All Forum Posts by: Timothy Howdeshell

@Mario Morales Coaching can be a great idea as can masterminds and mentors. Ultimately they all serve a similar purpose: to provide clarity around next steps, an action plan, and accountability to move things forward. Every individual has different needs and desires different things from coaching. I have a bit of experience, having hired several coaches for various things in real estate. Here's my lessons. 

Mentors: someone who you know like and trust that is willing to understand your unique situation deeply and provide tailored advice in their domain of experience and expertise. This seems to be what you're after. 

Coach: paid mentor who can create a game plan to move you forward in a specific area/niche. Some provide accountability while most do not. 

Mastermind: group of active doers that come together to share knowledge, resources and best practices. Can be general or specific depending on the aims of the group. 

I don't recommend a coach or a mastermind for you. Masterminds are too general if you don't have an understanding of where you want to go. They are very expensive often, and if your business doesn't have high excess profits I would work on getting revenue up before increasing expenses on education. A coach can be helpful, but it doesn't sound like you have a narrowly defined objective with your investing (aka. learn to structure lease options in Kansas City virtually). A coach/mastermind costs money and any strategy they advise will require or be helped by spending money, so you're working against yourself here. Better to get a gameplan from a book or mentor, spend the money on marketing or relationship building and pivot as you move forward from there. Lastly, coaches generally won't become partners or help you do the work in any way. 

Try to get a mentor. As others have said, get one from attending local meetups, being a friend, focus on building relationships (buy people dinner and deliver it to their office/jobsite) and try to find someone that is just a little ahead of you. They will take the time to get to know your situation and provide tailored advice for much less than the cost of any coaching programs. Once you run into a specific problem that requires a professional, then perhaps hire a coach if you want to internalize that process (for instance you want to learn to set up PPC campaigns and don't want to hire a service provider to simply do this for you). 

Many people have success with coaching, but the percentage of successes is very low. I believe those that would have succeeded would have done so anyway without a coach. It may have just taken them a little longer. 

@Bob Stevens I think that th e2 sentiments are fundamentally talking about different things. Location (x3) is about defining your customer avatar and price (x3) is about defining the value of what you're purchasing. 

Getting a screaming deal in the hood is a terrible deal if you don't want to serve that demographic. Likewise buying a home in an A+ market for 2x it true market price is foolish. 

Ultimately these expressions are just guideposts pointing to a general truth, rather than hard and fast rules.

@Bryan Nwokem Great question Bryan. As others have said, this deal doesn't make much sense unless there is some special angle none of us have yet considered that you're aware of. 

I would caution you to not jump into a bad deal just to get started. Yes, you'll hear gurus talk about that the first deal never works and that you just need to get some experience, but this will not help you much when you're all out of money, negative cashflow every month, with tenant complaints for some reason, and now you're stuck saving for 4 years again just to get back to the same spot you were in. 

This is a really tough market, especially for buy and hold. I keep searching for a better deal and just know that it will take much more effort than it has in years past. You may need to make 50 legitimate offers before you get one accepted. To shorten this, you can try reaching out to every local wholesaler, getting on their list, taking on a rehab project, or something else to force value or buy equity. 

Best of luck! 

Quote from @Rodney Lorenzo:

@Timothy Howdeshell, thanks for responding:

1. Ignoring red flags and being afraid to lose earnest money. (Way better to lose 5k quick than 50k)

The earnest money was 30K. I couldn't afford to lose that kind of money and the PM took forever to furnish the ledger/T12

2. D-class properties are not worth the trouble, unless you want to specialize in these areas. Requires a certain skill set.

Do you realize how many times I was beaten by accepted offers by more experienced investors in better neighborhoods? Sometimes a newbie has to take whatever garbage there is out there

3. Blind trust of PM and no recourse for poor performance.

I went with the same PM that was already in place thinking that they were more familiar with the building and neighborhood. Wrong

4. Not getting all financial docs and due diligence completed before money goes hard.

I cannot force the documents to be provided when I want them. The PM took a long time in providing them. May have been deliberate. Who knows

5. Emotional decision making instead of decision making via numbers only.

Did you succeed on your first investment? If not, congratulations because sometimes newbies make mistakes with their first investments and one of these days you'll make a very grave mistake too. Most humans do. It happens to all of us, but I take it as a learning experience. Just ridiculous how some on here will use vitriol to get their point across and then tell me that I'm the one acting out of emotions

Hey Rodney. No vitriol and I'm not judging you, just documenting things for others who may read the post so that all can learn. 

No my first investment was: a short term disaster (now one of my best several years later), sucked out all of my cash and then some, was in a high-crime area, almost got taken for 30k by contractors, didn't appraise where I needed it to after rehab.

1. Understood. Normally there are both inspection and financing timeframes where you can back out if you don't get the info you need to make a sound decision without penalty. Don't waive those contingencies and make sure to hit the deadlines. 

2. lol. Yes, I do know. Those investors may only get 1 deal out of 25 offers themselves. It's a numbers game for everyone. It's harder in the beginning, but gets easier. Or more correctly, it stays hard, but you get better! Unfortunately (or fortunately depending on your perspective) it is what it is. I would rather never buy property, than try to win with D-class properties though. You'll probably have more money that way. 

