Anyone own any property on the side?

REmonkey2's picture
Rank: Baboon | 146

Curious to see if any of you have pulled the trigger on owning property yourselves.

I'm putting in offers on buildings in Cleveland between 7-15 units so crossing my fingers I'll have a deal under contract by end of Jan!

Comments (109)

Jan 5, 2020

looking to do something similar in 2 years. are you in it with any partners, and how are you handling the property management?

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Jan 5, 2020

One partner for now, we split 50/50. It's an out-of-state investment so we are using local PM. We were also looking at Buildium or Cozy.co, but decided against it plus we're dealing with government programs (section 8, EDEN) so they have more experience.

Jan 28, 2020

How much are you paying the PM? This is for rental so I assume lower? I looked into short-term rentals/Airbnb and some charge north of 20%. I've even heard of 45% in Miami. Depending on what you want them to do.

Array

Jan 5, 2020

How much are you putting in as Equity? How are you financing these properties?

Array

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Jan 5, 2020

We've got about $110k liquid between the two of us, so we've got a decent war chest. That is able to get us about $500k loan if we decide to go 80% LTV.

Theoretically, we could get a hard money loan for an acquisition for a redevelopment, then finance close to 100% of the construction costs, then just refinance it. No money down, that's the dream. :)

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Jan 6, 2020
REmonkey2:

We've got about $110k liquid between the two of us, so we've got a decent war chest. That is able to get us about $500k loan if we decide to go 80% LTV.

Theoretically, we could get a hard money loan for an acquisition for a redevelopment, then finance close to 100% of the construction costs, then just refinance it. No money down, that's the dream. :)

Crazy. I just bought my condo for similar #s

Jan 6, 2020

How do you buy 7-15 units with 500k? I'm assuming units as in apartment units/condos. How hard is it to get a LTV of 80%? Say I have half a mil can I get somewhere near $2.5MM?

Array

Most Helpful
Jan 5, 2020

Word of caution, just really know the numbers, the market, what you're doing, the exit strategy, etc before you jump in. Have owned several properties for close to 20 years. Both good and bad experiences. Trying to unload some commercial lots right now and it is not easy.

RE is a great investment if you know what you're doing and can carry the costs for an extended period of time (at some point you will have to - would be unusual otherwise).

Go in with your eyes wide open, assume some crazy crap will happen, and have a plan. It can be lucrative and it can suck depending on the circumstances.

Don't rush.

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Jan 5, 2020

planning on starting small in my own market. aiming to start with 8 units and hopefully scale to 100+. just dreaming but i am not rushing into anything.

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Jan 5, 2020

Yeah, we're dealing with section 8 and affordable housing, so definitely not class A and B class tenants. Turnover will be rough, but vacancy will be super full and HUD is willing to pay more than market rent in my investing market.

What asset class of property did you buy and where?

Jan 6, 2020
REmonkey2:

Yeah, we're dealing with section 8 and affordable housing, so definitely not class A and B class tenants. Turnover will be rough, but vacancy will be super full and HUD is willing to pay more than market rent in my investing market.

What asset class of property did you buy and where?

Are you prepared to deal with the paperwork that comes with income certifying tenants and all that? Or have a property manager who is experienced in it?

Also, be very careful if you aren't 100% Section 8. Yes, vacancy will be marginal, but arrears and missed rent payments are going to be a lot higher than you think, even with Section 8. You're still probably looking at large tenant shares here.

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Jan 30, 2020

Section 8 can be good or bad but do not get lost in the guaranteed rent cloud as only the government portion (which can range from 10-100%) will arrive every month. While you might get slightly higher than market rents, there is also the bureaucracy associated with it as well. When you are renting on the affordable side I have found that tenants are typically harder on units and turns can take 2-3+ weeks instead of the 24 hours that many A/B properties can. CHA inspections are another issue as their demands can be substantial. Finally 100% occupancy is not guaranteed as units must be vacant for the initial inspection before you can start the move in process. In Chicago it takes anywhere from 3-6 weeks to get approval for a new move.

