All Forum Posts by: Travis Beehler

 I think that boils down to your comfort level.  If you want to start buying with cash and avoid loans altogether, that's an ok route to take, but the disadvantage is of course, you are slower to grow.  But, on the flip side, you don't have a monthly mortgage, and can last much longer without a tenant financially.

Personally, my comfort level is to have commercial loans on smaller (1000-1500sq ft) single family homes.  That seems to be an area that works best for me and my situation (Cash flow is MUCH more important than appreciation).  Some people are more comfortable buying multi family apartment buildings in trendy neighborhoods.

It's all about finding what works best for you. What are your goals, what are your comfort levels, how fast do you want to grow, and what's your ideal amount and type of properties?  Once you answer all those, then you'll get a clearer picture of how to make it happen.

Also, you're absolutely right.  Excel can tell you numbers, but it can't tell you strategy, or how to learn from your mistakes.  I've made a few and while I've managed to make it out ok, they have been a wee bit costly to me.

But keep at it, and eventually you'll get to where you want to be! :)

Travis

 Ah that makes sense.  I think people are right though, in that with a commercial loan, you do get a few advantages with them.  Check out your lenders in your area, and see how you can leverage "other people's money" as we call it. :)  No sense in spending $60k on a property and making say $500 a month, when you can finance a property, make $400 a month, and only be out say 15-20k.  You'd be able to buy 3x as many properties for the same amount of money than you would be with buying 1 with full cash.  Then, you make more money per month, AND you get appreciation of the property, AND you get to deduct all that nice interest off your taxes. :)  Your mileage may vary of course. :)

I would also HIGHLY recommend you make Microsoft Excel your friend.  I have a really nice spreadsheet that I made based upon another user's work, and it helped me figure out right away if a property was worth it or not when buying, and it gave me a quick net return results when I popped in the numbers.  I'd be happy to share it with you or anyone else on here.  Just message me if you'd like it and I'll happily send you a dropbox link.

Travis

 I'm with Jerry,

How did you get 30 units in a year?  I'm also curious about how you got 30 year loans?  I do all my financing via commercial lenders, and they are only 20 year lenders.

Also, just to be a teasing jerk, it's "strike when the iron is hot", not the anvil.  Ha!

Travis

 So far it's worked for me! :)  However, I will give you a couple of tips that no one told me: 

Don't be afraid to work outside your normal area.  The places I've bought recently I haven't set foot in.  I relied on inspection reports, photographs, emails, skype, etc.  I didn't see the need of myself walking through a place, when I can see what a neighborhood looks like with a virtual tour through Google Maps' street view.  The two places I've bought are about 2,000 miles from me.  That being said, it is CRITICAL that you find a solid property manager, realtor, and bank.  My first pm doesn't communicate on the level I like, and I had to find out that a tenant was going to be late on the rent by asking how things were going.  If a tenant is going to be late with the rent, I want to know the minute that the PM knows.  The second PM I have keeps me posted about everything, so I'm likely going to transfer my first place into his care after the first lease is up.

You will likely have to travel to the city where the bank is located, just to meet with the bank folks.  I did almost all my work through email, fax, etc, but the bank manager wanted to meet me in person to make sure he knew I was a "real person".  Totally understandable on his end, but it did add a flight, rental car, and a lost weekend of time on my end that I wasn't expecting.

Ask a few questions you might not normally think about.  Is this on a 100 year flood plain?  Does this require city inspections?  etc.  I got bit by both of those questions.  I knew it was on a "flood plain", but I didn't pay much attention to that aspect, until after I bought the place and was required to have flood insurance.  "How much could that possibly be really"? I thought.  $1,000 a year.  Almost $100 a month out of my pocket in profit.  Really pissed me off. :)  But, lesson learned.  It's the first question I ask when looking at a new place, and if it is, I move onto the next place.

The reason I went down this road, rather than looking at my own area that I know well, is because places in my area right now are VERY expensive and don't offer much in profit.

