FlipperToolbox

Hello! Who are you, and where are you from? What’s your venture?

We invested $30K and converted our garage into a studio apartment – that same apartment soon began to generate $1400 a month.

Two years later, we contacted the bank to do a cash-out refinance, and withdrew $100K since the housing market’s appreciation gave us some more financial flexibility. Our previous strategy had paid off, so we decided to try again and reinvested the $100K into building an accessory dwelling unit (ADU) in the backyard – this was a two-bedroom, 2-bathroom unit that now brings in approximately $3K monthly on Airbnb. We successfully converted a single-family house into a three-unit property: The house itself, the studio apartment, and the ADU.

Motivated by our previous achievements, we purchased a side by side duplex later in 2019, with the goal of also house-hacking this building. While working on turning the duplex into another real estate success story, we noticed that there is a significant profit difference in income between renting properties, and listing them on Airbnb. We therefore listed our original property (the three-unit property) on Airbnb, and it started generating nearly three-times as much money as before. After seeing the difference between renting to tenants vs. Airbnb, we knew the future direction for the new duplex: Airbnb.

We began living in the duplex, while also using Airbnb to keep the other unit occupied. Then we decided to do another cash-out refinance on both the original three-unit property and our duplex. This time, we were able to withdraw $250K, which we then utilized to purchase another single family home. Convert it into a duplex by making the entire second-story into a one-bedroom apartment. We now live on the lower level of this building and primarily market the upper level towards travel-nurses on Airbnb.

We then purchased another property with the remainder of the refinanced money we had left. This one is not a house-hack though, as the two houses on the property are completely separate. Both of these houses have three bedrooms and two bathrooms, providing ample space.

After listing the last two houses on Airbnb, we were generating approximately $20K a month from our collective real estate efforts, in addition to our regular W2 jobs.

What’s your backstory? How did you find your deal?

My wife and I purchased the four-bedroom house in 2017 with an initial investment of $180K. With three bedrooms to spare, we saw an immediate real estate opportunity to generate extra revenue. We started by renting three of the four bedrooms for $700 each, and with the extra $2100 every month, we were able to start rapidly paying down the mortgage.

Our financial situation was improving very rapidly. Including the converted garage apartment, we were now making an extra $3500, monthly, from simply renting out some unused space.

As a bare minimum starting point, we would look for a property that has at least 2,500 square-foot of space. Once that criteria is met, any of the following features make the property a great start-point: a basement that can be remodeled and has potential for its own entrance, a two-story house with the potential for an external staircase on the second-floor, a two-car garage that can be converted into another housing unit, or a property that has enough real estate for an accessory dwelling unit. When a property has more than one of these features, it becomes an excellent candidate.

How did you finance it? Did you get a loan from the bank? Interest and terms?

We were able to secure a loan by putting down 5% of the total amount on the first property. However, it is also entirely possible to secure a FHA loan by putting 3.5% with the limit being a four-unit property if we wanted to. Nevertheless this gave us plenty of flexibility to get started, and a relatively low cost to the barrier to entry. Afterwards we would continue to refinance our properties, use those funds to upgrade our properties or purchase another property and repeat the process over again.

For the ADU (accessory dwelling unit), it was primarily funded with the $150K cash out refinance we did on our first property. We also used various 0% APR credit cards to fund some of the renovations – with 0% interest and we were able to pay the credit cards down with the property’s profit without accumulating any interest.

Was there any repairs? How long did it take?

This is a small thing, but it is definitely worth it to research methods for noise insulation between walls – our approach was to use mass-loaded vinyl on the shared wall, and then add an additional layer of drywall to dampen the noise. We’ve implemented this setup on any applicable properties, and it has worked perfectly.

Also using a dividing wall to create multiple units is a great idea. I researched our county and see what criteria were needed for an accessory dwelling unit. My local area defines a multi-family unit as a building with a stove in it. So if we were to use an induction cooktop, we could negate the technicality of needing to rezone the building for a multi-family unit.

For the sake of time and simplicity, we hired contractors, and, only did the permitting ourselves in order to save time and ensure everything was done properly. We were able to scale our business in five years or so, and part of the reason for that is that we did not have to waste our own time to physically complete the projects – this would have greatly affected our progress.

How did you find your buyer/tenant? Do you have a team?

We marketed it towards travel nurses. We use Airbnb, Vrbo, or word of mouth referrals, and we typically book an average of 20 nights a month. We list our Airbnb property with a minimum stay of 30 days. Nurses are often the only groups of people that stay for that long and meet this requirement. And sometimes when we are at real estate meetups, we simply people let them know that we have a property available and if they know someone in the healthcare industry that wants to rent.

What is the revenue? What are the expenses?

We are currently cash flowing $20K a month. In terms of revenue, that number is closer to $35K monthly. It’s not too late to get into the Airbnb market. We have nine properties listed on Airbnb, and these have yielded great returns. Properties will appreciate over time, but also generate actual cash flow on a monthly-basis.

The main expenses are the Airbnb cleaning costs, but it’s a definite needed expense that shouldn’t be taken for granted. Without the presence of cleaning companies, managing various rental properties would be very difficult. We would have to allocate most of our time towards cleaning the properties ourselves.

How are you doing today and what does the future look like?

We love hosting on Airbnb and will continue using it. Everyone should try out Airbnb at least once. There are negative connotations around being an Airbnb hosts, like will this have a negative impact on renters market. But there are two sides to that story, as renting Airbnbs also provides opportunities for visitors. The lines are often skewed, however, if Airbnb didn’t exist, there would be no place for people like travel nurses to affordably rent and stay.

