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Being a Landlord
Posted: 05 Feb 2021 18:51
by Ghost_Lombardi
I thought I'd start a thread for those interested.
We started by buying a foreclosure on our block - we wanted to control who lived on our cul-de-sac. We bought it and then quit claimed it to an LLC I own (sole agent). It has built our wealth and provides a passive income.
I generally use capitalization rate to determine how much to offer on a property, working backwards from expected rent and "worst case" rehab costs.
Example:
1319 Wayside (see pics in other thread) bought at 34K at tax auction. Cash. 35K was my "walk away" price.
25k to rehab. Cash for keys, trash removal, roof, furnace, plumbing, water heater, appliances, flooring, lightening, electrical work, bathroom remodel, attic insulation, etc.
Plus holding costs: electric, water, gas, insurance, taxes.
60K in it before renting.
Rent at $820 per month.
Insurance is 51. Garbage is 11. Tenant pays all other utilities. Tax for non-homestead at 150 per month. Maintenance 100 per month.
Net monthly = 820 -312 for $508.
$508 x 12 = $6096 ---->this is the Net Operating Income.
Capitalization Rate = NOI divided by Purchase Price, in this case 6096/60,000 = 10.16%
10% return on invested capital.
Now add to that the immediate equity gain. The home could sell tomorrow for 90 to 100K. At 90K I get competing offers over the ask.
So I've got 30K in equity plus the passive income.
Re: Being a Landlord
Posted: 05 Feb 2021 20:19
by BF004
I have a pretty large stake in a small real estate investment firm.
Basically just friends and family of a guy we all trust who was willing to take on more properties, more work, for access to more capital. I think as a fund we are up to about 2 million and probably have close to 20 tenants thus far over 6 properties. Still a bunch in the coffers, he really wants to target a bigger complex, says the competition is just so much smaller once you get like 7 digits in value. So many of the hobbyists just can't even make an offer, can find better deals.
2020 had a budget of 9% ROI, that is with every property at the minimum 20% down. Plan is to likely refi after 5 years owning each property, bring the equity back down to 20%, pay out a dividend or add capital back to the fund to add more properties. Or if we/he doesn't want more properties, eventually begin to pay the properties off, even ahead of schedule and either just enjoy the free income or sell off some properties for some handsome dividends.
Definitely an easy path to some financial freedom going this right route if you know what you are doing. Been playing around with a lot of stuff lately, metals, crypto, stocks, this, but still think going all in on getting a few rental properties would be the way to go. I am quite handy so I could fix many minor issues. Just gotta take the leap some day.
Re: Being a Landlord
Posted: 05 Feb 2021 20:34
by Ghost_Lombardi
BF004 wrote: ↑05 Feb 2021 20:19
I have a pretty large stake in a small real estate investment firm.
Basically just friends and family of a guy we all trust who was willing to take on more properties, more work, for access to more capital. I think as a fund we are up to about 2 million and probably have close to 20 tenants thus far over 6 properties. Still a bunch in the coffers, he really wants to target a bigger complex, says the competition is just so much smaller once you get like 7 digits in value. So many of the hobbyists just can't even make an offer, can find better deals.
2020 had a budget of 9% ROI, that is with every property at the minimum 20% down. Plan is to likely refi after 5 years owning each property, bring the equity back down to 20%, pay out a dividend or add capital back to the fund to add more properties. Or if we/he doesn't want more properties, eventually begin to pay the properties off, even ahead of schedule and either just enjoy the free income or sell off some properties for some handsome dividends.
Definitely an easy path to some financial freedom going this right route if you know what you are doing. Been playing around with a lot of stuff lately, metals, crypto, stocks, this, but still think going all in on getting a few rental properties would be the way to go. I am quite handy so I could fix many minor issues. Just gotta take the leap some day.
If I am understanding you right, I think you should absolutely demand that owners get a dividend. Otherwise it is just free money for your friend.
I'm leary of leveraging properties. Many investors lose everything by carrying too much debt.
