All Forum Posts by: Tom Murray

@Charles Curley welcome to BP!

-Tom Murray

I'm with you - I don't have a lot of love for it either, BUT...I think it's a ROT (use at own peril) to help quickly analyze a deal.  And like all calculations, the adage "garbage in, garbage out" applies.  When I use the 1% rule, I do so with the rent #'s I think the market will bear (as opposed to current rents).

So if, for instance (#'s all theoretical) I'm looking at a 4-plex listed at $800,000... If I think each unit will rent for $800, I'm less than half of the way to the "1% rule" & I'm probably not going to waste my time with this listing.

- $800,000 x 1% = $8,000

- 4x $800 = $3,200 / mo gross rent

-  $3,200 is less than half of $8,000

Of course if that $800,000 listing were significantly overpriced, maybe it's still worth looking...

@Andrew R. sent you a PM.

-Tom

@Courtney M. - I use the 1% rule when first analyzing a property.  If the property isn't even close (i.e., assumed monthly rents are way less than 1% of the list price, or more appropriately, to the assume value), I'll go to the next listing.  However, if the #'s are somewhat close, I'll keep looking & likely run the #'s.  Other than that, I don't really use the Rules of Thumb (ROT) too much when analyzing a deal.  I do, however, use several calculators to analyze cash flow and estimate expenses.

My goal is to generate meaningful cash flow AND respectable ROI (cash on cash). I've definitely analyzed some deals with good CoC returns that would result in relatively low cash flow, and I've usually opted to pass on those so as to not tie up capital that I could deploy elsehwere.

I'm in the middle of a BRRRR on a 13-unit apartment building (eventually 17-unit) in SoCal. I believe the BRRRR strategy offers the best returns in most zip codes today. By increasing rents AND property value, I'll be able to have good cash flow AND a high CoC return (since I'll be able to pull most of my capital back out during the Refi step). After I pull my capital back out, I'll redeploy it to another property (hopefully another BRRRR...while existing properties continue to make $$), with the eventual goal of scaling into larger properties and replacing W2 income with passive REI income.

-Tom

@Chuck Fagala - welcome to BP!

As I'm sure you're figuring out, BP is full of great information.  Have you narrowed your focus to a certain type of property or area?  If so, start evaluating deals.  There are plenty of blog posts, webinars, and worksheets that provide examples & recommendations on how to evaluate a deal.

Congratulations on getting started - enjoy the ride!

-Tom

Bruce - absolutely, your goals are achievable!  My partner & I have the same approach.  We think multifamily provides a more stable asset.  You may not be able to buy a 15-unit building on your first deal (or maybe you can), but you could certainly work your way there.

My partner and I purchased a 4-plex in SoCal last year, learning as much as we could along the way from BP forums, books, blog posts, podcasts, etc. We're applying what we continue to learn from the 4-plex to a 13-unit apartment that we're currently BRRRR-ing. Our longer term goal is to continue to scale up.

I think my biggest advice getting started is to make sure you understand how to run the #'s on a deal.  There are plenty of good calculators available (on BP and elsewhere).  Run the #'s (with realistic planning factors), and trust the #'s...they don't lie.  If you're not sure where to start, try this blog post by @Brandon Turner on cash flow. 

Finally, start analyzing deals.  If you analyze a handful of deals per day, you'll quickly understand the math.

Good luck & welcome to BP!

-Tom

Thanks @Jeffrey Holst.  It's a bit daunting at times, but we've got a plan.  And there are lots of pictures.  We'll post some as we get going with the rehab!!

@Brandon Turner, @Joshua Dorkin, @Mindy Jensen, @Scott Trench, @Allison Leung, @Jeffrey Holst...

Off to the races on our first BRRRR...

Update (3/21/18): Closed yesterday on the (currently vacant) 13-unit, old hotel (361 days in, and 17 units)!!! We created an LLC just for this property, and we're using seller financing (the property is currently vacant). We also hired our first contractor last night, a local roofer. The property will be rented as an MFR with 13 individual apartments, with the goal of adding units in time (in the hotel's old lobby area).

We're working through the correct order of things to get units online as quickly as possible (goal is 3 months until we're starting to place tenants).  In addition to roof work, we need to redo HVAC, kitchens, most bathrooms, and we're expecting quite a few surprises along the way.   We're also trying to preserve the character of this property, as it's gotten a lot of attention from locals due to its historical significance.

Can't wait to see what these next few months will bring...

@Jeffrey Holst thanks for the shout out.  Look forward to watching your progression this year!

@Brandon Turner, @Joshua Dorkin, @Mindy Jensen, @Scott Trench: Long time listener...first time caller.

First, I owe a big shout out to @Jeffrey Holst for the motivation to post about my goals (or at all, for that matter).  He's got a great discussion going about his goals and is motivating others daily.  Check it out here.  He also wrote a blog post that you can find here.

Like so many others on BP, I'm on the journey toward passive income. My wife and I have partnered with another couple - we're all W-2 earners today - with the goal of generating enough passive income through REI to offset and/or replace W-2 income in about 7 years.

After some initial research, we knew we wanted to be in MFR. We got started about 11 months ago, in March 2017, and our second offer (amazingly) was accepted. We closed on that 4-unit (SoCal property) in July 2017. In addition to learning as we go on that property, we spent most of 2017 listening to podcasts, reading books and blogs, and trying to learn from anyone and everyone. We made 9 other offers last year. While we missed out on the #bp90days challenge, we did have an offer accepted on December 22, 2017, and we're in escrow now. That property is an old (vacant) 13-unit hotel. The place has a ton of character, but it needs some work. We're closing later this month, and then it's off to the races on our first BRRRR (turning it into 13 long term rental units). We're very optimistic, and occasionally intimidated, but we'll continue leaning into this adventure in our attempt to scale into mid-size MFR.

So about those goals...

In 2018, I've got three primary REI goals:

1) Learn. As with any hobby, business, or passion, I believe the desire to learn is the single most important factor in determining one's success or failure. I pledge to spend 2018 continuing to learn about real estate investing - through books, podcasts, other investors, experiences, and any other way I can. I'm specifically interested in learning about the MFR sector, tax strategies, hard and private money lending, BRRRR, short term rentals, SDIRAs, and other investment markets.

2) BRRRR. I've been enamored of the BRRRR concept since I first heard the term. My wife and I had a BRRRR-like experience with the home we own (bought, rehab'd, and did a cash out refinance). As I mentioned above, we're in escrow on a 13-unit property that is currently vacant. We've got a detailed plan for how we intend to get units fixed up and online - piece by piece - with the long term (~24 month) goal of stabilizing and then refinancing some of our capital back out. The longer term goal, of course, is to then reinvest that capital in another property ("repeat").

3) Network. I am a huge believer in the power of networking. Phrases like "it's all about relationships" allude to the importance of constantly nurturing and growing your circle. This year, I plan to host at least 2 networking events. The first will likely be in my garage bar, assembling like-minded people to exchange ideas. In time, I'd like to grow into a regular networking event for REI. I also want to take advantage of the amazing networking opportunities here at BP to meet other investors, learn from other investors, and maybe even motivate somebody else. Hence this post.

Good luck to you all in 2018!  Here goes nothing...

-Tom Murray