On the show today we talk… Justin Cambra – Building a Rental Portfolio with Your W2 and RSU’s!
Show Links:
- Justin Cambra BiggerPockets
- Albert Bui’s website
- Last podcast with Albert https://seattleinvestorsclub.com/maxing-your-lendable-income-with-albert-bui-ep-109/
- Enrique Jevons has helped me out a lot. He’s a property manager, and owns a ton of units himself. He’s helped me with education.
- Local banks – I used to have a lot of loans with US Bank. They have helped me get into property 2-20.
- Seattle Tiny Homes – I work with Todd McKellips. He’s the man when it comes to Tiny homes.
- That podcast that you did with Kevin K was AWESOME!!!
- Ken McElroy is great.
- George Gammon Rebel Capitalist Show
- Just Start with Mike Simmons
- Jason Hartman -> https://www.youtube.com/channel/UCpGNsrLsGR1viGHoEbSCabA
- Epic Real Estate Investing – > https://www.youtube.com/user/EpicRealEstateInvest
Show notes for Justin Cambra – Building a Rental Portfolio with Your W2 and RSU’s!
The Vantastic Life is…
– is in Enumclaw WA.
Julie
Justin Cambra has 28 properties and 62 doors and we are going talk about how he’s done it.
We also have the one and only Albert Bui, who is one of our favorite real estate lending experts!
Joe
Justin, what’s your background?
Justin
I actually grew up in Enumclaw on a farm playing Monopoly with my grandma. Then I was working a ton and actually doing an accidental house hack when my dad was diagnosed with cancer. I was making a lot of money but working a lot. And my dad did the same, so I started making a change to working less and enjoying life more.
Julie
So you had some RSU’s, how do those work?
Justin
They are restricted stock units and you have to wait for them to vest before you can use the money. And at Amazon I get rewarded with RSUs.
When I got the first vesting I knew I needed to get some cash flow from the money.
Having the RSUs help me when looking to get a loan in multiple ways. The lenders like to see that I have money coming to me, or I can keep the vested RSUs and lend against them. Where I pay the interest on the loans but use the loans to buy rentals.
Albert
You can use RSUs as cash reserves. And we need 6 months right now.
Justin
At first I was using cash only, and now RSUs.
Julie
Who are the key players on your team?
Justin
I still work full time at Amazon (after going to Berkley). I was working within Amazon Fresh in multiple finance roles. Understanding where the buildings were and understanding their cost. This helped me to understand putting capital in and getting more capital out.
Most recently I’m trying to merry my passion outside of work with work. I focus on finding warehouse space across the US for a couple different business units.
Julie
Well, I know about Carl!
Justin
Yes, Carl my dog!
By state, WA, MI, WI.
WA
Enrique Jevons has helped me out a lot. He’s a property manager, and owns a ton of units himself. He’s helped me with education.
Local banks – I used to have a lot of loans with US Bank. They have helped me get into property 2-20.
Tiny homes – I work with Todd McKellips. He’s the man when it comes to Tiny homes.
I also work with your group and Tarl’s group locally.
Julie
How does out of state work for you?
Justin
Growth is a function of cash. There was a time when I couldn’t afford more properties in WA. Then I heard someone talking about Milwaukee and I started to check it out. Then aggressively buying out there. The pricing is so much cheaper. I average $30-50k per door. Rents are about $500-750.
Albert
Did you stubble at all out of state?
Justin
There are things that I’ve learned and stumbled with.
In Milwaukee I know that it’s small increments of investing. Generally it’s only $15-20k to get into these properties.
If I was going to get into a new city, I would fly into the market and connect with people in different areas. Then I look at the Trulia Crime Map. Cheap properties in bad areas aren’t the greatest.
As I’m buying these properties they are all 100 years old and need more maintenance. So, figuring out what you need to repair now and in the future.
When the first winter hit everyone jacked up their furnaces and they started breaking. Then I was paying for all those and not getting cash flow.
Julie
What do you recommend on these out of state properties for reserves?
Justin
The standard is 3-6 months. But I want $25k cash sitting in my account for all portfolio. $50k would be better. But with lower property values you aren’t having really high mortgages.
Julie
Albert, let’s get into the financing side of things. And how to use RSUs and such.
Albert
With RSUs you can borrow against them like a margin account. We don’t count the payment against you unless it shows up on the credit report. You can sell the stocks. If vested we can use as cash reserves, it’s documented money that doesn’t actually get used.
Julie
We need to put cash down to purchase the property and equity to close.