With the 4th-fastest growing population, an immense amount of diversity, and the upgrades to the transportation infrastructure, we believe Atlanta will have a very desirable housing-market and we plan to keep investing in it.

Any advice for other who want to get started?

Real estate is really just a shortcut. It allows you to leverage your borrowed funds and use your money efficiently. While a property, in some cases, may not generate monthly cash flow, you also have to think about the fact that the property is appreciating over time, and being paid off by the renters.

Even when the housing market is relatively high, turning a single property into a multi-family rental property can still be lucrative. For example, it’s very unlikely that the mortgage for the average house will cost more than what our three-unit property is generating in revenue.

If there are no multi-family rental properties in my local area, I highly recommend making your own. As you’ve read in my story, the first unit was a single-family housing unit, and we managed to successfully convert that into a money-generating three-unit property. The conversion on my latest home was $20K, but the second story apartment is generating $2,500 a month and that property will pay itself off within the first year.

Operating a two-unit property might seems more regulated than a three-unit property, but every property has different rules and regulations when it comes to the zoning designation. Depending on the region, I would recommend looking at the rules for each property type before coming to a final decision.

It is not illegal to convert a single-family home into a multifamily home. If you were to convert your properties without looking into the local zoning ordinances, then you may accidentally break the law. However, once you have checked with your city/county ordinances to ensure your real estate plans do not break any rules then everything should be good to go. In general, we’ve found that there is not generally much of an issue with these conversions, as long as your conversion does not raise a flag with the community, the zoning board is fairly lenient.

Hello! Who are you, and where are you from? What’s your venture?

I’m Don and I built my initial wealth from day trading in high-risk stocks/options and riding the GameStop movement. I currently don’t have a job and I live off the relatively passive income from my rental properties. I am about to close on a couple more deals, when completed, will bring my annual income to around $160k (currently at $115k).

At the start of December 2020, I kept seeing all these posts on Reddit that discussed how GameStop was severely undervalued. So after a while I too invested about $35k in stock options and ordinary shares (ten calls and 1100 shares). In the beginning, I lost around a third of the value, but I diamond handed it (holding no matter how hard it dropped). Eventually the famous short squeeze happened and the price skyrocketed to over $400 per share.

I successfully cash out everything near the peak for roughly $350, leaving me with around $375k after taxes. I already a few real estate investments, but this accelerated it to a whole another level and I bought a bunch of properties all in western NYS (New York State). I was able to acquire a triplex for $70k in cash, a duplex for $58k with financing, and 6-unit multifamily for $270k using around $150k in total investment capital (again financed). Lastly, I also purchased a single-family home for $110k, intending to make it my primary residence. 6.

I currently own 13 real estate properties, owe about $1.2m in debt and have about $300k in equity between all properties.

What’s your backstory? How did you find your deal?

I have a Bachelor’s degree in mechanical engineering and landed myself a job that let me earn $65k per year located in Upstate NYS.

That job was the worst. I had to get up at 5 in the morning every day to make it to our weekly team meeting at 6. The work office was filthy and full of dust. Everyone was old. There was no one even near my age to even have a conversation with. The only upside was that it was somewhat laid back, so I slacked off a lot. I spent a significant amount of the day browsing Reddit.

Six months later, I found another job in the western part of NYS. This job was so much better and more in line with what I wanted my career to be. It was also a great company name to add on my CV. I jumped on the opportunity even though I also had to take a decrease in pay, which lowered my annual salary to $62k (although it went back to $65k a year later). The area also had an extremely cheap cost of living (1b1b goes for $550 back before Covid) compared to my prior job. Two months later I got bored again and wanted to learn about investing. I created a brokerage account and deposited $5,000 into it.

When I started investing, I would feel giddy every time I bought stocks and earned an extra $2. I followed standard recommendations in r/investing, etc., etc. It took me less than a month to get bored in it as well as they yield less and sometimes no results. I started looking around to learn about margin trading and that’s when I stumbled across r/wallstreetbets. There I saw people gambling their life savings into option plays. They either went bankrupt or generated insane returns like 40%, 60%, 100%, and even 200% on a single play. I got hooked, so I kept reading and lurking around in that subreddit. After a while, I decided to pull the trigger and liquidated my whole stock portfolio so that I could try trading options. In hindsight, I knew it was all luck, but I gained more than $2500 with some far OTM (out of the money) calls on SPCE, and some other trades. Eventually I was able to raised my account to roughly $65k in a little under a year. On average, I could turn around $200 into $700 with earnings plays. I was a true gambling addict.

How did you finance it? Did you get a loan from the bank? Interest and terms?

When I began, I was using a local lender but then I switched over to using a HML (hard money loan). I got a loan that amounted more than $1m using credit reports and bank statements to show I had the funds. I used a HML and got it when rates were decently low. 80% LTV 30 yrs fixed at 4.875%.

For my first investment, I withdrew approximately $30k from my $65k trading account to acquire my first rental property. This was before the GameStop movement. I paid $138k for a four-unit property (a triplex with a single-family home on the same lot). This property was almost entirely turnkey with the single-family home being the only one unoccupied. As soon as I was handed the keys to the single-family home, I wasted no time renting it out for $950 a month.

As I was finishing up the renovations on my home residence, I made my second significant acquisition, which was a seven-property portfolio I acquired for $735k. Because I did a 80% cash out refinance with 2 apartments that I bought with cash, I could get out almost $100k while only having to put in about $50k for the down payment and closing expenses.

In the next few months, I mainly focused on day trading Amazon options and earned an additional $30k, which I used to buy a 3b1b SFH fixer-upper with cash.

Was there any repairs? How long did it take?

I spent about $35k remodeling the primary residence on my own, except employing a contractor to remove a load-bearing wall and build a level beam.

