All Forum Posts by: Zach Howard

Quote from @Zach Howard:

Quote from @Corey Conklin:

Quote from @Zach Howard:

Quote from @Corey Conklin:

@Zach Howard Using OPM isn't a bad strategy when it comes to real estate. The problem is thinking when you are starting out that you should use 100% OPM. 

Don't use this money for down payments, and don't use it to be 100% leveraged. As others have said you WILL fail. There are other ways to use OPM and not be as risky about it.

What you should do is leverage this money at 80% LTV and put 20% of your own money into the deals. That gives you a great advantage to the lending investors are getting here in the states with the much lower interest rates.

As others suggested you could also lend this money out for 10-12% and make your money that way and not put yourself on risk on the asset. The problem there is you only have 200k and there are a lot of local lenders that offer similar same terms, so why would anyone chose someone outside of the states? If you go this route you better find a way to set yourself apart. That means you'll probably have to take on riskier borrowers or agree to riskier terms.

My advice - If you don't have boots on the ground here in the states (that you can rely on), or someone you know you can trust to borrow this money then I wouldn't risk it. Make those connections first.

I know you want to take advantage of a great opportunity in your lending terms but that's only a piece of the pie when it comes to success in real estate. 

 I'm curious as to why you suggest putting down 20% of my own money. Somehow I think it's better to hold onto my own money and keep that dry powder on the sidelines waiting to get into the game if there are some emergency expenditures (haha, very likely with the kinds of deals I'm thinking about in class C neighborhoods). I can't wrap my head around your ideas, but I would really love for you to educate me on your thought process. And why 20-80, is that some magical ratio, or perhaps it's backed up by some sort of statistical analysis? 

I'm still really not sure what to do, so thank you very much for your contribution to this thread, I hope you'll say more. I'm still in reconnaissance mode... so need to collect as much information and knowledge as possible before deciding what to do. 

 20-80 is more of a rule of thumb and not a "magical" ratio. If you have a good understanding of your market, asset class, risk profile, etc. this ratio can change accordingly. One thing I can assure you, there isn't an asset class in the world that would have me comfortable at 100% leverage.

Your money on the sidelines is great in principal but in reality it will be put to work covering the net loss on the properties you buy as you will be overleveraged and won't be able to cover your operating expenses with the rent. So really to have a higher chance at success you should have both money to put in the deal to lower your leverage AND money on the sideline to cover those potential cap ex projects. 

As you seem to be aware, class C is risky. Having no experience is risky. Not being in the country you want to invest is risky. 100% leverage is risky.

Lowering your leverage point is one of the easier ways to decrease your risk and therefore increase your odds at success. If you had 20 years of experience, great connections in the US, and knew your market in and out then I would say you could probably leverage at a higher rate and could probably manage that risk because you have substantially decreased all of the other risks.

You should really study what happened in the US during the 80's when overleverage on real estate put a lot of people in a bad spot. This is what got Dave Ramsey in trouble years ago and that's why he preaches financial advice the way he does.

Back to the original topic. I'm thinking about getting a 200k personal loan - I'll use my salary to repay equal monthly payments for the next 5 years. As long as I don't lose my job and don't have any major financial surprises, repaying this loan is not a problem. Another way to think of this is that the repayment of this loan has nothing to do with what I use the 200k for. Having said that, I'd like to put the 200k to work, otherwise what is the point of borrowing the money in the first place?
 
I think then that if you were me you would use the 200k to purchase something outright in cash, and not use the 200k for down payments on 1 or multiple properties - fair?

If I were you I wouldn't invest in real estate at all. 

You seem to be getting caught up in putting money to work. In order for money to go to work it needs to be invested properly. If you do that wrong you might as well throw it out of an airplane. Investing in real estate can be lucrative but it's not as easy as real estate "gurus" on podcasts say. 

You have every odd stacked against you when it comes to investing in real estate at the moment (multiple people have provided multiple reasons). If you want to flip those odds it's going to take a lot more than throwing 200k into some of your own real estate deals. You will need to find partners, you will need to travel to where you wish to invest, you will need to understand the ins and outs of the business by being actively involved and treating it like a business and not some super passive investment.

If you don't want to do that work I suggest you just put that 200k into some sort of diversified mutual fund that can make you 10+% on your money without any of the work of real estate.

At the end of the day this is just my advice and I'm only a stranger on the internet. For all I know you could be one of the first people to invest out of country, with no experience, in class c assets, at 100% leverage and be highly successful. 

Do what you think is right for you and put up the fight to make it work out if you have to.

Good luck and I hope it all works out for you!