While there are perks to Section 8 please do not assume that the buildings will operate just like a Class A/B property.

Jan 23, 2020

For someone who's quite interested in buying investment properties - what's a good way to learn about analysing a property, learning the ins and outs, reading the market, etc?

Jan 23, 2020

Educating yourself is a great idea. There are tons of articles (just google something like "learning about investment RE"). Like anyhting else, it starts with vocabulary. Learn the terms and the issues. I can't tell you, you have to do the research so you learn it.

After you get comfortable with the language, decide if you are interested in commercial or residential. Different set of issues. Both can be lucrative or horrible depending on many variables.

Do a Ben Franklin (Pro / Con list) on all the imaginable issues and see if it's worth the risk. If nothing else, you're IDing things that will ultinately happen. (for xample - have owned a restaurant building for 15+ yrs. Becoming a headache with revolving tenants. Want to sell. County is making sounds like we need a new septic permit and they won't issue one until we do X which will cost Y - never thought that would happen but those are the types of things that do happen.) really cut in to your profits.

Not all doom and gloom. Have had yrs where we made substantial profits flipping properties (well in to six figures) so it can be great. Just get comfortable with the risk, assume it won't go as planned (at least not exactly), be able to cover the carry cost without hardship, and most of all - be realisitc. We have a managing member who is so pie in the sky it's laughable. Whatever he projects I knock off at least 30-50%.

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Jan 5, 2020

yes, got into a number of things like that while trying to focus on a salaried CRE job, and it was very annoying but also fairly profitable. i wouldn't have traded it for the world

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Jan 5, 2020

What cap rates do you typically aim for?

No pain no game.

Jan 11, 2020

I don't really care too much about cap rate going-in, only when I'm going for a refi. Most of the stabilized properties that I'm looking at trade between a 8-10% cap.

For cash on cash return, I'm looking at around a 28%+ Cash-on-Cash

Jan 12, 2020

How are you targeting 28% cash on cash in any market? Mobile home parks don't spit out that much.

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Jan 5, 2020

Yes! Second year analyst here. I'm not paid a crazy amount, but I saved half of my take home pay and lived frugally. Bought my first rental one and a half years out of college and am now in the process of renting it out. Residential is so much more straightforward and I feel that by starting small, I can still learn, but my mistakes (which I will make) will end up costing less.

Jan 6, 2020

Can u go into specifics? Im in a similar situation, got to save 50K my first 6 months in a low COL city. Planning on another 50K this year. What did you buy/where? Did you finance it as an investment property or home?

Jan 9, 2020

Yes of course! Saved $25K and bought a studio condo in Long Beach, CA, literally two blocks away from the beach. I picked up a property that ended up on the market for a very long time because the seller was trying to 1031 three properties all at the same time. Her attempt fell through and she finally decided to sell them separately.

I went through the traditional finance route, but half way through realized my parents sold their house this year and are looking for ways to reinvest their capital. My dad was hesitant, so my mom invested her own money with me. I offered my mom $4.2% and 30-year am for a $200,000 loan, but my mom was happy to do a lower rate for me, since their alternative for a fixed income fund is trash.

I have a really good working relationship with my mom because I care more about helping her retire, and she cares more about helping me succeed. I made sure her name is recorded on the deed and we did all the paperwork correctly, even though I would never, ever want to default on her. We ended up with a 3.6% loan with 3 years of interest only. She's happy getting a check from me every month, and I'm definitely taking her on another vacation some time soon!

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Funniest
Jan 9, 2020

anyone else read 'saved $25K and bought a studio condo in Long Beach, CA' and was like wtf

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Jan 12, 2020

Ahh, the lucrative 3.6% yield high-risk non-amortizing credit. How did you two form such a strong working relationship ?

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Jan 11, 2020

Kudos to you for investing!

I'd jump straight to commercial if you can because it's so much easier to force appreciation and it's easier to jump into bigger properties. (Dream is to develop large multifamily)

SFRs and multifamily/commercial is a whole different beast.