For the four-unit property, accounting for all costs other than management resulted in a cash flow of around $900 per month (I was self-managing these since this was my only property). I continued to keep my full-time job while still engaging in day trading on the side while all of this was going on.

For the fixer-upper, I spent my nights were fixing it myself. It took me approximately a month and an extra $5,000 in labor and supplies (including a plumber to clear a clog in the sewage line, new appliances, and other equipment), but once it was complete, I leased it out for an additional $950 per month.

How did you find your buyer/tenant? Do you have a team?

I went to places outside of the major New York metro. I sometimes spent 1.5 hours to 2 hours to search the local areas and worked with a well-connected realtor. I also found a few bargains with cold calling with aging landlord. Since I had no experience in the beginning, my main concern was it being completely/mostly filled with good standing tenants, and, not needing any major renovations.

It is a small town. I never have to worry because I never get any vacancies. All of my apartments are occupied, and I have a waiting list of 5-6 quality tenants waiting for an apartment to become available. Even in the beginning, I would have an apartment occupied within a week of the renter giving me a 30-day notice (application, viewing, due diligence, signed contract). I advertise mostly on local Facebook groups and Craigslist. Since I began, I have never had a single apartment remain unoccupied for even a month.

There’s a $2,000 for maintenance fee per month and normal repairs usually cost between $300 and $500 per month. In the beginning I was self-managing these properties, but later I had hired a few contractors to refurbish a couple of flats and repair the roof on one of the buildings. During this time, I was actively searching for a new job in the south because, to be quite honest, I was sick and tired of all the snow. I got a new job in North Carolina (paying $70k), sold my real estate portfolio and I moved there at the end of 2021. Ultimately, I decided not to sell my primary home but rent it out for $1,600 per month to a group of graduate students from a nearby college. Because I would be operating my rental business from a distance, I ultimately decided to hire a property manager to oversee all of my holdings.

What is the revenue? What are the expenses?

My annual gross revenue is $310k from all the properties. After maintenances, taxes, and other expenses, the net is $116k. A chunk of my portfolio is invested in an MCOL area valued at about $1.6m (4 SFRs) with a gross income of around $118k dollars. This translates to a 7% yearly asset value return, although I have a debt of $950k on them.

How are you doing today and what does the future look like?

I got laid off last February and decided not to look for a new job. I am now a remote owner with a local property manager. I don’t day trade as often as I used to, but I’m always looking for fresh investment opportunities in the neighborhood. I now have a couple of deals under contract, and once things are finalized, I can sit at around $160k before taxes. Before I am 30, I want an annual pre-tax income of $300k.

Any advice for other who want to get started?

I know I got very lucky, so it’s not exactly something that can be replicated and help someone get started in real estate.

There’s a common conception that NYS is a terrible place to invest because of the negative population decline. But in an area with a large population, it also means there’s going to be a large amount of competitions. The supply of apartments goes up and the amount of high-quality tenants goes down. The bigger landlords can now price out the smaller ones with extra amenities and other benefits. This would make it difficult for anyone who wants to start out. From my experience, western NYS is better. There is a very high rental demand, low rental inventory, and low real estate prices. So it looks very enticing for me.

Hello! Who are you, and where are you from? What’s your venture?

I am the owner of an investment firm that has a $10 million ownership over $100 million assets across four states. I am an expert in utilizing analytical approach to determine the best next move for real estate success. I prioritize strategies that produce stable long term income to survive any market condition.

The investment firm was launched in 2017, buying into commercial scale (150 plus doors) multi-family value add projects.

Most recently I’ve entered into mobile home parks. I now own 8 parks with my investment firm and add about 1 per month. These parks sometimes need improvements. My team mainly makes improvements to increase the quality and safety of the neighborhood, all of which aren’t going to substantially increase the total cost to the tenant.

Additionally, I also advise on direct sales in which large investors are buying $10 million assets at a time.

What’s your backstory? How did you find your deal?

I started this journey more than four years ago. The total cost for my first asset and renovation was up to $200,000 and the project grossed an average of $3,000 per month.

Afterward, I formed the first asset into a small value-add operations company and purchased two more assets. My objective was to obtain assets that were structured with low enough debt that even if the market suffered, and all the assets were devalued by 20% or more, investors could still receive the equivalent of a 10+% IRR (internal rate of return).

Over time I was able to build up a portfolio of two 200 plus multi-family complexes and eight mobile home parks. I also own a small multi-family value ad operations company. Later the company has also purchased, renovated, and exited 12 more apartments.

How did you finance it? Did you get a loan from the bank? Interest and terms?

It was an out-of-state quadplex that I purchased using 50% of my own funds and 50% from friends and family.

The over-capitalization paid off. I learned early on to keep significant extra funds in escrow to maintain flexibility and preparation for unexpected capital events. This strategy helped us in the long run. The initial renovation budget was around $25,000, but after the first unit turn we had, my business saw a market demand for higher quality units.

So, we increased the renovation budget to up to $45,000. This ultimately leads to higher rents, a higher refinance price, and higher returns for investors. The strategy pivot was only possible because of the extra funds in escrow.

I have around 25 LLCs and at least 15 different bank accounts. I regret not starting with a local bank to help manage growth. As for asset selection and strategy standpoint, I have no regrets.

When it comes to market change, the key is perseverance and to always be doing something more valuable than the competition.

Was there any repairs? How long did it take?

I only bought assets with existing or easily obtainable high cash flow. I bought these assets with confidence they would withstand market changes. I only purchased quadplexes because they had the best underlying income relative to cost (cap rate) with an IRR of 10+%.