3. Yeah that makes sense. Trust but verify. Inherited tenants, employees, and service partners (PM) should be triple scrutinized until proven reliable. 

4. Yeah who knows. There should be easy outs though by using contingencies as outlined above. 

5. I've addressed this above. It's not personal dude. My worst property was all due to emotional thinking. We've all done it. It's just something to avoid. 

Best of luck! 

Quote from @Matthew Irish-Jones:

Quote from @Rodney Lorenzo:

@Matthew Irish-Jones, no my pockets aren't deep enough to pay the mortgage of my investment. I unfortunately inherited the riff raff, the previous landlord filled the building with to sell it. As a result, I've had to evict most of them for non-payment. I may have to do what he did. I'm going to follow Bob Steven's advice and focus on govt-subsidized tenants, even though my one Sec 8 tenant moved out because of the neighborhood. If I still struggle to get it cash flowing, then I'll have to take my losses and sell because in the long run, I'll end up losing a whole lot more. The building itself is in good shape, except the neighborhood it's in isn't. Next time, I'll do the opposite and buy a POS in a good neighborhood. Thanks for your advice and for not attacking me with condescending remarks like @jameshamling needed to do. These forums are to help one another out. Not attack each other from behind a keyboard like a coward. I truly hope he doesn't own an AR15. 

 Most people on here have been in a similar situation.  No one gets every investment right.  Sometimes you win, and sometimes you learn.  

I have been doing this for 10+ years, and run a Construction, Property Management, and Realty company.  I have graduated to more complex investing, and we are still at times scrambling to get things right by making incorrect assumptions, construction goes over, market changes, rents plummet, we forgot to carry a 0, building code changed, etc... 

You are not the problem here,  you made an investing mistake, it happens. The fact that we live in a society where you can make an investment, be overrun by non paying tenants, swindled by a dishonest seller, and have almost no recourse is the real issue. 

There was a time in this country where they put people in jail for this type of behavior.  It was called debtors jail.  

Good luck getting this turned around.  Anytime I have taken a large loss I have tried to look at it as paying for education, that helps me sleep at night. 

 100% my thinking here as well! 

Not every investment works out, and as a newbie, you don't know where all of the landmines are. I wouldn't advise this strategy (D-class multi) to a new investor, but what's done is done. Treat this as a (massive) learning lesson and you'll be way ahead for your next investment. 

The biggest mistakes I see here are: 

1. Ignoring red flags and being afraid to lose earnest money. (Way better to lose 5k quick than 50k)

2. D-class properties are not worth the trouble, unless you want to specialize in these areas. Requires a certain skill set. 

3. Blind trust of PM and no recourse for poor performance. 

4. Not getting all financial docs and due diligence completed before money goes hard. 

5. Emotional decision making instead of decision making via numbers only.

I've made some of these same errors, but believe that this makes for a better investor in the long run! 

Hi @Taylor Robertson, 

That's a great question. I would start from the end and work backwards. What is your investor looking to gain from this deal. Is it simply a decent return on their $? I know you said that splitting a $300/mo cashflow is not attractive. I'm not sure why though. If they only put in $10k and are getting $150/mo in profit after reserves, then they are making 18% on their money. This is an awesome return with a secured asset! The return % should be the focus here. If they want to make more, they'll have to invest more (assuming you can generate the same returns on a cash/cash basis with larger deals). 

If the investor is hoping for a quick return of capital, you'll need to focus on strategies that allow you to refinance quickly or sell (flip, BRRRR, double-close wholesale transactional funding, private HML, etc.).

BRRRR is the most obvious use case though for quick capital return and a long term hold. Use HML to fund acquisition and rehab, and private money for the gap. Once you refi, pay off everyone. It's even better if the private lender can lend you 100% of the money. That way you can put the full loan on the closing docs and do a rate and term (no seasoning) refi for the back end financing (vs. cash out refi which has 12 month seasoning).

But really you need to know what the partner's goals are. And then structure deals that meet their goals. Otherwise they will not work with you. 

Equity is certainly another option, to give them 50% of the equity and cash-flows for 100% of the funding. The main problems here are that you're giving up a lot of value in exchange for a little money. Also, unless this investor has unlimited funds, you're going to be out of money again after the first deal. 

Quote from @Ofir R.:

Hey there, big pockets.

Here is a theoretical question and I'd like your take on it, whoever you are and wherever you are.

Mister X has 500,000 USD. He doesn't have credit score or a fixed job - he's an artist, so his income is irregular. 

Mister X wants to put his money into real estate and get to a point where he has a passive income of minimum 8K per month, in less than a year.

He only wants to deal with Real estate, with real physical things that he can see. No stocks or bonds or anything like that.

Is that possible? Or a silly fantasy? What would you do if that person was you?

 It doesn't sound like Mr. X is very bankable. Therefore, you'll have to purchase these properties with non-QM loans meaning they're interest rate is going to be pretty high. Or you'll have to buy properties in cash. 

either way, you're talking about an almost 20% return cash on cash. Is this possible? Yes of course. A homerun deal comes around every so often. But is it likely that someone without experience and the marketing and sales engine of an experienced investor is going to be able to just pull that off? No extremely unlikely.

