All Forum Posts by: David K.

Dear all,

I have acquired 4 SFH and 1 duplex in 2017, and I have two more in works that should close soon.

All except one I have done in partnership with a friend of mine and all of the properties were purchased using our personal names and conventional loans.

My guess is that I need to obtain the umbrella insurance policy to shield my personal residence and my family from any potential litigation.

What are your thoughts and what do you do in your own similar scenarios? How concerned should I be?

thank you!

Davd

This is a great xmax present @Derek Kirkwood and @David Fernandez - great valuable advises!

I went into RE investing thinking that it will be totally passive TK experience but now learning all other ways to add value and turn greater potential profits! Great stuff.

Happy holidays to everyone!

@David Fernandez, you are right, I should be adding those into my calcs. What I normally do, is that as soon as the rents come in, I transfer 10% into the reserve account to save for the rainy day. I have not done this long enough, so all incoming rents are sitting idle in the bank. I don't save "vacancy" money separately - should I?

But my confusion is really about the total deal (this one is just an example) calculating in general - should my calculations always account for the renovation costs when analyzing whether the deal is good?

So I have become somewhat comfortable with straight-forward calculations for buy and hold investments. Things such as 1% rule; CoC values and ROI are now very clear; I also automatically add 5-7% vacancy and also roughly 10% maintenance costs to all calculations...

But, I am still struggling with understanding how the money out of pocket for rehabbing costs play into the whole picture of deciding whether the investment is good or dead.

Here's the example:

I purchased duplex with 25% down and conventional 30-year loan. Purchase price was 252K. Total payments per month are around 1500 - these include mortgage, taxes, insurance, hoa. The total rent is 2300 and we pay 8% PM fee so cashflow is roughly 550-600/mo. So to me the cf is great. I also know that the property is in great A location with best schools.

Tenants below moved out as soon as we purchased it, and we put in around 8k to renovate and then rented out. The prior tenants used to pay 950 and we were able to rent it for 1250 to new tenants.

Tenants upstairs stayed and continued paying 950/mo but after 3 months also moved out. They asked if their relative could rent the place and we gave them an option to move in as is for 1050 or we renovate it and then the price would be 1250. They chose to move in as is.

Now, for cap ex - we know that we will have to change the roof and one central AC unit for first floor so we are looking at additional 11K in spending.

So the question that i have for myself is does this sound like a good deal or bad deal? The CF is great and will become even better once we clean up the 2floor unit but we keep on spending cash...I do not think that we do the refi game bc we really did not make any add-on value...

Please let me know what you think!

@Rick Pozos,

I agree with you. if I ever learn how to do brrrrs out of state on my own, and will see the monetary benefits that it promises then I will move the money out of my 401k. But until then, I have no choice but to let my money be managed by someone else.

@Tae C. - everything i have done so far has been with the money that I have had. But that is probably a bad thing because I have been able to move quickly - I am at the point where I am now able to start making conclusions about the direction I took. TK's are probably not going to allow me to quit my job. I would probably need like 30+ doors to replace my current income from the job, and that is if I am able to maintain 5% vacancy and no more than 10% all repairs. One of my properties that I closed in November, instead of getting my first rent in December, I was hit with the failed water boiler and the bill for $850. So, now I have no leverage left in that unit for the rest of the year...

So, the choice is to slow down and forget about quitting my job but continue investing into TK's for future retirement, or find the way to invest into BRRRRs.

@Rick Pozos - thank you! I get it that finding rehab deals will be way more rewarding, It's time to start thinking bigger and get off my lazy behind :)

I, however, am not sold on the idea to re-route my 401k money into RE, at least not until I know what I am doing.

thank you @Andrew Syrios.

I guess that in this context, the community banks are "considered" a private lender? This is interesting. 

Thank you for your comments.

I did not know that there are private lenders for 30 year terms. I imagine that the rates will be high.

Fed has just raised the interest rate and they are also expected to raise it at least 2-3 more times in 2018 - I wonder how this is going to impact the overall RE movement.

So I have been very busy this year (my first year) and have acquired a few investment properties, and a few more are in works...

If this continues, and I expect it to be the case, I shall exhaust my conventional 10 loans by Fall 2018. So what's next???

I have been actively listening to BP podcasts and reading and there are a few options but i am still unclear.

It is much more evident what to do if you are into BRRRR, because then you have an option to seek the short term private loan or even borrow against the credit card or your relatives. You know that in 6 mo or a year, you will most likely be able to refinance and pay off the loan.

But, I am strictly passive investor and invest into the TK properties, where there is no room for improvements and thus I will not be able to repay the loan quickly. 

So, what are my options? 

1. Partner with someone who's still able to borrow conventionally. I have started looking but truthfully, for TK investments where the cashflow is about $200 per unit, finding someone who is interested is a long shot..

2. Not investing into a SFH, but instead finding those small MFH's. This way you are only applying for 1 loan per few units. This is definitely intriguing, but not as easy to find a TK MFH. Plus, you will still eventually run out of loans and hence my post :)

3. Do not invest into TKs

Please share your thoughts and prior experiences - thank you  - your insights are invaluable!