For example.  My current rental near me is currently valued around $175k.  I got it for $110k at the bottom of the housing bubble.  

Anyway, if I were to buy this place right now, I'd have to put out around $43,750 for down payment, plus closing and misc costs.  So, let's say an even $50k.  Now, the place currently rents for $1,025 a month, but with a new tenant would go for around $1,100-$1,200 per month.

With taxes, insurance, mortgage, PM, etc, my total payment would be around $900 per month, netting me around $200-$300 per month.  Or around 4.8%-7.2% return on cash.  Not bad by any stretch of the imagination.

BUT, let's look at the newest place I bought.

Picked up a 1,000 square foot home back east (I'm in Washington State), 3 bedroom, 1 bath, little old lady owned it forever, completed rehab done in 2012.  In great shape, in nicer neighborhood, etc.  Listed for $45k, I offer $40k and deal is done.  I put out $10k for down, plus closing, misc fees, etc.  I'm out of pocket a little more than $14k total.

My total costs are loan ($194 per month), taxes ($45 per month), insurance ($51 per month), plus PM ($80 per month).  Total: $370 per month.

The place was recently leased out at $795 per month.  Total net: $425 per month.  

So, I'm out $14k, but netting $425 per month or 36.4% return on cash.

You can see why I went with that place.

Now as for appreciation, the first place is slated to appreciate between 3-4% per year for the next forseeable future, which does skew the results, but wanted to give you a basic "apples to apples" comparison.  The second place is likely to only appreciate maybe 1-3% per year.  But, my goal isn't appreciation, but monthly cash flow, so I can buy more places and thus, earn more money per month.  Your goals might be different. :)

Travis

 Hi Seth,

On those SF commercial loans, they are standard 20 year fixed loans with an interest rate of I believe 4.5-4.75% (I'm not near my loan docs to check for sure), but I know they are less than 5%.  They did require 25% down payment though plus closing costs.  But, I'm buying more inexpensive places ($40k or less), so my total out of pocket for each place is around $15k usually. (10k for down, closing costs, misc costs to get the place rent ready, etc.)

Hope that helps!

Travis

I assume those are conventional loans yes? Judging by the amount of money you put down and that they are 30 year loans. Have you considered setting up an LLC and doing commercial loans instead? It'll protect your personal assets if you're ever sued by a tenant, but you're looking at a 20 year, rather than a 30 year loan, AND you need to put down 25%.

However, the nice thing is that you have no PMI right off the bat, and pocket that cash every month. That's the way I went, and I have 3 rentals at the moment, netting me around $600 a month total. If you have any further questions, feel free to ask!

I worried about this myself, but I think I found my niche with smaller sf homes and commercial lending, rather than conventional.  But, to each his own.  Maybe home path could help you get past that?  I think they have limits on how many you can own as well, but couldn't hurt to make a quick phone call!

Travis

Awesome work!  The place looks beautiful!  

Welcome from another person from Vancouver! :)

 Hi Melanie,

My first deal was at the absolute height of the housing market crash, and I had about $40k in cash, and the place I was looking at was only $110k.  So, my total out of pocket expenses was around $25k with fees, etc.  So, they were more than happy to lend me money.  What I have found with banks is that if you have 20-25% down, plus 6 months worth of the mortgage payments in cash, they'll deal with you.  As long as your credit score is good as well.

So, if you find a place for say 100k, you'd need $20-$25k +($536 monthly mortage X 6)  So, roughly $23,216 to $28,216 in cash, depending on the bank.  Go in with any higher, and they just look at that as a nice bonus cushion for you.

Then, when I went to buy my next rental, I had about $45k in cash, and the place I was buying was only $40k, so I could have bought it outright.  The bank happily loaned me the money.

I also have an LLC set up for my rentals, so I think that might show that I'm a bit more "serious" for lack of a better word, of an investor, rather than some random person off the street.

If you have any other questions, I'd be happy to help!

Travis