A 2/1 or 3/1 on a slab is a good first investment. Usually they have a single roofline and just two wet walls, so they are quite inexpensive to work on, yet solidly built in the 1950s in the post WWII boom. Keep in mind that purchase price is the most important decision you will make. Leave yourself margin for error.
In terms of properties, auctions, FSBO, and wholesalers are your best best. A wholesaler is someone who does direct marketing, gets a signed contract for a cash price on a house, and then sells the contract to an investor for a fee. Realtors often wholesale or know wholesalers.
Re: Being a Landlord
Posted: 05 Feb 2021 20:40
by BF004
Ghost_Lombardi wrote: ↑05 Feb 2021 20:34
BF004 wrote: ↑05 Feb 2021 20:19
I have a pretty large stake in a small real estate investment firm.
Basically just friends and family of a guy we all trust who was willing to take on more properties, more work, for access to more capital. I think as a fund we are up to about 2 million and probably have close to 20 tenants thus far over 6 properties. Still a bunch in the coffers, he really wants to target a bigger complex, says the competition is just so much smaller once you get like 7 digits in value. So many of the hobbyists just can't even make an offer, can find better deals.
2020 had a budget of 9% ROI, that is with every property at the minimum 20% down. Plan is to likely refi after 5 years owning each property, bring the equity back down to 20%, pay out a dividend or add capital back to the fund to add more properties. Or if we/he doesn't want more properties, eventually begin to pay the properties off, even ahead of schedule and either just enjoy the free income or sell off some properties for some handsome dividends.
Definitely an easy path to some financial freedom going this right route if you know what you are doing. Been playing around with a lot of stuff lately, metals, crypto, stocks, this, but still think going all in on getting a few rental properties would be the way to go. I am quite handy so I could fix many minor issues. Just gotta take the leap some day.
If I am understanding you right, I think you should absolutely demand that owners get a dividend. Otherwise it is just free money for your friend.
Quarterly dividends are built into the contract.
It's very transparent, I'm helping run a Tableau site for him so everyone can see the properties and financials. There is money in coffers, not his fault. We all want him to hold out for good deals and all want to give him more money. So there just is a surplus at the moment, this is only like a year or two old. We talked about holding the money till he found something, but the possible time to acquire funds could possibly harm a deal, so LIS, we all really just trust the guy, friends and family only at the moment. There is a totally separate account and LLC set up, getting a k1 tax doc and everything.
I usually wouldn't go for this, but very very good friend of the family, they were just at our house to do some ice fishing a few weeks ago, we watched their oldest kid when they were at the hospital having their 2nd. I'd trust him with my wallet, he is a CPA by trade, owns a pharmacy in the small town we used to live in.
Re: Being a Landlord
Posted: 05 Feb 2021 20:55
by Ghost_Lombardi
In my area there is nothing to buy right now. Slumlords are selling &%$@ holes as "starter homes in need of TLC."
My LLC has around 250k sitting in a savings account. I want a 4 unit complex, but they rarely go up for sale and when they do someone pays an absurd price, making the ROI less than a few percentage pts. I would leverage for a complex.
I'm assuming eventually that the foreclosures and tax auctions will come back. All of them in my area are cancelled due to Covid.
Re: Being a Landlord
Posted: 05 Feb 2021 21:45
by BF004
With 250K and that market, why not build a duplex?
Re: Being a Landlord
Posted: 05 Feb 2021 22:29
by Pckfn23
Lumber prices are absurd at the moment.
Re: Being a Landlord
Posted: 06 Feb 2021 09:21
by Ghost_Lombardi
Pckfn23 wrote: ↑05 Feb 2021 22:29
Lumber prices are absurd at the moment.
Between lumber and trusses and land I would be at 100k pretty quick. Add another 70 to 100 to finish it. And then I doubt it appraises for that. It is cheaper to rehab than build and you get the immediate sweat equity.
A side by side or up down 2 unit wouldn't produce enough rent to cover build costs. Plus I'm in a college town. Any land zoned for a two story 4 plex is already taken.
