All Forum Posts by: Travis W.

So, I didn't intend to find a mentor initially.. I was just looking for some advice from someone I knew who did real estate and seemed successful to me.. So, I called my old landlord I had back in college about 6 years ago. Well, turns out it was a great decision..

We met up and grabbed a bite to eat and talked real estate, and about life a bit ( I don't know him too well). He showed me resources he used, talked about how he had bought his properties and how I should approach investing. All very invaluable to me as a beginner. Seeing someone who clearly was on-point with their paperwork and research was inspiring.

It humbled me they would take the time out of their schedule to meet and I of course paid for the meal as I should. And he said if i need anything i can email him.. Awesome. I think every person trying to get into RE should definitely look for some form of a mentor. They don't need to be a millionaire I don't think, but they just need to have a solid grasp of it. From there you can work on doing better..

As far as the possible deal goes, he owns a fourplex for about 9+ years now.. Self-managing them from about 100 miles away.. which is no small task. But, he said he has a team and he rarely physically goes to check out too much. He uses them for student rentals. Seeing as I used to live in one of these buildings, I am familiar with his process and was happy to learn that his turnover, was not actually ever too bad.

Anyways, he wants to find a property manager badly I think. He has been looking at professional PMs, and he indicated he wants to go South as he is tired of the cold. He hinted that I could maybe do it, but I wouldn't be paid much. Which I am ok with. Heck, I would do it for free if it meant I get a foot into successful investing.

There is this catch, I am 3.5 hours away working fulltime with my own house payments. I could maybe pick up and move closer and rent out my $100 CF, barely break even CF, house :/. This would afford me some experience though..

If he was open to selling, the real estate is essentially in a great spot. Its by a college, it makes a little under 50k a year for him. I have a family member who would maybe even potentially lend me a lot of cash to get a foot in. Up to 200k essentially. But, I don't even know what a house that is giving him that much money a year would be worth. Even if 20k were expenses, a year...which I am sure it's not.. I don't know why he'd ever even consider selling it.  Maybe many many years from now if he gets tired of it, I would maybe have first pick? No idea.. just speculation on my part.

Does anyone see any way this could be mutually beneficial for all of us? I am new to RE and I am not sure being a property manager with no experience is a good move especially when I am just trying to get my own house to work. But, I think the experience and what I could learn from helping him would be priceless.

Side note

My current employer does exist near my possible mentors 4 plex.. so I could *maybe* transfer over there. I would just be stuck driving back to my own house to manage it if I put renters in.

@Brandon Hicks Thank you greatly for clarifying this. I can see now where I perhaps went wrong in my train of thought. I was thinking that because rehab costs would be low it would allow me an easier time to rent, not fully understanding that it was more for leveraging things. I didn't factor in the equity portion of things being so essential.. Being a beginner, I guess it's safe to say I knew i'd make mistakes. I am just trying to make inexpensive calculated mistakes at this point.. I could perhaps try to look in that price range and see if there are some possibilities.

@John Leavelle Hey John

Firstly, Great post. I thank you immensely for taking the time to read my situation.

To answer some of your questions.. The projected rental rates are what i am figuring pre-rehab. I have some financing options available at the moment actually, a private money lender who is family who wants to partner. So, the potential for a next better deal is possible. I was told i could have an FHA/VA loan at the same time, so i will have to re-look into that.

Regarding the 20% requirement on the refinance, 2K is paid off so the loan sits currently at 125,000, and if i continued to save (maybe sold some non-essentials in my life) i have no doubt i could make that 22,400 in this year.

I realize at this point i seem to be forcing equity through payments, which for some crazy reason i can see now is not efficient. I was figuring 1 house per year isn't a terrible strategy as i am young and easily mobile and starting out can't be as simple as a good first deal. But, regarding the equity, i can see...ahem, *understand*..  that getting that money back out of your property is essential to moving to the next deal, and that it is possible to find a great first deal, i just need to look more.

As you said, i will live in it for a year, pay down some things, do some repairs, and see what my ARV is. If it isn't worth it, not cash-flowing and looks like a bad deal etc., then I may have to ditch it barring it being worse to sell.

Definitely, i am thankful for your guy's in-depth responses. Trying to build a portfolio with little to no-knowledge is much harder than i expected. But i am learning. Perhaps, i will need to go back and review some more podcasts and read some more.. i have been plenty busy working fulltime..  