Jan 6, 2020

What kind of lender do you plan on using to finance? Are you creating an LLC? If so, are you running into problems with lenders not wanting to loan to an entity? What kind of interest rates are you seeing for 80% LTV?

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Jan 6, 2020

I would also be interested to know what type of financing people are getting. I own two properties and have financed both with FHA loans at 5% down (had to live in each of them for a year to qualify). I'm hoping to get away from making myself personally liable on the next deals I do.

Jan 6, 2020

You will need fairly significant equity in the project, liquidity, and net worth to get non recourse debt.

Jan 6, 2020

If you're just starting out you'll most likely need personal guarantees regardless of entity. So you're personal borrowing capacity and risk will be compromised a bit.

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Jan 11, 2020

I used a commercial lender that does asset backed loans. He's able to get me quite a few types of loans, from conventional financing, hard money, and construction loans, Freddie and Fannie loans.

I've spent close to ~$2k on a lawyer to create an LLC, ask questions about structuring, operating agreements, payouts.

Lenders don't really have an issue with lending to an LLC as long as you fund it with your reserves. I'm getting rates from 4-5.5%.

Jan 6, 2020

Planning on it with a business partner myself. Anyone here have any resources they'd be willing to share that could help with understanding zoning regulations, tax laws, and financing options?

Jan 11, 2020

Bigger Pockets is a good place to start learning about regulations.

As for zoning, we call the city zoning department directly for any questions. Tax laws, we asked a real estate CPA and my friend has an affinity for tax law, so he dealt with that. Financing options, we talked with at least 5+ lenders and I like to look at different loan options through agency debt (Freddie/Fannie/HUD).

All in all, we've spent 5 months planning including talking and forming our team. We've been to the area once and we're probably trying to go back only 2x a year.

Jan 6, 2020

Aside from my house, currently looking into buying a duplex/triplex every year with bonus cash for the next 5 years, then moving up to 6plex-8plex afterwards as bonus/carry grows at work. All long-term stuff. First invest should be before year end.

Jan 6, 2020

Must either be a very nice size bonus, or a lower COL market?

I'm in SoCal and most 2-4 units properties go for at least $250k/door

Jan 6, 2020

It's both actually. $125-150k per door requires renovations, otherwise you get pretty clean/updated units for 175-200k depending on the area and size.

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Jan 11, 2020

Yeah, SoCal is expensive. I live in the SF Bay Area and a duplex in SF is $1m for a renovated one. Maybe $850k for one that needs work.

I'm buying them in Ohio for close to $30-35k/door rent ready.

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Jan 6, 2020

I own a lot of properties everything from single families to small buildings. I do quite a bit of section 8 and realize going into this that it is anything, but passive investment. The maintenance/damage alone is a killer with many of those tenants and the properties tend to be older. Just to give you an idea, cracked cast iron sewer pipe (very common in properties 50-60+ years old) starts at 2k for a small leak and goes up to over 10 depending on how involved it is. Units haven't been rocked? Cracked plaster and lead paint laws are a real pain. Yearly inspections with the housing authority will place all the repairs for damage to property done by the tenants on you the landlord to fix. Older systems in a property? You will be amazed at what HVAC repairs cost. The tenants generally also always fall behind even on section 8.

Private payers in each property class have their own pros/cons etc.

Real estate is a good business to be in, time and time again though people go into it and are not prepared for the realities and over leverage themselves. Find a property that is recently built that you can get a solid tenant for if you are starting out, even if the return on paper is less. Things will go wrong, but with a new property, there's a lot less to go wrong.

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Jan 7, 2020

how do tenants fall behind in section 8? doesn't the municipal housing authority/hud pay on their behalf?

Jan 7, 2020

My understanding is they pay a % of their income, usually around 30%, and the Sect 8/Housing Assistance program pays the remainder. So the landlord receives the subsidy from Sect 8 but the tenant may still fall behind on their share. So for example, say the "market rent" is $1,600, the tenant may pay $600 and the housing assistance program may pay $1,000. But if the tenant falls behind... you get the point.

