All Forum Posts by: Trent D.

I like to ball out as much as the next guy!  As a successful investor and business owner, I felt like I had enough active and passive income and cash reserves to start having a little fun.  First I went and got the Mercedes CLS550 with the custom 20" Lexani wheels, then I later traded up to the Maserati Quattroporte (which is a beast of a vehicle by the way).  I start looking into buying a nice big home after renting out a penthouse condo in the middle of the city when I ran into a speed bump.

Buying too many luxuries, whether you're paying cash or financing them, can hurt your business as an entrepreneur in the long run.  I'll explain how....

First, there's something called Global Cash Flow.  This is something banks look at when they're underwriting  you for loans.  If you're looking to build your portfolio and add more single family homes, apartments, hotels, etc, they are going to look at you and your business as 1 entity until your business alone is grossing around the $5 Million+ mark. 

For example, I was talking to a banker friend of mine that did the underwriting for the last apartment building I bought.  He was telling me about an investor that owned property and grossed over $1MM per year in revenue.  He was trying to get a loan for around $500k and was denied!  Why?  Because he had a mortgage of $6k/mth and a car note of $2k/mth...in addition to his other household expenses.  This made him look globally unstable to the bank.  If his business happens to run into trouble and he has an expensive lifestyle, he might be at a higher risk of not repaying the loan.

Secondly, if you think it's ok because you have the cash to buy your toys, you might want to think again.  Banks also look at personal cash on hand when underwriting.  If you spend a good bit of money on cars and mortgages, you have to think how much better you'd look if you had that money in their bank for them to see. 

Not only that, but when you start leveling up in the development and multifamily investment game, you have to present yourself as a responsible fiduciary of money.  People will eventually want to give you money to invest into your projects and you don't want to come across as a materialistic flashy person.  Because if a deal happens to go bad, the first thing your investors are going to think is that their money went towards your Bentley and mansion payments!  That's just how people think.

This really resonated with me and made me sell my cars and rethink the home I wanted.  It can wait!  I WILL get the toys I want, but in due time. 

Build your business first, and ball out later!

#FoodForThought   

#EnjoyTheJourney

Hey @Kenneth Hynes

Managing Class C property (low income tenants) requires a lot of hands on interaction.  I've hired a property manager, but I have her run all maintenance requests by me first before action is taken.  I prioritize each request based on safety, major systems issues, and lastly cosmetic or minor requests.  The main difference with MF is that you don't tackle all the issues you're presented with at once like you might do for a SF resident.  Train your tenants to be patient, but keep them in the loop about the progress of their requests.  

Ongoing routine maintenance tasks will save you a lot in the long run too...like pest control, tracking common utility usage, etc.

Tenant screening is pretty much the same, but again, for class C you can expect high turn over rates, so plan for it. Develop relationships with contractors that can throw in some new carpet and paint a unit when you have a move-out. Get a flat rate from them so you know what to expect each time and can budget for it. Also look into Section 8 and VA program tenants to assure rent is paid and limits your turning of units.

Hope this helps!

-Trent

Hello BP Familia!  I'm finally taking some time to post on BP to contribution for once instead of just getting priceless information from this wonderful site!  

So, My name is Trent and I started doing real estate back in 2003 fresh out of college.  I was introduced to RE during the wild wild west period of lending, where you can get a $250k loan by just stating your income and assets.  Mind you, I was fresh out of school w/ no job and no assets, but yet I got approved for 3 home loans over $200k each.  I rented out these homes and everything seemed to be going well until the market crash of 2008 came along and knocked my block off!  Every mortgage I had went through the roof and I was upside down.  I had 2 foreclosures and 1 I barely saved by filing bankruptcy (which I later regretted).

I took some time off real estate to get my feet back on the ground, but not too long, because I saw the opportunity in the down market we were in.  I saved up some money and bought a nice 3/2 here in Atlanta for $15k and resold it that same week for $20k!  This got me back up on the saddle and I was ready to ride!  I did a couple more sweet flips and decided to tell my brother about what I was doing.  We partnered up and start buying houses to flip without doing any rehab.  This worked well until the market started to rebound.  The market told us that flipping was slowing down and it was time to buy and hold! (tip: Always follow the market, not your own opinions) 

We were able to buy a couple of single family homes for under $30k each at the time and rent them out via Section 8 that was paying well above market rent.  We had a process of working, saving money, and buying more homes to build our portfolio.  Cutting back and sacrificing was necessary to save up money to buy cash...but eventually everyone's cash will inevitably dry up, which ours did.

This is when we had to look at financing.   We started talking to BB&T (which is a great bank to work with if you're a small business).  They did a refinance for us on a few of the properties we owned, and we sold off a few too.  The goal was to find an apartment building to buy!!  We were new to this and didn't know what we were getting into, but had the confidence we could do it.

We had a friend that was a commercial broker that told us about a 52 unit building that was being foreclosed on by the lender.  They were willing to transfer the mortgage on it with very little underwriting and give us an additional loan for rehabbing the property!  This was a gift from the heavens due to the rarity of something this sweet!  We bought it for about $910k which included $100k for rehabbing the units that weren't occupied.   

This complex was already operating with a property management company the bank put in place, so we let them stay in place to run the property.  12 months went by.  We had the whole complex renovation and rented up to about 85% but.....we hadn't made a dime!  Literally, we hadn't made any money in our pockets.  The management company was taking all the profits!  This wasn't being done maliciously; it's just the way management companies work.  Nobody cares about your money more than YOU!  They don't care about how much they spend on maintenance or take the time to prioritize tenant requests.  They don't put in 110% effort to rent out vacant units, nor would they shop around for the most affordable contractors.  

After that first year we decided to get rid of them and self manage.  We hired a part time property manager to work for us and handle the day to day task.  Immediately we started seeing profits!!  Self-management was definitely the way to go for us.  

We've grown a lot since our first deal.  We continue to try to learn and network and build up our credibility in the real estate community.

We now own a little over 100 units and plan to have over 500 in the next 3 years.

The best advice I can give folks wanting to get into multifamily real estate is to build your profile!

Your profile consist of your credit score, your IRS documented income, your cash, and your assets.  It sounds like a lot, but start small and grow slow.  You will need to work closely with banks, and this is what they'll want to see....so paint them that picture!  Build your relationships with the bankers that matter.  Meet with commercial lenders and take them to lunch.  Get them to like you and want to fight for you to get loans.  Do the same with commercial brokers.  They need to like you to want to send you deals before they send it to all their other buyers.

I think that's enough for my first post!  I will share more in the future as I'm starting to structure my first syndicated deal.  

Success is not overnight.  Be patient and always remember to enjoy the journey!  

Peace

-Trent