My intentions are to use it as a buy and hold (minus the buying and more so financing) rental property. I am however, currently living in it, it is in Minnesota. I would have gone with multi-family but they are sparse around my parts and I think I'd prefer SFH as a large part of my portfolio because I think long-term high quality tenants, with low turn-over are appealing to me and worth it, not to mention we don't have many tenants who are looking for a small rental for a short period of time..

 In terms of equity, I did not have a firm grasp on that as a new buyer with this house. Equity has been a new strange thing to me. If I understand this right, why does a cashflow rental property deal need equity from rehabbing? Isn't cashflow all that matters in the end and equity is just another method of income? If, I put $0 dollars into the purchase, and I make money, what capital do I have to "get back"? I see rehabbing a rental property as just making the place suitable for renters and if it raises equity, than it is just a bonus? Is this wrong to think?

Hello,

I made a post earlier regarding my current situation, but i figured i didn't include enough information and it wasn't very put together. SO, i come back to you BP to help me sort this out. I will continue to ask questions (no matter how repetitive..) until I can gain better clarity and make better moves. If you so courteously would like to help me analyze this, it's much appreciated!

So, information.

House location: Smaller sized town by a bigger city that recently developed a new highway, bringing our town into a much better location. The house is in a residential area, about 2 blocks from the towns down-town area. Quiet location, majority of neighbors are older and close to retirement if not retired. Average price of buildings around mine are a bit higher. About ~15-20% or so.

House: SFH 2 bedroom, 1.75 bath, with a detached 2 stall garage which is halfway finished (it needs interior walls, but has insulation). It is recently remodeled house including a new deck, tiling, carpet, and a mud-room addition. Most everything has been brought up to date on it minus the shingles. Former owners took out some walls downstairs and created a new bathroom, and the basement is considered finished albeit quite small. It has its own exit door and could be changed into a bedroom with the addition of a egress window.

So, that's to give some background of the property and its location. On to the financials.

Purchase Price: $127,000

Loan Terms: 30-year amortized VA home loan @ 3.750%

Down-payment: $0, $1000 in Earnest money, and I paid no closing costs.

Rent: $1300, $1400 could be potentially done.

Rehab: I am figuring $5000, honestly not too sure, house is in pretty good shape, but shingles may need to be redone.

Property Taxes: $1552 annually, (this is $0 as of this year i believe because of an exemption I get as long as i am living in the property and having a 70% rating from the VA)

Insurance: $1284 Annually, seems high, but I feel that is because of the coverage I need to have for it being a VA loan.

Mait/Repairs: I am figuring about $1200 annually.

Advertising/Administrative costs: $300 annually

Variable Cost PM: 12% of income.

Vacancy: 8.3%

So essentially.

Income: $14,300 annually with the vacancy included.

Expenses: $6052 annually

NOI: $8248 annually

Mortgage is $588, or $7,058 annually

Cashflow annually: $1,190 / $99-monthly (closer to 200 if rent was raised 100 dollars)

Cash ROI: 23.80%

Total ROI: 70.51%

Cashflow-to-Mortgage ratio: 117%

Some other important factors:

Loan remaining: $125,000

Personal W2 income: $3,338/month

Personal Expenses with house: $1750/month

Personal Expenses without house: ~$400

Strategy: BRRRR.

So as you can see, for a new investor, I don't quite know what to make of this situation. It is cash-flow (not great however.) But, it has the potential to become so (~760/mothly at the end of the loan, which if I just paid it down would take me 4-5 years roughly). People say if it's not cash flowing great it will always be bad. If I pay down the loan some, and refinance (per the strategy, will it not cashflow better?) A 100 dollars, per door is still okay per me as it opens up my saving potential significantly. I understand unknown expenses happen (capex) and I know they will eat up my cashflow, but that is a risk i think can be taken with a high W2 income. My second move was to find a multi-unit that cashflows much better and utilize a FHA loan or private money for it, now that I somewhat understand the financial side of things better.. so, based on reading this, does this seem like a bad investment?

Some key questions:

1. Would a good idea be to live in the property for now, while I have the property tax exemption and pay down the loan best I can, so come later this year or next, I can refinance to a better cashflow?

2. If not, do you recommend I fix-and-flip this, or just cut costs and just sell it?

3. Is there another option I am not seeing?

4. Is taking on a multifamily, as long as it cashflows great, a good next step? (I know I only have an FHA loan left to use unless I refi out of my VA loan to reuse it.)

So, If you made it this far, I applaud you. I had to include everything i could think of so people understand the whole picture as i see it and not just some simple numbers that people could misconstrue what is at play. Thank you from the deepest part of my heart and I look forward to any responses.

