All Forum Posts by: Travis Phillips

Wow, first and foremost thank you for still replying to these messages. I thought there was no chance that you would still be replying. Amazing stuff, love the dedication to that.

I have a very broad overarching question that applies to a little more than just REI.

Here goes:

I recently sold a business interest that has a signifigant payout over the next few years. I am building a stock portfolio, rental portfolio, ecomm business and real estate agent business. I am wondering about the benefit/need in creating a parent company - the parent would hold each of these resources, including the dividend portfolio which I am considering creating an LLC for (is this dumb? lol), I like the idea of being able to sell/gift shares of that company to my children in the future (assuming that makes sense).

I am aiming to have my expenses covered passively (aren't we all) and have not really employed any tax strategies to this point. I have 3 years left of payouts from my original business sale and would love to be able to shelter some of the profits if at all possible. I am also considering the idea of a series llc and holding future properties in a trust as well. If I understand correctly, a series llc started somewhere with less fees is a good way to do that and then holding them in a trust will ensure I dont have to create an llc in my home state. 

I just spit alot out because I dont really know if I am making sense, my question is - does this look somewhat reasonable? Am I kind of on the right path? Am I doing to much or misunderstanding something? 

Anyways, thank you for your contribution here.

For me personally, I am wondering about how to benchmark progress. From my previous experience, it was always what EBITDA % we were operating at. Is there a go-to number like that for an REI business?

It just seems hard to use revenue in anything as sale prices are drastic compared to profit. You could potentially sell 4 - $250k houses for 1MM in rev and profit 100k... then assume idk a 50k salary for this so you end up with 50k in earnings... That's a 5% EBITDA but from my experience, that's pretty bad... maybe it is good for REI??

Super old post but would love to hear people’s opinions on it... 

Revenue from flips can look like a booming business when the reality is most of that is lost in acquisition... seems like the true “revenue” would be the premium sold over acquisition price.

Also holding 600k in debt to have 6k in monthly rev doesn’t look great either

how are you all going about valuing your businesses?? Even just for KPI reasons... 

What is the typical EBITDA % of the industry (flipping/holding rentals)

I may be missing something here - I am having trouble finding that house. Checked google maps and hampden county registry of deeds. Let me know..

925 Amore Rd 

Springfield, MA

I would definitely take a look at it. 

I use Fitzgerald Attorneys at Law

https://fitzgeraldatlaw.com/

They have offices in East Longmeadow (right outside of Springfield) / Springfield and Hartford which is CT 

They're an extremely reputable firm and work with flippers/wholesalers/agents and so on from the area.

I specifically use John E. Drost in the EL office - though every attorney at the firm is top-notch. John is very easy to work with - let him I know sent you if you decide to use him.  

@James Carollo Hit the nail on the head. Personally I prefer that type of niche focus, and it’ll help carve you out as the expert in that area. The biggest thing from my perspective is communication. 

I wish I could speak this bluntly with my current GC and at some point I will, it’s just my first project with him. I like his crew, his prices and his results thus far. I don’t need ALOT of communication but when I point out something or ask a specific question more then once and it isn’t getting answered, that’s when I start getting antsy. I realize there is a lot going on, but sometimes it feels we are just on for the ride... as a numbers guy I like estimates and time frames even if they are ball park. You’ll be able to get away with not giving them out most likely but if you can bring the details... that can be very helpful. Seems obvious to me but I’m assuming when managing the hands on of all aspects of your business and multiple projects it gets hard to know exactly where things stand. Like a solid timeline before the project of the major steps would put my mind at ease and help me feel more aware and willing to give more space. 

How does that process work with you? Is it open ended or ironed out before hand? 

To the main topic though, I do think it’s an obvious need and if you’re able to secure that ‘expert’ status where investors know you’re the guy to call you’ll never run out of work. I think the challenge is ensuring your charging that 5-10% overhead on everything and not underpricing. It’s a margin game right? I look at it like hard money financing... yea getting a bunch of private lenders may be cheaper but it requires a lot more of my time. Same thing here, I could GC it myself, but a lot more of My time. As long as we aren’t talking home builder money then I’ll pay that premium (just like I’ll pay 10% interest only rather than 8.5% interest only)... some people don’t agree with that but you can even make that sales pitch to investors... “you pay for money right? Save more time...”

anyways sorry about the novel 🤣

Literally every contractor I speak to is talking about how much work they have. As I was getting bids on a flip I am currently working on I had multiple contractors tell me they couldn't accept more work currently. In my area, though this has led to a decent amount of start-up GC's. They are pulling together the tradesmen and getting them more organized and getting them the hands for the menial tasks. 