Re: Being a Landlord
Posted: 06 Feb 2021 11:05
by Pckfn23
That's crazy a $200k home around here would be 1000-1200 square feet at most! That's not even in using the land in that cost.
Re: Being a Landlord
Posted: 07 Feb 2021 17:05
by texas
I'd be curious to brainstorm a bit about ways to find deals, and possibly code something up. I posted a while ago but my first business success was with a system where we'd scrape the local MLS data every 15 minutes to find undervalued homes (we'd value them with a simple algorithm using sold comps within a given radius from the previous 6 months plus a few other factors).
Point is, data is out there and outside the box stuff can work. I spun up this system last summer with one of my original business partners, and we went 0for on offers. Back in the day we'd only win about 5% of offers, but since we'd crank out like 5 offers a day, it added up. This time we ran it on the same market for a few weeks and got a couple under contract, but for some reason didn't close (I honestly don't remember why, as this was sort of a side project). I would be curious how a system like this would work outside of Texas.
Re: Being a Landlord
Posted: 09 Feb 2021 09:36
by Ghost_Lombardi
1414 Portage Street
Kalamazoo, MI
Walk up duplex. It is unoccupied,which is weird. I see it today.
Re: Being a Landlord
Posted: 14 May 2021 16:34
by Ghost_Lombardi
The tax property I bought last fall is up for sale.
First day, 15 showings, 3 offers in. Listed at 95,900 and the best so far is 110,000 with no concessions. Best and highest by 10 pm tonight. Supposedly an offer tonight is supposed to be cash.
I bought at around 32 and have 28 in the rehab, for a cost of 60 or so. Plus my labor.
Re: Being a Landlord
Posted: 14 May 2021 17:35
by texas
Ghost_Lombardi wrote: ↑14 May 2021 16:34
The tax property I bought last fall is up for sale.
First day, 15 showings, 3 offers in. Listed at 95,900 and the best so far is 110,000 with no concessions. Best and highest by 10 pm tonight. Supposedly an offer tonight is supposed to be cash.
I bought at around 32 and have 28 in the rehab, for a cost of 60 or so. Plus my labor.
Nice! That's a great ROI
Re: Being a Landlord
Posted: 14 May 2021 20:54
by Ghost_Lombardi
texas wrote: ↑14 May 2021 17:35
Ghost_Lombardi wrote: ↑14 May 2021 16:34
The tax property I bought last fall is up for sale.
First day, 15 showings, 3 offers in. Listed at 95,900 and the best so far is 110,000 with no concessions. Best and highest by 10 pm tonight. Supposedly an offer tonight is supposed to be cash.
I bought at around 32 and have 28 in the rehab, for a cost of 60 or so. Plus my labor.
Nice! That's a great ROI
Took the offer at 110 with no concessions. Hopefully they didn't lie to the bank for the pre-approval. It happens in this price range.
Re: Being a Landlord
Posted: 15 May 2021 17:44
by texas
Ghost_Lombardi wrote: ↑14 May 2021 20:54
texas wrote: ↑14 May 2021 17:35
Ghost_Lombardi wrote: ↑14 May 2021 16:34
The tax property I bought last fall is up for sale.
First day, 15 showings, 3 offers in. Listed at 95,900 and the best so far is 110,000 with no concessions. Best and highest by 10 pm tonight. Supposedly an offer tonight is supposed to be cash.
I bought at around 32 and have 28 in the rehab, for a cost of 60 or so. Plus my labor.
Nice! That's a great ROI
Took the offer at 110 with no concessions. Hopefully they didn't lie to the bank for the pre-approval. It happens in this price range.
How long do you have to wait to close?
Re: Being a Landlord
Posted: 15 May 2021 18:57
by Ghost_Lombardi
texas wrote: ↑15 May 2021 17:44
Ghost_Lombardi wrote: ↑14 May 2021 20:54
texas wrote: ↑14 May 2021 17:35
Nice! That's a great ROI
Took the offer at 110 with no concessions. Hopefully they didn't lie to the bank for the pre-approval. It happens in this price range.
How long do you have to wait to close?
Locally it is running 30 to 40 days.