Generally, one of our most common challenges is balancing the appropriate level of renovation for each unit. The contractors and PM are always incentivized to strongly recommend more work than may actually be needed.

In actuality, we simply need to view the project with our own eyes to determine what is needed or what seems unnecessary. If not, a $5,000 unit turn can turn into $15,000 very quickly.

For our overall business, this can eat any profit margin. One instance, my team had a $17,000 unit turn quote that I had to fly out to see myself and we brought it down to $4,000.

How did you find your buyer/tenant? Do you have a team?

A property manager was the first member I added to my team. But when we use a property manager, the tenants would usually be less happy and there will be cost overruns, but it was better for us as we would have more time for our other work.

Additionally, on my smaller projects, I have a COO (Chief Operations Officer) that runs the day-to-day things as needed.

Managing 8 unit renovations over the course of a year, we realize we need a large team. Daily communication with our property management and contracting team is crucial for efficient and effective workflow.

When my team initially managed eight unit renovations over a one year, we relied too much on our property management team to ensure that each turnover process went as scheduled.

Specifically, separate contractors and the property management company had multiple coordination points. If any one of these points was to have a missed ‘hand-off’, it would lead to a seven day or more delay (assuming it even gets noticed right away).

One missed hand-off could equal to a dozen weeks of missed revenue. The only solution, as tedious as it is, is to maintain daily communication with your property management and contracting team through the course of any unit turn.

Once rented, leased, and settled, we can return to weekly calls.

What is the revenue? What are the expenses?

The general answer is it varies depending on what I’m currently working on.

For my large scale projects, my goal is to get my investors 10-20% yearly tax sheltered cash flow, and, an equivalent 20% or more annual compounded return (IRR). So, like a 2 to 3 times multiple on a 5 to 7 year hold.

Smaller properties I manage are dependent on specific conditions and I can get the above returns without directly managing the projects. Any ones that I decide to oversee myself will have to significantly beat those targets, give me a learning opportunity, or allow me to build a relationship with a new business partner.

The loss from operational schedule creep is almost inevitable. Additionally, appealing to a higher quality tenant replacement is challenging when existing tenants are disrespecting the property, even if their lease is almost up.

On future projects, we will likely renovate as many units as possible on day one depending on local regulations. To clarify, I certainly don’t advocate uncalled for evictions. Rather, the best solution may be to give the tenants the option of paying $200 to $300 more in rent or moving out for renovation. If the tenant is respectful and has taken care of our unit, we make it clear to them that we will give them a discounted rate if they return. Quality tenants are important, making tenant retention that much more important.

How are you doing today and what does the future look like?

My next goal is to have enough cash flow to grant the same stable assets to my family members who helped me out tremendously along the way. My business is now stable enough that I can start helping my family get involved and benefit.

I grew up in poverty and got a job as a young teen to help support my family. It was, frankly, extremely tough at times, but I was able to work my way from a community college into a large asset management firm in New York. So most of my goals, capital allocations, and lifestyle choices are a reflection of that.

Any advice for other who want to get started?

I do love investing, but ironically, I don’t feel like real estate is always the best investment.

While there are always idiosyncratic opportunities in every asset class, I feel like the multi-family window has dwindled and mobile home parks are the next to go. I predict that soon, I may have to sit on the sidelines until assets get cheap again.

When it comes to beginners taking advantage of an asset management approach and purchasing MF properties, I would say be patient until the market softens and get in then. If you want to invest now, invest with a larger group that has a competitive edge allowing them to do something others are not doing.

If you invest with others, a few quick things to look for:

• Minimum 8% preferred return.
• No catch-up provision.
• 7% plus in year one.
• An understanding of how the group can own/manage the asset more efficiently than the previous owner.

Finally, treat everyone with respect and have fun.

Soon as we increased our oversight, it felt like we were on the phone with the same people day in and day out. Because of this, we made it a priority to not only treat everyone kindly, try to get to know one another and have fun. Our strategy would come in useful when ultimately paid real dividends when we needed quick help that could have easily been ignored.

As one example, before we had our property appraised, we called the personal cell phone of the property management owner.  After joking about the occasional absurdity of appraisals, we pushed to see if he would walk our appraiser around the property detailing all of our renovations.

Most property management owners would never take time out of their insane schedules to do this. Which means the appraiser would be left with keys and guesswork. But, the property manager owner did it because, simply, he liked us. The walk-through definitely added to our favorable valuation and the overall success of that project.

Where can we go to learn more?

Prior to purchasing my first asset, I must have read 2 dozen books to teach myself the business.

Here is some books I recommend for beginners aiming to gain an asset management perspective:

Real Estate and Asset Management Books

• “The Real Estate Game” by Poorvu – This is the first book I read when I got into the business.
• “The Perfect Investment” by Paul Moore – This book makes a good case for multifamily value add.
• “Random Walk Down Wall Street” by Burton G. Malkiel – Great for an assistant manager and possibly my favorite book ever.
• “Wall Street Journal Complete Guide to Investing” by Kenneth M. Morris – This is a quick read and good for beginners.
• “Real Estate Finance and Investments” by Peter Linneman – I order used textbooks offline and skim through them. I must have 10 laying around in various places and this is by far one of my favorites.
• “Valuation” by McKinsey – This is self explanatory.

Social Economics

• “Hit Makers by Derek Thompson” – One of my favorites.
• “The Inevitable” by Kevin Kelly
• Black Swan by Nissam Taleb
• Every book from Levitt, Gladwell, or Michael Lewis.

Hello! Who are you, and where are you from? What’s your venture?