@Zach Howard

There is no legal requirement for landlords to actually witness lease violations firsthand. Most properties are remotely managed by owners/PMs and what was suggested would be an impossible and unrealistic standard to set - much less enforce.  A report by a neighboring tenant is admissible in court.  Unfortunately/fortunately, my clients and I have both been a position where we were armed with tenant reported violations only and acted accordingly and successfully.  Kudos to tenants who care about the property enough to report violations...grateful.

I'm new to investing and wanted to get some advice/perspective on 2 things...

1. For someone new to real estate investing that wants to do long term rentals, do you recommend starting off in an area close to them/an area they're familiar with or someplace that will give them the best return even if it's out of state. 

2. Since this would be my first long term rental property do you recommend starting with a property manager from the beginning or managing the property myself.

I understand that there are pros and cons to all of these scenarios, I'm just looking for various insights. Thank you!

Bit of a crossroads here, I'm hoping someone with a similar situation could chime in. I'm really busy with my w2 job working all the time to fund my investments. I've been buying SFH's out of state all cash as long term hold rentals. A smaller paid off portfolio seemed a lot easier to manage so that is the path I was on.. but I've come to the realization if I ever want to accumulate serious wealth I will have to use leverage and scale big. How are you able to scale big when out of state and super busy? My estimation was with leverage I could do about 7 homes a year and each year after it would increase. Soon I would be doing a home a month+. Trying to wrap my head around this being feasible while working so much at my w2. My involvement would go down drastically to where the only thing I'm doing would be funding the deals.

-Do you have a property manager that you turn the home over to after purchase and they take care of everything?  

-How much involvement do you have? 

I imagine this isn't cheap but I don't see another way.

I would send a lease violation notice that advises the tenant that they have violated the no smoking provision of the lease and that it needs to be cured immediately - to include complying (not smoking) and remove any odor/damage that may have resulted. I would not waste my time with what was being smoked or how I learned of the violation. It's simply factual:  you violated the lease by smoking, stop it, remove the resulting odor and that a repeat action could result in eviction and loss of security deposit.  

The #1 reason why landlords fail is this:  Failure to manage to the lease (Source: American Apartment Owners' Assn).  When you fail to enforce, you are accepting the violation.  

Again, this is a factual action that will ensure that you remain in control of your property and that the other tenant has the peaceful use of the property that is a legal right.

Fun, huh?  Hope this helps.

Quote from @Zach Howard:

Quote from @Corey Conklin:

@Zach Howard Using OPM isn't a bad strategy when it comes to real estate. The problem is thinking when you are starting out that you should use 100% OPM. 

Don't use this money for down payments, and don't use it to be 100% leveraged. As others have said you WILL fail. There are other ways to use OPM and not be as risky about it.

What you should do is leverage this money at 80% LTV and put 20% of your own money into the deals. That gives you a great advantage to the lending investors are getting here in the states with the much lower interest rates.

As others suggested you could also lend this money out for 10-12% and make your money that way and not put yourself on risk on the asset. The problem there is you only have 200k and there are a lot of local lenders that offer similar same terms, so why would anyone chose someone outside of the states? If you go this route you better find a way to set yourself apart. That means you'll probably have to take on riskier borrowers or agree to riskier terms.

My advice - If you don't have boots on the ground here in the states (that you can rely on), or someone you know you can trust to borrow this money then I wouldn't risk it. Make those connections first.

I know you want to take advantage of a great opportunity in your lending terms but that's only a piece of the pie when it comes to success in real estate. 

 I'm curious as to why you suggest putting down 20% of my own money. Somehow I think it's better to hold onto my own money and keep that dry powder on the sidelines waiting to get into the game if there are some emergency expenditures (haha, very likely with the kinds of deals I'm thinking about in class C neighborhoods). I can't wrap my head around your ideas, but I would really love for you to educate me on your thought process. And why 20-80, is that some magical ratio, or perhaps it's backed up by some sort of statistical analysis? 

I'm still really not sure what to do, so thank you very much for your contribution to this thread, I hope you'll say more. I'm still in reconnaissance mode... so need to collect as much information and knowledge as possible before deciding what to do. 

 20-80 is more of a rule of thumb and not a "magical" ratio. If you have a good understanding of your market, asset class, risk profile, etc. this ratio can change accordingly. One thing I can assure you, there isn't an asset class in the world that would have me comfortable at 100% leverage.

Your money on the sidelines is great in principal but in reality it will be put to work covering the net loss on the properties you buy as you will be overleveraged and won't be able to cover your operating expenses with the rent. So really to have a higher chance at success you should have both money to put in the deal to lower your leverage AND money on the sideline to cover those potential cap ex projects. 