I think this is a viable solution. People who handle admin/organization/marketing and so on partnering with a skilled tradesmen and bringing a few in house then going and getting some hands when needed. 

Obviously, this is a little more costly to me, but it brings a different level of certainty, workmanship and sustainability... oh the plumber quit? ok well he goes and gets a new plumber... I dont have to go and find 3 to have 2 bad experiences to get the one. They handle it. They also understand my needs/wants better and deliver the message better to the tradesmen. 

They also do jobs for regular home owners and while this isnt anything new, this seems to be the answer in my eyes. Being that there are 4 of these companies now, I can still pull multiple bids, I can still move on if I dont like something. 

These arent home builders, right? Who would charge 80k for a 40k job... this is different and they may charge 45k  but thats a difference I am willing to pay. I factor all of this in when I buy anyways...

Someone above had mentioned that investors want to be treated differently, and I think he is right, I make it a point to pick my battles wisely. This in essence is my project manager, so I am trusting his ability to an extent. 

I still have all the contractors if I need to GC one myself, but seeing younger guys with experience turn to GC to build out these companies is a viable solution for some time. 

@Dave Grimson - that seems to be the only one and I haven’t been yet either though I do plan on going sometime soon. 

I see you have your real estate license has that been helpful in your investing endeavor? If you are actively selling homes and you understand the numbers from an investment standpoint maybe we should talk further. I haven’t really found many investor/agents yet.

Man... lots of great info here in this thread. @Ryan Blake nailed it though. The only thing I would add, well I guess emphasize since he touched on it. Is that you should not be afraid of hard money. Even most hard money lenders will come down on rates as you build rapport with them. Unless your only plan is to do the traditional route and buy and hold, then save-save-save to buy and hold again so you can have 4 properties 20 years from now, then you will need to learn the hard money/private money process. 

As you learn about the hard money process you also learn how to structure future private money deals. Not to mention having the fall back of hard money relationships means you rarely have to pass on deals as they arise... as long as it truly is a deal they will fund it. Ryan broke down how the true % interest paid is a lot less than the upfront APR number, and the benefit of interest only means that the interest rate you pay through a traditional mortgage vs. private money is roughly equal. Also, there is less hassle/paperwork/requirements and so on... to boot, there are no limits typically and they are more flexible in terms of your exit strategy. It isn't hard to find a lender who will fund 90% of the purchase price/100% repairs/up to 75% ARV.

If your deal doesn't support paying the financing costs for that type of funding... then it isn't a deal. If it isn't a deal you shouldn't do it and should not be emotionally invested in a property just because its the first one. 

But if you REALLY want to go find a bank, then lines of credit are the answer, and the reason people suggest the smaller banks is that they are typically portfolio lenders... which is honestly a lot like hard money lending with the face of a bank.

Either way, I wish you the best of luck! I would love to hear more about your deal and the outcome!

Nothing wrong with educating yourself and learning... nothing wrong with just going out and buying a property. 

Most of these lists start with one of those things as #1.

I would suggest - 

1) Create a realistic business plan. 
 
This is your plan of attack to creating a BUSINESS. Remember this is a business and you are dealing with large sums of money and what is usually the most valuable asset anyone ever owns in their life. A business plan aligns your thought processes and helps your future interactions with sellers/investors/lenders and so on. 

2) Learn how to accurately understand how ARV's are decided. From an appraisers point of view... YouTube/coursera/blogs... but take note *the appraisers point of view*

3) Learn as much as you can about costs of typical repairs. Go to HD and learn about what all the materials costs... make a list, make a database... how much is a vinyl front door compared to a solid wood one in your area... you should know. Along with materials learn how much labor costs are... talk to contractors and ask how much it might be to redo a bathroom, then ask why, then learn how much it costs to change a light fixture or a tub or retile or put up new framing... national averages can be a starting point and you can use google to find those

4) ****Analyze a property every single day. Get very used to the numbers side.

5) Act. Do. Leap. You’ll learn exponentially more when you are in your first rehab then you ever could from reading or studying.

BONUS #6) Learn to say no. Stick to the business plan. Even though it feels like opportunities will never come around again... they do. You’ll know when your ready for that big step or when it makes financial sense to deviate from the business plan... however, it is basically never the right time in year one and very unlikely the right time in year two. 

🤙🏼