I’m Robert, a retired Engineer from Spokane, WA, and, recently my wife and I were able to successfully purchase a rental property through our IRA. Since retiring, we’ve been planning to focus on real estate investing. We’re managing two rental properties at the moment, one within our IRA and the other through the traditional means. Both rentals properties are in very nice areas, and we go the extra mile to make sure our tenants are highly qualified.

What’s your backstory? How did you find your deal?

Well, my wife and I worked a lot during our youth and made a decent amount of money. We worked in the San Francisco Bay Area, and the commutes were long and expensive. We traveled a lot but also had to budget in order to pay for everything and raise our four kids. It was a lot, but we had good salaries, so we were still able to put away a good amount into savings. Most of it was put into our IRA for the tax advantages, but our risk tolerance has lowered as we’ve gotten closer to retiring. Unfortunately, the options for what you can invest in through an IRA are very limited. Because of the soaring inflation, we decided to sell off our stocks and reinvest in something we consider safer, it was between market index funds like SPY (which was still stocks) or real estate. And since we had so much spare time, we choose real estate in the end.

So we went to shop for a home. We’ve been in and out of the real estate for a long time, so finding the properties to make offers on wasn’t difficult. We really wanted to focus on having a qualified tenant who could pay rent on time, and, we chose a house in a nice area of our town. Living in an LCOL (Lower Cost Of Living) area compared to the San Francisco Bay Area meant it was much easier to choose a home within our budget. Since we first moved to the Spokane area, we’ve looked into buying a lot of these nicer properties and we have had our eyes on this one for a long time. Luckily, it went on the market just at the right time when we were looking for a way to place our money into safer investment.

We got that one on our second bid since ours was an all-cash offer. The offer was made under our LLC and it was a pretty common way to buy house and keep anonymity (although we didn’t need to). We paid the inspections from our new LLC checking account and since there was no mortgage, we closed early (about 20 days). We were worried at first because when we were doing research, we kept reading negative experiences about using IRA to buy rental properties. But the whole process was super easy and everything went pretty smooth in the end.

How did you finance it? Did you get a loan from the bank? Interest and terms?

We actually didn’t finance the property. It was an all cash offer that pulled directly from our IRA. There was already plenty of money in the IRAs to pay for the property in full.

The only loans that we could get for this particular investment would be non-recourse loans anyway and we wanted absolutely no part in.

In order to do this, the first thing we did was find a local company that specializes in IRA rental purchases. We decided to open a “Checkbook LLC” IRA so we could easily manage the contractors and expenses purchases with full transactional bank control. The LLC costs $1200 for a one-time set up, $300 per year management fee for them to prepare tax forms and the state charges per year. It took about month from completing the paperwork (which also took three or four hours) and transferring the funds from Vanguard (a normal IRA transfer) to being fully ready to go.

We then requested a check from the self-directed IRA to be issued under our LLC, which costs $30 and we received it in about a week.

Now once we have everything all setup and the funds available, we went to a local credit union to set up a business checking account for the LLC (which didn’t cost us anything, just took a couple of days for the check to clear).

Was there any repairs? How long did it take?

There weren’t any significant repairs to get this property up and running. It was already nearly ready for tenants, so it was just a few odds and ends.

And since the property is in a tax-deferred IRA, all the funds have to be from direct IRA contributions or from the existing IRA balance. So there’s no real way to upgrade the unit or add additional value without pulling from IRA and drawing down the portfolio balance.

We are allowed to manage the property. However, we are just not allowed to put in any physical labor. The laws explicitly tell us that we are not allowed to do unpaid work on the property. When we do have to do repairs, we would have to contract out all maintenance work. This means simple things like painting or installing cabinetry need to have labor bills included, as just submitting receipts for materials would make it look like I did the work for free, which is definitely not allowed. And I need to have an “arm’s length” with the contractors, so that means no family members as well.

And we would have to keep our money separate from the self-directed IRA’s money. But that’s no big deal, we just need to keep track of which credit card we’re using when paying.

We’re told the IRS takes it quite seriously and does very thorough audits. It’s pretty annoying and one of the IRA rental properties’ biggest drawbacks.

How did you find your buyer/tenant? Do you have a team?

Long story short, we just do the usual, through Craigslist and some Facebook groups. We advertise the property when it’s about to be vacant and when there’s a short gap in the tenancy. However, since there is no mortgage, a little bit of vacancy is no significant issue for us. A small blip here and there between tenants won’t make a meaningful impact on our long-term financial goals. Instead we rather have high quality tenants than focusing on keeping our units filled. Our current tenant in the normal rental unit has always paid on time, even throughout the rent moratorium, which tells us we’re doing something right here.

As for my team, we don’t really count the contractors. It’s just my wife and me. We handle it all ourselves and enjoy being landlords, as challenging as it can sometimes be.

What is the revenue? What are the expenses?

The two properties we currently have were purchased at around $250,000 each. However, this was paid in full, so we don’t have a mortgage to pay on either one. The properties are kicking out about 5% net gains between rent and appreciation. But only the normal rental is tax-free due to depreciation exemptions. So, it’s about $25,000 annual profit, with only half of that being taxed at the end of the day.

Since we own different types of rental properties, I did take some time to consider the differences in the tax advantages and whether it was really worth it. I have a lot of money in IRAs and my choices were pretty limited regarding what I can do with that money in the first place. I also don’t have any more money outside my IRA to buy another rental property even if I wanted to.

With the “normal” rental, we can write off depreciation which shields some of the rental income (not all, about half). However, for every dollar of depreciation we claim, the cost basis for the property is decreased, and we’ll end up paying taxes on the depreciation “savings” if we were to go sell the house. With the IRA rental, all gains are tax-free until we withdraw them from our IRA. So, in both cases, we end up with gains that can compound now tax-free and just have the tax paid later. We’re eventually going to pay the taxes but deferring right now is essential in taking full advantage of compound interest.