As you seem to be aware, class C is risky. Having no experience is risky. Not being in the country you want to invest is risky. 100% leverage is risky.

Lowering your leverage point is one of the easier ways to decrease your risk and therefore increase your odds at success. If you had 20 years of experience, great connections in the US, and knew your market in and out then I would say you could probably leverage at a higher rate and could probably manage that risk because you have substantially decreased all of the other risks.

You should really study what happened in the US during the 80's when overleverage on real estate put a lot of people in a bad spot. This is what got Dave Ramsey in trouble years ago and that's why he preaches financial advice the way he does.

I tried to skim most of the replies so I wouldn’t repeat what’s already been said but here’s my response to OP about real estate and retirement. 

Treat it like a retirement plan, in fact I replaced my retirement contributions with real estate. This means…

Don’t count on it to cashflow, your 401k or your ROTH doesn’t cash flow, they never have. And yet every retirement expert tells you to sink every dollar you can afford in to these accounts. 

From 2015-2020 everyone on BP was cash flow, cashflow, cashflow. Cashflow is guaranteed, Appreciation is gambling, blah blah blah. Then in 2020 it turned out cashflow wasn’t guaranteed, the government could burn your cashflow to the ground and you could lose everything. To me this was always a false narrative. All my rentals were in Vegas during the Great Recession. You tell me a market that was hit harder than Vegas? Well.  I never made more money than that time period. Rents were skyrocketing, 10-20% annually. I had waiting lists of tenants for the first and only time in my career. 

Personally I don’t think you are ready or that you should buy real estate if you NEED the cashflow. Especially if it’s less than $1,000/months per property. It’s just too easy for it to go away. In fact I went out of my way to get 15 year mortgages because I knew that even if I had zero or even negative cashflow I was literally making more money as my interest expense was lower. I care about income waaaay more than cashflow. I sank every dollar my rentals provided back in to paying off debt and acquiring more properties. (You know, zero cashflow, just like a retirement account.)Even today with only paid off properties generating a boatload of cashflow I generally make more every year on appreciation. 

Sure, it took almost 10 years to retire, but compared to the 30-40 year plan most people use it was a dream come true. And none of that counts the 10’s of thousands in tax advantages I reap without any advanced skills or planning, the government just hands them out. 

It’s not a binary on/off choice. Not convinced? Buy a new primary every 2-5-10 years, whatever you can afford. Keep it as a rental and I GUARANTEE your life will be better in 20-30 years than if you ignore me and the simple get slow plan. After all, if your 5% down properties only double in 20 years you’ll have 40x your money. And that extra $40-$50k a year will be life changing. Every single new investor wants to say it was easier “back then” or “it’s too hard/impossible today” so they don’t have to start today. When I was buying 1/2 price homes not ONE person I talked to said it was smart. EVERY single one said “aren’t you afraid they’ll keep dropping?”  Now they tell me I was lucky I bought back then. I was buying homes for $100k with $25k of my money, and the mortgage was paid off by the tenants. Did they really think 3 year old Vegas homes would drop below $25k? Now they’re hoping they’ll drop below $525k. 

You’re surrounded by a support group I never had, and that’s a positive. But I also didn’t have all the negative Nancys (sorry Nancys of the world) saying it was too risky too late or couldn’t be done. Maybe that’s why it was easier doing it alone. I literally didn’t know a person that owned 2 homes, much less a rental. I just did the math and it was obviously better than stock account retirement. And experts said that was a good idea. So if this was better it couldn’t be a bad idea. Get started and look back on today in 5-10 years with all your new knowledge. Keep asking questions. And Good luck. Sorry again to rant but I never plan my response beyond the first paragraph and I’m sure it shows. 

I have properties in all neighborhood classes. On paper, my C rentals have amazing cash flow. The reality at the end of the year is always much different. I get way more vacancies and repairs. In these neighborhoods it's just much harder to rent the units to somebody who will not wreck it on the way out. My B+ rentals are a different story. I get repair calls maybe once or twice a year, and tenants often stay years at a time. The C rentals still cash flow better, but the difference is marginal and honestly not worth the extra headache. 90% of my gains have been through appreciation and forcing equity through value add. I'm at a point now where I am able to live off of my cash flow, but it took me a lot more units than I thought it would. Honestly if you are trying to retire off the income just purchase value adds in the best neighborhoods you can afford. Rents will increase and you can pull equity out of these homes when they go up in value. 

On the other hand, you can flip in any neighborhood as long as you are buying at a steep discount below ARV.