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Updated almost 12 years ago on . Most recent reply
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Tough decision - HELP!!
Hello BP Members
Myself and a friend are about to pull the trigger on purchasing a fleet of Multi-family homes. The first will be a 21 unit building. I have did the numbers, and they look good, but that is not what I would like to focus on. I am wondering what action would you gentlemen take if you were in the situation. Me and my friend are both contractors overseas, and have a combined income of a little more than 300k. We both have allot of cash saved up on hand. The issue is, things are winding down over here in Afghanistan and we will soon be laid off by the end of the year. My suggestion to my friend was to purchase a property at the end of May, and aquire loans on more properties 2 months at a time while we have this kind of income coming in. We may not have another opportunity like this again making this kind of money. My idea was to use 10 percent of equity from the first property and 10 percent cash to finance the second property and keep repeating the process until the banks tell us no you can't have anymore. All loans aquired will be paid up 2 years in advance once we have them to free up net worth which would be immediately pushed back to loans. After we have all loans on the table, I will push all profits towards 1 loan to knock them out as quickly as possible. To lower our own personal expenses so we are not using any of the money profited from the properties I suggested we stay in Thailand for about 2 years where we both have condos that are paid for and the living expenses are very low there. He on the other hand thinks we should move a little slower and get 1 21unit building and learn from that for a year. And that is fine, I believe we both should learn, but with time against us, and without us making this kind of money back in the states, I am sure the banks will not be so favorable. I can't remember who but someone did say allot of what we are trying to do will depend greatly on property management, which is fine, I will have family members monitor them frequently if we need to. Please let me know your thoughts, and the action you would take if it were you. He is freaking out a little, I believe he is a little scared, but it is a good sign from him, tells me he knows we can pull it off and the situation is very real, thanks for any help you guys can offer...Lamart.
Most Popular Reply
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Lamart are you trying to purchase multi family properties here in Georgia or another state??
You said a 21 unit. The problem with a 21 unit is you cannot scale it enough to have a full time onsite manager or maintenance person. What kind of cap rate are you trying to get for your purchase??
Getting a larger building you do not need to get FAMILY to look after the place. You and your friend need an attorney to set up a professional partnership agreement and you need to run the investment like a business period.
How much money do you have to put down between you and your partner?? You can also partner with other buyers to get an ownership in a larger building.
I have buyers that will partner and others that will not. You need to decide what type of tenant base you want to rent to. Lower income units will be cheaper to buy and throw off a little more cash but have a ton of headaches compared to a higher end product with a little less return but you get more appreciation on the back end.
The 4 corners are 1. Appreciation (hopefully) 2.Tax depreciation,
3. Principal pay down (unless interest only loan which you do not want) 4. Cash flow (hopefully)
- Joel Owens
- Podcast Guest on Show #47
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