Albert
First, use them as money. Then house hack. Are you going to 2nd home it, or AirBnB it.
Justin
I’ve done a little bit of everything.
The other thing is you have to think about how you’re going to use them and where they are going to go. Everyone has different risk tolerances. Some don’t do anything and have done very well. Others use them for other investments.
I was selling mine at the beginning to diversify.
You should hold and execute on the plan that you make.
I wish that I would have held them all and borrowed against them all. I just didn’t know how to do it at first.
The banks told me about an asset based loan. This can go in multiple ways those. You can have the stocks go down when you lend against them.
Albert
RSUs can be used as income as well. You just have to be on the job for 3 years.
Julie
Let’s look into that.
People need income to qualify for loans, and they can use RSUs for income?
Albert
They can be used as almost anything. Like a Swiss Army knife.
Some people have a ton of RSUs.
Julie
How does it work to count as income?
Albert
I get 3 years of end of year pay stubs and average it, then add to your income.
Justin
What’s interesting… I’m refinancing my primary residence. If you don’t spend the money you aren’t using it to pay your bills. So your asset are going up but your debt to income isn’t changing.
Because my primary residence is an AirBnB for traveling nurses, so it becomes a problem.
I’ve had an underwriter tell me that I needed to sell the stocks to count as income.
Albert
I might look into other lenders to see if you don’t have to sell the stocks.
Justin
To continue to grow I’ve done many different things. Like playing with using my personal vs. my business.
Albert
Right, the lenders just need to make sure the loans are sellable.
Julie
What was our first rental?
Justin
It was an 11 unit in Yakama, which was a commercial unit. My brother lives in Yakama.
I found a property on Loopnet, and goes to show that You don’t know what you don’t know. I went to a regular lender and found out that commercial loans start at 5 units. At the time I didn’t know about LLC’s or anything and did the loan in my personal. I also sold all of my RSUs for the down payment. Then I needed to figure out 3-6 months of reserves, which they required.
Julie
What was your required down?
Justin
$20-25k with 5 year fixed and 20-25 year amortization. I 1031’d this property for other properties.
Julie
When you switch to buying out of state, many people think it’s harder… you have a job and all these RSUs, you didn’t necessarily need cash flow to pay your bills… why do you still work at Amazon?
I personally think people shouldn’t quit their day job unless they hate it.
Justin
At the end of the day my rental income isn’t enough to replace my Amazon income. When you’re gone, be gone! I don’t want to have to come back.
You don’t make money for 12-18 months when you buy something new. You get new tenants and fix things up.
When I did my taxes in 2018 I learned that I didn’t make any money from the deals I bought in 2018, but I made money on all of my deals in 2016 and 2017.
Also, I make a lot of money with Amazon and dump a lot of money into investing.
I focus all of my money into cash flow. We see a lot of people getting home runs through appreciation. So, I’ve been buying some things that are appreciation plays here in Seattle.
Julie
So Seattle properties might be minus cash flow?
Justin
I call it the milk shake model. I throw my money in the Midwest then pull out the cash flow for buying properties in Seattle.
Julie
What do you think Albert… When you’re buying the properties what kind of loans are you putting on?
Justin
For the most part commercial on everything. In the beginning I did some conventional.
Julie
What’s the biggest struggle with financing?
Justin
Right now it’s the flip side of 28 properties in 3 states. It’s a heavy lift to provide all the documentation. If the lender wants to see all of the leases it’s a huge headache.
I’ve most recently switched to local banks. The hardest part is proving that I should get more money.
To continue to grow I’ve had to find more options. Like buying in my retirement, doing partnerships, and more.
Julie
My thing is that everyone should understand debt first. Go to Doctor Albert here and figure out your debt issues. What lane are we currently in as a borrower, and how do we become a stronger borrower.
Part of my 2021 goal is to get people started out on the right path from the beginning.
Albert
On conventional we’ll use payments. We want to make sure you know how each deal will affect your picture. What are you going to show to know that getting loans will be a smooth process.
Justin
I think what you’re hitting on are 2 things.
Having a binder of everything that you do. All your properties, what entity owns them, who’s the lender, etc.
Then you also need your bookkeeping and accounting. I went way too long on doing a good job on my books.
Julie
Which is the perfect time to check in with Doctor Albert. He can give you tips to truing up your books to your advantage.
Albert
Day 1 when you buy something your income is in shambles. You need to get the rents in shape and the financials in order.
Julie
On the multi family that I’ve owned you take an annual budget. Every month you plug in the actual numbers and re-forecast out. You can literally see when you’re going to have cash flow. It’s very beneficial for decision making during the year.
