All Forum Posts by: Samuel DeMass

Brandon,

You are very welcome.  I'm a huge real estate nerd, and this is my outlet and way to pay it forward.  I'm happy to offer my thoughts.

Get a good understanding of the market rents, not just the current.  Call a professional property manager and ask them what these types of units will demand.  

I started out managing my properties too, and I fell into the same trap you're walking into, so no big deal, just don't do what I did.  You really should (MUST) include property management into your "simple math" equation.  Here's why:

How much is your time worth?  Maybe not much today, but what happens down the road when you want to stop being the guy getting calls about the toilet or the A/C is broke on a Saturday 10 minutes before a family get-together in the dead of summer?  What if circumstances out of your control (you get run over by a bus full of nuns) leaves you unable to work?

Pay yourself to be the manager.  If you want to put that 10% in your pocket, great!  I recommend it.  It will help you understand how property management works, but don't short change yourself.

By the same token, use your family ties you have (trade skills) to your advantage, but you'll still want to include the long term repair costs for big expenses (roof, A/C, water heater) so you have to account for those over the long haul.  I've found 10-20% works pretty well for my rough numbers.  Additionally, getting your family to help you get started is one thing, but I tend to think once you've got your feet under you paying professionals to do a good job is a more sound practice than having to rely on favors over the long haul.  It's harder to hold family accountable to timeline and costs.  You're working toward building a long term wealth accumulating business, plan accordingly.

For the Seller Financing, If I was going to ask it of a seller, I would start with finding out what else they might do to invest their money instead.  I'd look to the 10 Year Treasury securities and see what the current yield is and add a few points and start there.  If you can provide them with something better than they had planned on using it for, and have the means of conveying the message, I think you'll probably be successful.  

If you were asking me what I want my money to be making for me, outside of Real Estate I would expect at least 5%, for reference.

Good luck Brandon!  Thanks for the questions.

Brandon,

First, Welcome to BP.  I applaud your wisdom to reach out and get advice.

The first thing you need to establish is current and market rent on all the units.  GTS (Google that 'stuff') or use Rentometer.com and start figuring out ballpark numbers.  Once you know that, you can analyze the deal a little better.  Only pay for current rents.  Don't base your numbers on what you think you can get.  If they are advertising "below market rents" it is a sign that the current owner is not motivated enough to move rents, or they are unable to increase rents due to market forces.

Once you find out market rent, you can start negotiating on some real numbers.

Then you have to do what I call the "simple math" to derive cash flow:

RENT - VACANCY(~10%) - MANAGEMENT FEE(~10%) - REPAIRS (~10%) - TAXES(Monthly) - INSURANCE(Monthly) - MORTGAGE(Monthly) - SELLER FINANCING COSTS =

CASHFLOW.

Note: I'm not sure what your lending situation will look like, or if you intend to do 100% seller financing, so the above may need to be adjusted accordingly.

It's imperative in your situation that you ensure a solid positive cash flow.

If I were you, I'd just make the offer that you want. Include the seller financing up front. It sounds like you'll be using an agent to act as your negotiator anyway, because they have it listed on the MLS right? So you'll need to find an agent to help you out. Hopefully you've been thinking about where you want to go work once you're done. I'd go there and take your business to them.

Work the math out so you can point to solid evidence that you can make the deal work and then have them help you word it and deliver it.  The seller will never know how old you are, so don't sweat it.  They will receive a contract from their agent that was sent over by your agent.  I started buying houses when I was 18.  It's not as big a player for the initial purchase as a lot of people make it out to be in their own mind's eye.  You're just the name on the bottom of the contract to the seller.  Getting a bank to loan you money is something else entirely.  Buy a tie and rehearse your plan.  Make sure you can verbalize it to another human.  Spend the time to put a presentation together.  You can use it for the next deal too when you say "I did this deal before".

Have your agent write your contract and ask for everything you need.  I think it's worth pointing out that you can put just about anything in the contract that you want.  You can ask for a keg of beer to be conveyed with the house.  There may be some legal concern, but a contract is simply a legal agreement between two parties.  You can ask for almost anything.  The worst they can say is no.

Lastly, don't get too discouraged if this one just doesn't work out.  There are lots more out there.  It's way better to get shut down on a hundred times to find a great deal than it is to chase the deal and lose money on it.    You just have to keep looking.  Give this one a college try and see what happens.  Learn and apply on the next deal.

Portfolio lending would be one way to go. Just go have a chat with your local lenders and explain what you intend to do. Having a great working relationship with your finance options is always a good thing. Portfolio lending gives you the flexibility and allows you to build credibility for the next deal. Cheers, -Sam

Hi Tomas,

You're asking a broad question, but in general you can use about any resource you can think of, here are a few broad answers to get you nudged in a direction:

-The internet (Real Estate Websites (zillow, trulia))

-Real Estate Agents

-Local Investors opinions

-Public Records (which can sometimes be accessed via the internet-i.e. Assessor's Office websites)

-Contractors

I'm not sure this will help you, but I hope it builds a bridge to your next question.

Assuming the zoning and ordinances allow, can anyone give me an idea of where to start asking to find how much that it might cost to build the garage/loft addition?

I have a friend looking to purchase a home in Denver and they heard they can add a garage to the property with a loft attached.  According to the realtor, the laws recently changed to allow the expansion.

1.)  Can anyone verify this change?

2.)  Any guesses at a cost range would you be looking at to build a single garage with a loft above to rent out?  Has anyone done this?  What was your experience?

Thanks BP!

Hello BP! 

Thanks in advance for the  the advice.

I've got a 4-plex.  Each unit is a 1bed/1bath.  They're great little units, but they don't have a laundry option, and there is no room for adding washer/dryer hookups.  I have space on the property and a large storage shed I'm eyeing to install an on site laundry option within.

What are my options in terms of adding on-site laundry to the list of amenities?

I'm considering coin laundry, coinless laundry, free laundry and anything in between that will up the bottom line and provide more value for the tenants.

What are your thoughts?

Cheers!

-Sam

Fadel,

Sure, what can you tell me about the job growth in that town?  After you can answer that, you should be able to decide if you want to be in that market.

Once you decide to get into a market, then you need to know how to run the numbers on the deal.  Bigger Pockets is a great place to start.

Welcome to the site.

-Sam

Ramon,

Welcome to the site!  It's good to see more realtors from the ABQ are coming aboard.

I'm scanning the ABQ market now for multifamily opportunities.  I think you're in a great place to get started!

I'm not sure where you're at with your investment knowledge, but either way I always like to suggest taking the time to jump on itunes and check out the podcasts.  It sure beats listening to the traffic radio on the commutes and there are great thought process starters and resource suggestions that pop out at me.

I hope you connect with a local mentor soon, but if you have questions please feel free to connect or shoot me a message.  I'm far from knowing everything, but I've been investing for a while.

Cheers,

-Sam

Thanks for all the input!  I appreciate it.  I was surprised that I was unable to track down a previous conversation concerning this.  Is this a norm in any other states?  I would love to find out.  Out of state investor be warned of California!

@Ron Drake seems to hit the concern square in the face.

I think I'll be staying away from putting any of my $$$ to work in California.  Good riddance.

I think it's a ridiculous tax.  However, to read more about it I've sourced it at the website below:

https://www.ftb.ca.gov/individuals/wsc/California_...

Cheers,

-Sam