There’s also one final benefit to owning a rental property in an IRA, which is letting me keep my ACA and health benefits. Rental income is taxed as ordinary income. So having too much of it could raise my income level and affect my ACA eligibility, and, I definitely don’t want to lose that.

How are you doing today and what does the future look like?

Well, we absolutely love being retired, but it’s also gets boring easily. Our kids are all grown up. We already traveled everything. It’s hard not having anything to do. Being a landlord helps give us a sense of purpose, even when it can be cumbersome with the tenants at times.

Our financials would probably look fine even if we just held our entire IRA in stocks and bonds, and drew it out the normal way, but that would be boring. We do have some risk but it’s a lot less than when we did in stocks and still gives us enough exposure to make us feel like the money is not just sitting there. The rental properties are not only a great opportunity to continue to improve our family’s financial future, but it lets us stay busy while learning the ins and outs of real estate. There’s still so much to learn. This is much more exciting and has some interesting real upsides to it.

Any advice for other who want to get started?

In the end, I feel like it’s the best lower-risk approach than our other options. Currently, we don’t have a mortgage, the cash flow is positive and we don’t really need the money anyway at the moment. So we can ignore the price fluctuation of home values and would never have to sell at a loss. It makes sense for us, but for the young ones who are still in the “accumulation phase” of their investing journey, it might make more sense for them to go the traditional route and buy real estate with leverage.

And also the usual advice: get started early and never stop learning.

The best thing you can do when you’re young is to save and invest. When I was younger, I invested in much riskier things like tech stocks and options so I wouldn’t exactly recommend that though. However, you want to give yourself time for that magic compound interest to work, so you need to start young. If you’re not young, you will need to save more money and perhaps don’t take as many risks. I’d still recommend investing at any age or situation; just be mindful that the closer you get to retirement, the more you need to consider maintaining your wealth instead of building it. It can be easy to get caught up in making more money just to ‘bet the farm on black’ and lose your life savings.

Hello! Who are you, and where are you from? What’s your venture?

I’m Wesley and we financed a hotel with no money down, only paying out-of-pocket for repairs.

It started when I bought a 43-bed hotel with my family. A few months later, we’d converted it to small apartment complex. We fixed up a sizable kitchen and dining area for residents to share communally. We even had a meeting room and an apartment lobby.

Here in the Midwest, housing is in short supply, and we were eager to meet the demand. The community Housing Authority inspected the rooms and helped prepare us to receive Section 8 housing vouchers. When our work was complete, we had 42 apartments averaging 320 square feet and a nice courtyard in the middle.

Our bank gave us an 80% loan and also added a wraparound product to cover the remaining 20%. We also obtained $50,000 from this bank for repairs, spending a total of around $170,000. Each room has a mid-sized fridge and its own bathroom.

The community kitchen is only open in the daytime, and we actually have a volunteer come three times weekly to cook hot dinners for tenants. You can typically find a tenant cooking lunch there, as well. Monthly, we serve about 200 meals. Additionally, we have two vans that can transport tenants to the store and the medical hub.

My vision is to add even more updates soon since we have a good cash flow. Right now, it’s $850 per room. We charge yearly and move-in rent, which is feasible for our tenants. We’re trying to focus on veterans now, specifically vets that just became homeless. However, we’re really open to anyone. We’re proud that this property is not only profitable but is helping a community in need.

Our monthly expenditure is $15,000. That covers insurance, property taxes, gas, TV, internet, and two full-time salaried employees. Our capacity is almost always filled to the max, averaging 41 monthly rental payments.

But we really couldn’t have done this without the help of our tenants. They were interested in helping out and we had no shortage of people that needed the support. We had tenants from every walk of life, from disabled vets to rehab patients to senior citizens. This place was more than just an apartment building. It was a real community.

Our building acts as a benefit corporation. However, the other two owners and I initially established it as an LLC. None of us have spent a penny out-of-pocket. Our tentative plan is to get this running like an oiled machine, then sell it. As of now, we owe $475,000, and our total spend will probably be $750,000.

I hope this inspires someone to get creative with your housing ideas – especially if you can work with your Housing Authority on accepting vouchers, as we did. I would love to see more of these projects happening.

What’s your backstory? How did you find your deal?

It took a year to find this opportunity, but the time spent searching was well worth it.

A family member of mine was passing by and stopped by this random hotel one day and talked to the owner, who said they were considering selling. They discussed the sale of property for four months. The owner actually listed it on the public market before, but no buyers came. Three acres also came along with the property.

Now, one thing I want to point out is that this $475,000 loan was tough to swallow for me. Debt can be devastating when misused. But, I was confident I could do it with my 10-year real estate background. (If you don’t have any money or any experience in real estate, then please, don’t attempt this.)

The housing voucher process can be cumbersome. In a rural area like mine, only 3% of housing vouchers are used, so I wanted to take advantage of the program. Most investors in this program understand the risk-to-reward ratio, and they know it’s generally not worth it. Many believe that you should only attempt this if you’re a pretty ruthless real estate professional with a savvy team behind you. Many investors wouldn’t bother with a like this project and definitely wouldn’t spend time on the creating a community as well.

We didn’t need to make any changes to the zoning or to the infrastructure that was already in place. Not being forced to get zoning permissions saves some many headaches, so we were grateful for that. And that definitely would’ve added to the overall cost.

So far, I’m doing great on the budget. The monthly expenses have been predictable. Every week, about a dozen people want to move in. But managing everything is tough. It’s a roller coaster sometimes. In fact, it’s easy to see how this type of housing community could really fall apart. But for the most part, our most significant issues have been only minor theft, petty arguments, and a few troublesome tenant family members.

