any of my posts,  I tend to play both sides of the investment field.  

On one side I am an active real estate investor with experience and (knock-on-wood) some nice properties. 

On the other side I appreciate the fact that I have a lot to learn.  And even the things I do know may be incorrect.   

I find that that combination of "I think I know what I know" and "I don't know what I don't know" is really helpful in life [and investments in particular].   Its particularly helpful in the spectrum/view point of questioning your ideas and learning new things.  Keeping your mind open is one of the best practices in life.

Having said that, I find myself always questioning interesting points and theorizing on real estate success. I know that there is a huge population of Buy-and-Hold SFH and MFH investors on here.

For those people - here's a great question that I'm sure many Bigger Pocket's members would like to answer:

What is the right number [amount of houses] to hit critical mass? 

e.g.  I define critical mass as: "Enough free cash flow to handle all my financial needs in life, create abundance, AND be able to actively expand my business or invest in new ideas as I see fit."

This is critical mass.  This is the point which you have it all ... freedom, time, money, and a growing business.   

Critical mass is the true American Dream. 

My personal formula for critical mass is: 

My lifestyle overhead (variable for everyone) + 1 SFH deal per month = Critical Mass

This basically means, if I can cover all my expenses and planned expenses in life & have the OPTION to buy 1 SFH home per month, I would consider that critical mass for myself.

What is your personal formula?

Onto the nitty gritty ... 

So, how do I achieve critical mass? 

Step 1: First part of the equation

FIND OUT HOW MUCH YOU SPEND + WHAT IS REQUIRED IN YOUR LIFE, FINANCIALLY = LIFESTYLE OVERHEAD

Create a spreadsheet and systematically track every dollar you spend. 

Do not change change your lifestyle, do not hide things.  Just track your expenses on EVERYTHING.

At the end of several months you will know your outflow on average.  Add a safety factor. 

My safety factor is 100%.  (e.g. if I track 3k a month expenses, I keep a 100% reserve (6k) in my calculation). 

I know I spend less now then I will later in life (this also depends on you personally and your stage in life, what you hope to accomplish, etc)  And also, life changes a LOT.  You have to account for variable expenses - it will happen!

Its going to be different for everyone, just be honest with yourself.

If you know your Lifestyle Overhead, you are almost there.  The next part is simple!

Step 2: Second part of the equation

1 SFH per month - this is my definition of what I want my job to be, this is separate from my personal life.

This is easy to calculate. On average, you require 30-35k to close on a SFH home in my area.

Call it 35k.  

Step 3: Find the Critical Mass Number:

Lifestyle Overhead + 1 SFH per month = Critical Mass

I used 6k in my example above as the required monthly amount to make all my ends meet.  

1 SFH per month requires 35k per month as described above. So, plug it into the formula:

6k lifestyle + 35k investing= 41k/month

Now, let's break it down further...

Step 4:

In the long run, if I know that I can cash flow ~$350/month for each property after all expenses, overheads, etc. 

(Check the logic: $350*12mo = $4200/yr. $4200/yr / $35,000 investment = 12% COC return - 12% is achievable if you know what your doing. )

Then you quite simply need to divide the total required income by the monthly house income to determine how many houses you need:

$41,000/ monthly income / 350/mo/house = 117 SFH's

I imagine your reaction is something like this:

"Okay. Great. You're telling me I need 41k a month to make it all happen and that equals 117 homes. Lol, you're crazy. I don't even make a fraction of that now, I only own a couple homes now. You wasted my time and that doesn't help me at all? Right? "

My response: you are WRONG!

Now you have a vision. This is a key element in your investment plan. A very specific goal which makes sense. There was effort and thought put into it. You have real data on your requirements in life and you have real data on what is required to grow your business. 

In my case, my example, that is a big number.  For sure.  But my goal was enormous in the first place - closing 1 deal per month.  

In that situation, after year 1, I would have 129 homes.  

The goal is very big for starters, but I implore you to plug into my example the requirements of only doing 1 deal every 3 months or 6 months, you will notice the amount of money required and amount of houses required greatly reduces in that case. 

My next post will be an action plan to obtain 117 homes to meet my goals described above.  ITS NOT AS HARD AS YOU THINK !!!