You just gave me this idea! You can do the same thing with your debt to income. You plug in your job income, your cash flow, then plug in the actual. As things move around, you can see when you need to refi or know when you’re going to hit a certain debt to income ratio.
Then you can get teed up to contact your lender. ‘
If you do this every month it’s really not a lot of work.
Justin
That’s very proactive. A lot of people don’t make money unless they do transactions. This would make you very easy to work with.
I didn’t know about all that stuff when I was first getting started.
The more that you’re prepared upfront the more agents, property managers, and lenders are going to work with you.
Julie
Albert, don’t you look at your own deals from a debt servicer calculation?
Albert
I look at the debt to income to make sure that I have enough for future properties. I don’t do exact calculations, I just need to know roughly what I can fix.
I know that if someone has $450k, then I can double that and say they can buy at… in Mecer Island.
Julie
Understand your borrowing power to understand what you can buy.
Albert
I’m looking at total potential for someone like Justin. This could be planing for when his RSUs are going to vest, and what does this mean. What does he want to buy, we plan for that.
Julie
What’s the tradeoff for using smaller or bigger banks?
Albert
The smaller banks are more flexible but charge a little more.
Julie
What’s the challenge that you see with borrowers?
Albert
Sometimes you meet up and there’s an income problem or they’ve just done a couple BRRRR’s. So you have to pay off cards to get the credit back up. We can do a rapid update, but it will cost money. Timing is really important in lending.
I would listen to the story and wait for the right timing. Unless they are a new investor and have no deals.
Justin probably has multiple deals going.
Justin
I do need a new business credit card for one of my businesses but I don’t want to take on my debt until I get my primary closed.
Julie
You have all the parts necessary to succeed, so what’s your advise to people?
Justin
I’m moving to a series LLC setup to avoid potential pitfalls.
In terms of starting out a lot of people will get caught up on it. Just get the first couple deals done.
I was having some issues with having loans in your personal vs. businesses. As I’m refinancing I’m doing so into the new entity structure to keep my DTI in a good position.
Any loans that I have in my personal name I’m aggressively refinancing or paying them off. At the end of 2021 I only want my personal residence in my personal name and all others in the businesses.
Julie
What about your purchases with creative financing.
Justin
I’ve done 4 seller finance deals and working on a 5th.
The benefits, anything that you negotiate goes. You can adjust the parameters so they work for both parties.
My first deal was off of Craigslist on Christmas night. A lot of times I find deals during holidays. I connected with the seller. I’d listened to a lot of podcast on the topic. We were both using equity trust and the seller thought I knew what I was doing.
I gave the seller 3 options and she took the middle one. It was the price she wanted with the low down for me. I only had to bring 10% down, so I was able to save cash. These don’t show up in pulls as far as debt load. I think I did a 30 year fixed at 6% interests. I’m using that cash flow to pay the 6%. I have since refinanced and am at 3.5% on that one.
Julie
I think learning how to buy, manage, and renovate a property is down on the list to learning how to do the financing.
Has COVID effected your properties?
Justin
Yes, I’ll get a lower collection and then get like 3 month in a bundle after the tenants get some aid.
If you are familiar with the Cares act you can pull money out of your retirement. So I paid out a lot of my retirement to pay for things that get bad. In my opinion I don’t think it’s gotten bad yet, so I’m stacking up cash.
Julie
Who knows what’s going to happen.
We are going long.
If you are thinking of getting started or have 1-2 under your belt, go check in with a lender and get your temperature taken. Plan and be more informed.
What podcasts do you listen to?
Justin
That podcast that you did with Kevin K was AWESOME!!!
Tarl does a great job with industry experts.
I’ve done more learning on YouTube and macro economics.
Ken Mcelroy is good.
George Gammon Revel Capitalist Show.
Just Start with Mike Simmons.
Julie
Jennifer Beadles has a great summit coming up in Feb. Checkout AgentsInvest.com and AddictedtoROI.com. We have J Scott coming on with our first show in the new Year.
What do you do for fun? Hanging out with Carl.
Justin
It’s all about sports! Chasing a ball or puck. Golf, hockey, soccer, and Pelaton.
Julie
How about you Albert?
Albert
Snowboarding, running. Getting excited about snowboarding coming back!
Julie
Joe and I are snowboarders! WE should do an SIC snowboarding session!
Check in with DR. Albert. And checkout our weekly mastermind at https://meetup.com/seattleinvestorsclub.
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