If someone else here is familiar, feel free to correct me if I'm wrong but that's my understanding. Some investors & prop mgmt companies specialize in these sort of investments but as some others have eluded to, it can be a tough business

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Jan 11, 2020

Oh, 100% it's not passive investment. My dad invests in apartment syndications and that's true mailbox money since all he does is collect a check.

For maintenance and damages, we obviously build R+M and capex as 7.5% of monthly budget for each and factor that in. For lead and asbestos, there are government programs from the city that give a landlord money to go ahead and fix that.

I agree to your point about real estate being a good business to be in. Too many people get into it, expecting no work to be done and collecting checks but that's not the way the world works.
It requires a lot of work and dealing with people!

Jan 6, 2020

Interested as well. Two additional questions for those who have experience (if they're willing to share):
* Why real estate over passive stocks? Stocks seem to have higher returns and more liquidity. What returns have you generally targeted to justify?
* How have you dealt with hassles of operating with tenants and evictions? Any states you would recommend avoiding?

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Jan 7, 2020

Real estate > equities because you can build net worth extremely fast if you know what you're doing. Leverage is more attractive & the tax advantages are crazy good.

Dealing with the tenates is a pain but if you are doing it passively then management should buffer all issues.

Jan 7, 2020

Avoid blue states :/

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Jan 7, 2020
AZMonkey:

Interested as well. Two additional questions for those who have experience (if they're willing to share):
* Why real estate over passive stocks? Stocks seem to have higher returns and more liquidity. What returns have you generally targeted to justify?

Leverage, my man. Leveraged returns in real estate are much higher.

Also, you have control. I can do all the research in the world on an equity but one boneheaded decision by the CEO and that could wipe me out. I have much more hands on control over my real estate; I hire contractors, I file returns, etc etc. From that perspective it's much safer.

Jan 11, 2020

I do invest in stocks as well through my 401k and I've got a small stock portfolio in robinhood that's mainly consisting of ETFs, tech companies, and some blue chip stocks. I have a separate account that I trade options from (it's my "fun" money).

Real estate allows me to lever up and the tax laws are favorable for it. I work in sales and my W-2 is taxed heavily, so I can use depreciation and a cost segregation study to reduce my taxable basis.

For example on leverage, I buy a house worth $100k with a down payment of $25k. I fix up kitchen and bathrooms, new floors, paint. Let's say I'm able to get higher rents and the bank appraises it for $125k. You're able to refinance 80% (or more, depending on your lender) out, pay off your old loan, and you've got your initial down payment back + extra.

Old House - $100k, $25k down
New value - $125k, refinance out $100k.
Pay off old loan of $75k, you're left with $25k to reinvest in whatever and you've got a cash flowing house.

Obviously, I'm simplifying the math, but the point is that you can keep refinancing.

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Jan 7, 2020

In college currently and I own about 3 properties, flipping two and converting one to a 4 plex.

Single family only makes sense if you get Fannie recourse debt, otherwise I would go commercial as soon as possible.

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Jan 7, 2020

How did you qualify for the NW and liquidity requirements?

Jan 10, 2020

PM or Creative financed all of my deals so far. Biggest issue for me being so young, I can imagine anyone else having the same issue.

Jan 11, 2020

I've found that most smaller commercial deals are still recourse. It's becomes nonrecourse when you get up to the big leagues (100+ units).

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Jan 15, 2020

anticipating beginning little in my own market. expecting to begin with 8 units and ideally scale to 100+. simply dreaming however I am not racing into anything.

Affar Baksh is top Real Estate Attorney in Queens, New York. Most 5-star ratings in New York city area demonstrate his qualifications and skills.

Jan 16, 2020

The first step is just the hardest! Ideally I'd want to have no outside investors apart from my business partner and my family.