Have a nice weekend :) 

Samir Shahani

Hi Everyone, 

So, I'm a SFH investor in the Eastern PA area. We have a couple properties in LLC's and we are ready to scale up...

... we cleaned up the balance sheet, we cut down our expenses, we improved our credit, we saved money for a down payment, we found the [great] deal, we made the offer, we got the contract ...

...now we need a good banking partner to give us 75% LTV or 80% LTV (I would take more :) ) 25yr amm. (I would take 30yr amm :) ) and allow us to rent it out...

This is where problems start, after discussing our prospects, plans, future with several banks here are some highlights:

-We ran into bankers who want a tenant in place before we buy the house (the good deals come when the owner moves out imo!!) (Mr. banker I can't show a property I don't own!)

-Some who say no bank will fix rates for more than 5 years (c'mon, banks close on 30yr fixed all day)

-Insane interest rates (9%+ in some cases)

-20 yr amortization (so common, what happened to 25yr??? God forbid 30yr???)

-Closing costs upwards of 7k on a 110k property (hahaha)

-Moores law basically existed in the last several days with each of these conversations

Has anyone run into this mayhem? I thought it was the banks job to close loans to good customers?

We have an existing business, superb prospects, and a good plan. Why can't I get a good loan?? 

Would love to hear your advice and stories of the same .....

Samir Shahani 

I think you need to be objective in your investments to handle downturns.  

With regards to SFHs:

For cash flow:

If you buy a SFH with a large margin of error and if it is conservatively financed you should be able to reduce rents and still make a profit in downturns. Just like any business, if you're inundated with debt, the downturn will end you.

For appreciation/market value of the home:

You only realize the loss if you sell the home.  Ride out the wave.   

The great Li Ka-Shing stated (not verbatim): "... when people are thinking of rapid expansion, you should be thinking of stability.  when people are thinking of stability, you should be thinking of rapid expansion" 

In any business, always, always, always, always manage your cash flow and you will survive :)

Separately, with regards to all of your questions, you need to harness your own niche and capitalize on it.   This is how you succeed in any downturn and "pad" yourself for all conditions.

@Kiley N.

100% hands on for acquisitions .. :) 

@Navid A.

My bank asks me to back the loans .. With that setup, the mortgage, insurance, leases, everything is in the name of the LLC w/ me personally as co-signer on the loan in case the business defaults. I don't know if this is even worth setting up. But I know and have heard that if you want to go from personal -> LLC then you have to redo a mortgage (due on sale clause), also some banks won't approve the quit claim deed as a form of transfer; so it probably behooves you to do it this way first if you are ever planning on it.

But at the end of the day @Anthony Dooley is more or less correct; so just forming an LLC and holding properties in that name serves very little protection ...

Great question @Kiley N., and I'm sure you will get a lot of very interesting responses.  Just to interpret a little bit on your question,  I am assuming you are referring to the old Paretto rule that says 20% of your efforts yield 80% of the results.  And if you are trying to maximize spending time on value add; then it makes sense to maximize or focus on that "20%".

Also, before answering that question, you probably have to define your goals...

E.g. for a buy and hold investor who wants to build a 500 unit portfolio the time spent in certain areas may differ than a person who has a short term goal of flipping 12 properties this year.

I can speak on behalf of a buy and hold investor; my greatest value is spent finding high quality properties that fit my criteria at the right price.  The longer I spend time doing that, the more value I generate for myself/my business.  Of course, avoiding "analysis paralysis" is important, but I don't seem to suffer from that .. :) 

@Bab Adetiba

575k / 26 units = 22k a unit; and you are expecting 29% COC? WOW

I think you should reread the post by @Nick B.

Your analysis should take into account a lot more factors.  Maybe consider reading also some of the forum posts and blog posts on Bigger Pockets about Multifamily deal analysis.

Just to echo a couple points, I would strongly suggest re-looking at your income (rental per unit) and the total overhead you need to carry to manage and maintain a 26 unit property.  That isn't a small undertaking.

Have you seen the units with your own eyes? Do they need a lot of fixing? Are they renting at the appropriate prices for the neighborhood? Just from a first glance point of view, it all seems completely unrealistic. 

Sorry for the potentially discouraging words, I just don't want you to enter into something without all the facts...