How did you finance it? Did you get a loan from the bank? Interest and terms?

Financing the building was fairly easy for us, given our excellent and lengthy history of business with our local bank, giving us a loan covering 80% of the cost. The Economic Development Council had a loan program for Covid products, which is how we covered the remaining 20% of the cost. This is also how we managed to get the additional $50,000 for repairs as well as closing costs. This was a huge win for us.

We use the property as collateral, and have only gave sweat equity and out-of-pocket costs totaling about $150,000. This was a full documentation loan, so we logged the appraisal and presented our full business plan, estimated income, projected expenses, etc. The first loan is 4.75% with a 10-year balloon, while the other is 5% with a 15-year fixed term. Our excellent credit was the key to getting these amazing rates. My personal credit is also really good as well, and I did have cash on hand for the repairs just in case. Even if the rates were as high as 8%, we still would be cash flow positive.

Our initial rental rates – $800/month at the time – had to be approved by the Housing Authority. So, we acquired and showed the bank a letter from our Housing Authority, which stated that 400 rooms were in immediate demand at a monthly rate of $800. NIMBY’s always look to shoot down projects like this, but luckily, there was no stopping us legally since we’re unincorporated. Our screening process uses the county background check system.

Fortunately, we were able to have our units inspected in advance. It’s not specifically supposed to happen that way, but because housing was in such a shortage, they allowed it.

Was there any repairs? How long did it take?

There were definitely many upfront repairs. We’ve already done $150,000 in repairs, which took a few months, and in the coming six months, we’ll have about another $150,000 to go. So, the total will end up around $800,000.

Our septic system needs some upgrades. It fell under code when it was built. Now is a different story. The septic area is about 0.5 acres in a fenced area, and we have to get it pumped as needed.

Other upgrades included new microwaves and hot plates for cooking, as well as some new furniture. The beds, bedding, and flooring had just been renovated by the hotel before we purchased it, thankfully. The courtyard was another story. It had to be completely redone, we spent quite a chunk of money on it. We also added two laundry rooms and new temperature control units to all the rooms.

How did you find your buyer/tenant? Do you have a team?

We don’t have an official management team, so we have to use all of our resources and connections wisely. This includes our volunteers, the Housing Authority, and the two other owners.

For our lease contracts, we used one we found online. The attorney just had to tweak it and approved by the Housing Authority, which it was. The Housing Authority also had an additional contract, separate from the lease agreement, for the tenants to sign.

We’re fortunate to have a reasonable Housing Authority to help us succeed with this real estate project. They weren’t trying to stop us or slow us down. It really was easy to work with them, and we continue to hold an amicable relationship. In fact, I intend to stop by a few times throughout the year to drop off little treats and goodies for them. As a real estate agent, I know no one really appreciates the work they do. No one sends them gifts, and no one tells them “thank you.” When they accomplish project goals, they don’t get bonuses. Conversely, they won’t ever get fired for doing a poor job either. So, consider that if you’re working with your local Housing Authority. But you can really change them, make them feel appreciated.

One issue we’re continuing to deal with is tenant quality. Our rule list is rather short, but we keep it very straightforward. We absolutely care about them, but of course, we don’t want them to ruin the units. Monthly room checks are mandatory and we raise our expectations with them – even more than they’re accustomed to.

Since there’s no homeless shelter in our county; our apartment building has become something of a drop-off destination. We get about 10-15 homeless that end up here per week, asking for assistance. It’s very sad and very hard to see and turn people away. We wish we could do more.

A lot of our tenants have free time and enjoy doing little things to perk up the community. For example, some of them put up holiday decorations or clean up some of the common areas just to be nice. We don’t even assign tasks; some people just like to help out. The kitchen is the most highly tended-to area in terms of supervision. Obviously, we want to guarantee that the food cooked there meets safety standards. We can’t have any kitchen fires, either. That would be no good! The community really has a welcoming environment to it.

We had to work hard to show our volunteers that they are appreciated and earn their trust as a community. And we do value them very much. I was shocked at the number of community volunteer groups that exist in our area. When we presented this opportunity and asked for volunteers, they seemed to come crawling out of the floorboards. Two of the nearby churches cook dinners every weekend. We have a couple that will work with our tenants on their finances. We also do community events, such as organizing carpools into town, hosting BBQs, etc. We also host an AA group there. We now have a dedicated room where medical workers and social workers can hold private meetings with tenants. We really have a strong network here, providing services for seemingly everyone. As managing owners, we provide oversight and security, we collect the rent payments, and we help diffuse any tenant issues. However, these community benefits are unpaid, and it makes me very grateful for the support we receive.

With no advertising, we receive about 15 tenant applications per week. So, I haven’t spent anything at all on marketing any of these units. It’s just word of mouth. But we do have a Facebook page, although it’s more of a community page to keep our current tenants informed about our activities, events, etc. The Housing Authority gives us a ring almost daily, and so does our non-profit medical establishment.

They simply don’t have a downpayment available. We had to establish a low entry barrier so we could accept people without the downpayment. It’s a bit scary, of course. We automatically reject tenants that have past sexual assault charges, felonies or have ongoing drug cases. It just wouldn’t be appropriate that in our community setting. They must have some income, even just the monthly disability check of $740. Unfortunately, we’ve had some tenants breaking community rules or using drugs, but it’s not the norm. So far, we’ve actually only had one eviction. Potential tenants must apply in person and attend an in-person interview. Our waiting list consists of 28 people.

Section 8 should continue paying tenants for 15 years, according to my knowledge. There is an overlay for disability. Additionally, if the tenant starts making more income, they’ll drop off Section 8 housing.