Travis

There is quite a few depending on the situation. Depending on your loan and terms, for example the VA home loan, you may need to bring the house up to code for the lender to lend money and you or seller may need to pay that.

@Brent Coombs . i feel like I can find deals, and I clearly learned my lesson here with low cashflowing. I'm not sure if there is a misunderstanding here, but.. my plan was in fact to save for the next property and make sure it was decently cashflowing. I don't know if it's just being recommended that this is a bad deal because expenses aren't covered by cash flow alone.. which I figured may be the case with my first/only property. I feel like no investor starts out with cash flow to cover expenses, unknown or otherwise.. unless I am wrong.. none the less. I may look at selling come this year and just.. starting over. Idk, I'll have to sit down and look at everything again at some point. 

@Justin Marshall Yah, that is where i feel i messed up. I don't think i can house hack it.. its in a average sized town where the average age is 55, not much to do, and generally not laid out well for more than a couple people... I don't know now.. maybe its best to just sell it and try to start over..

@Brent Coombs This one is my primary.. I am a single guy. They aren't for investments no, they must be owner occupied for a year, but unless what i read about is wrong, you can refi out of it and reuse it.. effectively allowing you to get a property every year for no money down (which i am now learning doesn't mean anything good because your PITI will most likely be astronomical mixed with mait/vac/pm cushion...) But yes, higher interest.. which is why i was hoping with my W2 i could eat away at the principle until it makes sense.. probably not feasible though... and thanks.

@Scott Titus I thought I heard a similar theory voiced somewhere also, that it was alright temporarily because loan-pay down will eventually catch them up. Unfortunately, I have no duplex/triplex's in my area.. there is 2 exactly, and they are both major dumps with terrible tenants. My next deal I was searching for was/is a multifamily in a town about 30 mins away. Live in it, rent one side, and rent my current residence. Use one of those cash flows to help me pay down my first loan. Refinance it, reduce my monthly payment on it, open up my va loan and get a 3rd property for <4% with more money down this time (i used $0 for this house...) and go from there..

I could maybe rent out my house and live in the basement as it is now.. not sure what else i could do there besides pack everything up, rent a bedroom somewhere and sell my house and look for something else..

@Joe Villeneuve That is a solid takeaway. I never considered losing money and have never deemed it acceptable. If I did I don't think I would be here asking you wonderful people on BP how to not fail horribly. I would love to have 500+ monthly cash-flow from my one and only property. I am currently making -1200 a month as i am living in the place, and as it stands, that high CF isn't a thing for me... I am still looking for that.. and doing my best to not speculate. After a certain dollar amount i know that moving the goal posts for rent etc is futile and appreciation is fickle.. but yah, The time frame i am looking at is essentially a year and a half from now.  

@Joe Villeneuve I can understand where you are coming from on being objective regarding everything. Taking into context everything I have read, I gathered (perhaps rationalized, oops) that the first house is in fact harder to manage because of overall low cash. Hence, why many new investors have trouble getting their second deal. Or maybe it is a bad investment on my part, despite doing the best research I could ( I did a lot, except for the unknown variables)..it is my first house/investment property so I have accepted I will make mistakes... if rent were 1400, which it could go for possibly, it would boost 57 up a bit..

If I give it time, I can use the next property's cash flow to offset my mortgage and build a second cash flow stream.. I have a solid W2 income at the moment and family partner with capital, and I am not terribly worried about surprise expenses if it means I can eventually pay down the first mortgage maybe refinance it using a different loan and reusing my VA loan again but more wisely..

If I can turn the 57-157 CF property to 500+ CF and get another property at a low interest rate on the side just by hustling it a bit I wouldn't say its a bad thing...

But i am new...and maybe that is just a Band-Aid for a bad wound and I am just naive..

@Caleb Heimsoth I figured that would be a given, not doing so would be a big no-no I'm sure. I wasn't sure of the exact implications of having it.

Thank you @Jeff Copeland for clarifying. That is exactly what was wrong, I was not accounting for it being an expense and didn't adjust that column properly at first. I know some investors pay half or will cover the utilities to make rent more appealing/keep things running. But it is nice to know the best practice. I wasn't sure!

@Joe Villeneuve $474 CF is right, but I figured: Rent - PITI - (capex, vacancy, maintenance, management being roughly $420) = $54 CF

If right, Is $54 CF worth it for a first rental investment? I would imagine as I pay things down it will go up, in which case it may be best to hold on to. As long as the property is filled and is positive and not negative cash flowing, am I wrong in thinking this?