If we were all just easily pulling 20% returns on our money you would see a lot more money flow into real estate then currently is. 

that artist would probably be better off buying a business with that kind of money and working in it in order to generate the 8000 a month. Sounds like a much more likely route to that sort of income.

@Wang Windy 

Fresno can be challenging to find cash-flows as well, and you should know the areas of the city to avoid. Price to rent ratios do not support buying property in CA (including Fresno) and getting cash-flow right off the bat. With the money you have you can buy 2 $400k homes in Fresno putting 25% down on each. That will get you great property in a nicer part of the city (North-West). You will have a $300k mortgage on each and will pay $2,300/mo in principle and interest. Add another $500/mo for taxes and insurance. A home like that can generate around $2,200/month meaning you'd be coming out of pocket about $600/month. Also you're not putting any money aside for management, CAPEX, vacancy, or maintenance so are likely closer to $1,500/month negative in the long run.

Easiest solution is just to buy 1 property and put more down. If you do the same as above, but put $200k down (I would keep some cash as reserves) you can break even on cash flow monthly with a long term rental. Then, try a medium term furnished rental to boost cash flows. If rates go down you could increase this.

I do question why though. In the above situation, let's say you do MTR and make a true cash-flow of $200/month (after reserves listed above) using an 8.5% mortgage. That's $2,400/yr on a $200,000 investment or a 1.2% yield with risk. You can get 5% FDIC insured (relatively risk free) in a high yield savings account.

Fresno is far enough away from the bay that you may as well just invest out of state where the price/rent ratios are more favorable for cash flow if that's your main goal. You can take that $200k and buy an entire house for cash in a B neighborhood that will net you $1,600/mo. This is true cash flow of $13,340/yr on a $200k investment for a 6.7% cash/cash return. A little higher with tax benefits factored in. That's what I'd do!

Or house hack to get in with low downpayment today, offset some of the monthly cost, and refi when rates go back down later. 

Quote from @Amber Masterson:

One of my units needs to be repainted and have some updating done in the kitchen and bathroom. My PM has a rehab company that can do the work. I've looked over the bid and the pricing is ok. The problem is, he said "let me know when you are ready to fund it and we can get it on the schedule within a few days of that." Everything I've heard from investors is that it's a bad idea to pay a contractor up front for the work, especially when it hasn't been done yet. I don't want to fork out $7k without the work being done first. Any suggestions on how to respond to my PM? 

 In general, I don't advise you to pay contractors ahead, and this is no exception. Been there, done that, and nearly had a heart attack. I was $20k ahead of the work on a $50k project with a GC who wasn't communicating well with me. I was very lucky that everything worked out and I got the work completed, but it was a real struggle. You don't want to give someone that much power over you. 

In this case you're probably thinking $7k isn't that much (and you're right as far as renovations go). Also, you don't want to cause conflict with your PM (assuming that they're good and you're happy). But set aside the emotions for a second. Do you get paid at your job before you've done the work? No. They need to understand (and they do) that you're putting yourself at a major disadvantage by forking over money for things which aren't even done. If they say well we need materials $, then maybe that's okay to give a portion up front. But I would be very concerned generally with a PM who cannot float the funds for a simple unit turnover. They're either very bad in business, or very small. Either way, not great for you. If they don't agree to this, simply hire your own subs to do the work and start looking for a new GC. 

Best of luck! 

Quote from @Jack Wang:

Tennant of 2 years did final walk-through with landlord in person, noted various issues like fridge/oven/microwave cleaning & one missing garage key. Some burnt out light bulbs, dirty unchanged air filter, dust/hair on windowsills, one bedroom door lose, and missing undercounter light cap cover. 

Landlord does cleaning, repairs, painting, replacing light bulbs/air filters/keys, etc. Spends about $1500 to make-ready for next tennant. 

Tennant is having disagreements with landlord over deductions of deposit. Original deposit was $1800, of which $340 was returned. Took just over 60 days for landlord to return deposit. Tennant reaches out complaining, as he was expecting $1000+, requesting at least half of deposit. Landlord offers an additional $250. Tennant is not happy, does research and finds that because it's over 30 days, Texas law states he could be owed 3x deposit + legal fees. Tennant sends demand letter for 2x deposit threatening to sue in small claims. Landlord is now offering an additional $700, which is what the tenant originally requested, but tenant is refusing and now wants minimum full deposit back.

What should the landlord do in this situation?

If those are indeed the actual laws on the books or the property is located, then I don't see where the confusion is. The tenant is legally owed what is written which is 3x the deposits plus legal fees. At this point I would pay what the tenant is asking and take this as a learning lesson for future tenants to make sure that you meet the deadlines. Sometimes in real estate you just need to run a tight ship and this is one of those times.

is this just hypothetical though? Or why is the landlord being put into third person? By a landlord? Do you mean property manager? If that is the case then I would definitely push these expenses on to the property manager and not pay them out of the owners funds. This is the property managers responsibility to know the laws and to follow them and they should bear the responsibility for not doing so.