Out of our 42 tenants, 32 use Section 8 housing vouchers. Those with very low incomes pay $50. Low-income earners pay $200. Everyone else pays in full. Since our rent includes all utilities, it’s still a cheap option, especially when you factor in all the other community benefits.

While we don’t have on-site mental health service professionals, we do have them readily accessible by phone. However, our goal is to have some on-site eventually. I highly recommend working with the VA; they’ve been amazing to work with.

What is the revenue? What are the expenses?

Our rent has increased from $800 to $850, but it would have been $650 if we weren’t charging for utilities. It might still seem like a high price to some, but that’s what the government wanted, so this is how we’ve chosen to run the facility.

This is as affordable as it gets. Even trailer parks charge anywhere from $1,000 – $1,200. Now, this is for one single-wide trailer, which costs an extra $500 to $800 per month for electrical costs. They’re in rough shape too. This past winter, three trailer homes burned to the ground because they weren’t taken care of properly. They were built 50+ years ago. They’re only 900 square feet. Need I say it again? It’s a terrible market. Single-family homes start out at $1,600 per month. You can some 2-bed apartments for around $1,100 per month, but they’re likely to have very long wait lists. And they don’t even take housing vouchers.

Now, the Housing Authority, as well as other nonprofits, are spending $85/night on hotel rooms. Compare that to about $28/night, equaling our monthly $850 rate. You see, they were very excited to opt into our rental price, especially when we offer yearly leases.

Some people are on disability and also receive housing vouchers. So, they’re paying $50/month out-of-pocket. All of their housing bills are covered. The fact that we worked utilities into the rent payments really helps those people out. This way, they don’t have to worry about picking whether to pay their electric bill or pay for medical care or food. The electric bill is covered. And, by the way, so are a few nights’ worths of dinners. This functional charity is one of the best things about how we operate today, and our intention is to keep this running in the future.

The decisions of our tenants can certainly affect our operating costs, but as of today, this effect has been low. Some tenants (or their friends or family who come to visit) do have issues with drug use that impact the unit. If there were some way to provide more support for these tenants to prevent such issues, we would certainly explore those options.

How are you doing today and what does the future look like?

Over a typical week in our building, about 20 people come by, looking for a place to stay. Three people used our parking lot as a safe place to sleep in their cars. 12 new people who are currently experiencing homelessness and living in nearby tents or sheds contacting us looking for tenancy. 13 veterans are currently living here.

We stay active in the community and advocate discussions around the topic of homelessness. One of our tenants just decorated the courtyard a bit for the fall season. We recently called for donations of men’s clothing and were very grateful to receive a loud response. We received donations of personal care items, little care packs, cards, and bracelets from a Warren County School program. A local chiropractor just held a fundraiser for us, which we were also grateful for. The community simply continues to partner with us, support us, and keep us busy.

As far as new updates go, we’ve made additions to the courtyard area. We’re working on some outdoor undertakings, including planting new grass and installing sunshades. We also poured some concrete to make a spot for outdoor furniture. We added doggie stations, new signs, and are working on finishing a new deck. We’re simply constantly improving the space and trying to give our best to this community. We’re always accepting donations of gently used clothing and other items.

My concern is making sure our tenants can come here, stabilize themselves, and eventually move on to a better housing opportunity. It’s a big vision for us, which we’re still working on. Some tenants have already moved out, but they went to live with family or to the big city. More affordable housing in our location is necessary to help these people. Surprisingly, about half of our tenants are full-time employees working 40-50 hour weeks. But, their wages are so low that they still qualify for Section 8.

A long-term goal I have is to use USDA direct financing. If I can get tenants approved through that, we could construct homes for them to purchase. This information is not well known, but Section 8 housing can also be used to help people buy homes. The mortgage payment is simply funded in the same amount as the rent payment would be. However, it’s a mess when it comes to paperwork. This is the housing choice voucher ownership program.

Now, my question is how I can do the next project like this. Should I sell this? My fear is that the new owners will run it to the ground. Also, I’m not sure if the Covid loan program still has funds to offer. Only time will tell what the next best move will be.

Any advice for other who want to get started?

Did you know just a single year of homelessness can remove up to 20 years of your expected lifespan? It’s true. In fact, a couple of our tenants in their 60s actually passed away while living here. It is regrettable. They’ve had a hard life, and sometimes we see the end of it. In these cases, we help manage them ourselves.

There’s one main reason why most people don’t attempt this. It’s because a year lease is required to participate in the housing program. Most of the tenants we have wouldn’t qualify for a typical lease (first, last, and downpayment). Half our tenants literally came off the streets, and the woods nearby have people living in tents and storage units. These aren’t golden tenants by any means, especially when the market goes off and a million people are looking to rent.

Also, sometimes investors with large portfolios approach me. They ask about my management team, where I got this idea, what really made me give it a go and etc… Obviously, I like making money. In this case, I just identified a need. There really was a disconnect between providing services that people require and profiting in that space. I feel I closed the gap with this project. First-tier housing is essentially absent from the market. It baffles me. We all need shelter, just like we all need food, water, and clean air. If you can believe it, my state not only made being homeless illegal but also will slap a fine and a court record on the homeless for being on public grounds. Meanwhile, they’re not providing adequate, affordable housing. It doesn’t add up. We can’t expect people just to go claim new land and establish an encampment… there is no such land to claim. The rules here are nonsense. I wish these bigger investors could see this need and help fill it.

Where can we go to learn more?

I don’t have any have social medial accounts for others to get in contact me with per se, but we do have a community Facebook page, which has information about our upcoming events, news, and, just any general highlight of our community members to show how greatly we appreciate them.