Jan 15, 2020

Congrats! Quick questions - What made you choose Cleveland as a target market especially as your first investment? How did you navigate learning the market out of state to be comfortable enough to invest?

Jan 16, 2020

I originally wanted to go with Columbus, OH or Phoenix, AZ. Phoenix was too expensive for me and I was also eyeing deals in Columbus.

Cleveland appealed to me because it was cheaper than Columbus and excellent rent-to-price ratio. It spits out cash flow and cash flow is good for multifamily investing aka wealth building.

The added bonus is that there are pockets of gentrification that are still affordable. Plus Section 8 and other government programs pay more than market rent.

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Jan 16, 2020

do you live in Columbus, Phoenix, or Cleveland? would you have been comfortable investing/renovating a project in a city hundreds of miles away?

Jan 16, 2020

A small section 8 building in a city you dont live in? To me it sounds like a disaster waiting to happen.

Jan 16, 2020

indeed, got into various things like that while attempting to concentrate on a salaried CRE employment, and it was extremely irritating yet in addition genuinely beneficial. I wouldn't have exchanged it for the world

Affar Baksh is top Real Estate Attorney in Queens, New York. Most 5-star ratings in New York city area demonstrate his qualifications and skills.

Jan 16, 2020

I find having a job and investing in property on the side is super beneficial. Real estate doesn't take up that much of my time, I find.

But it'll pay off immensely, plus I can depreciate and apply the losses towards my W-2 income, reducing my tax basis. Super helpful in California.

Jan 17, 2020

can you elaborate on what you own that doesn't take up your time but is still giving you a nice nugget each month or quarter?

Jan 22, 2020

You will need fairly significant equity in the project, liquidity, and net worth to get non recourse debt.

Affar Baksh is top Real Estate Attorney in Queens, New York. Most 5-star ratings in New York city area demonstrate his qualifications and skills.

Jan 28, 2020

You get anything?

Jan 29, 2020

Interesting to hear the answers)

Feb 1, 2020

Waiting to hear back on an offer I sent few days ago. Offered 60k, needs 140k worth of work. 45k pro-forma NOI and cap rate of 10% stabilized according to CoStar comps.

Looking at an 11 unit as well for 50k and would need about 200k worth of work and NOI would be closer to 50k.

Financing plan is HML, do improvements, then I can refi once I have leases in place (according to my lender). Takes time, but will be well worth it.

Jan 28, 2020

I used to buy in Cincinnati, OH during the 2007-2008 recession while I attended college there. In these types of areas (C or D class neighborhoods), you just have to be careful - I used to run pro formas on multi-family properties and on paper it looks good (like 25% cap rate good), but realistically you're going to face higher eviction and turnover rates. Quality of tenants is lower as well. Then I started buying in more desirable areas -near shopping, transportation, higher ownership rates - at lower cap rates and did much better. I go into the deal knowing that there's virtually no appreciation - you make your money on the buy. This is unlike a top-tier city like NYC - where its hard to get much equity since theres a ton of competition - so you're pretty much banking on appreciation.

Feb 1, 2020

Yeah, we're targeting C areas mostly for Section 8 and other government programs. I've walked around the areas at 11pm and I didn't feel unsafe, so that's a good sign haha.

As to quality of tenants, key is to screen them. We placed "feeler" ads on Craigslist and gotten several hits. Our basic requirements were 650+ credit score, last 2 paychecks for income verification, no evictions & felonies. We're shooting for an average resident to stay for 18-24 months, but no guarantees obviously.

I used to work in property management some A, B, and C class locations so I'm very familiar with how tenants can absolutely ruin units.

Feb 1, 2020

I'm 29 and currently working a full time day job in the real estate industry here in NYC.

I started purchasing properties a few years ago, I currently own 6 properties (20 units). Most of my properties are between NJ/PA, but I do own one property here in NYC -- all multi-family assets. If anyone is in the NYC area and looking to network let me know I'd be happy to chat further.

Feb 1, 2020
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Feb 2, 2020