All Forum Posts by: Samuel DeMass

@Marty L.,

Welcome to the site!

You've landed at a solid spot for a wealth of information on REI.

I'm not a mortgage expert, but I'd imagine you could probably get a refi on a property with that kind of LTV ratio with no problem. You could probably even do a normal conventional at a low fixed rate. What types of lenders hold the 1st and 2nd currently?

I think you also probably need to identify what your goals are in terms of what you are trying to accomplish?  For example, are you just looking to lock in a rate long term for the remaining principle on your home loan or are you looking to take money out of the refi?

I like a couple ideas I've picked up from the site that suggest using a HELOC (Home equity line of credit) to pull out equity to use for good value acquisition, refinance the acquisition and then pay off the HELOC to start the process over. I think you probably have enough equity position in the mentioned property to be able to pull this off. I tend to think this is a great option to start investing with what you have locked up in your home.

Good luck!  Keep us posted.

-Sam

Anyone following the thread,

The inspection yielded a few concerns, but mostly cosmetic.

There were a couple things that will probably need fixing in the next couple years like old in-wall heating units and a complete lack of gutters.

However, I chose to ask for only some of the cosmetic things be fixed, and here is my thought process:

It's currently 100% occupied, meaning everything is working "good enough".  There are things that can be done to improve the condition of the property.  If I chose to put some of the bigger ticket items on the repair request, I lose control of the quality of the repairs made.  I know I can fix cosmetic issues if they aren't done well, but the bigger things will cost more money to re-fix down the road because they weren't done properly to begin with.

Given the price I'm getting the property at, I don't feel like the seller will feel inclined to do any major repairs that will cost them more money.

Therefore, we only asked for minor painting and replacement of cosmetic items that we saw needing attention.

@Jonathan Guerrero,

This is a question I wrestle with sometimes, and to be honest I'm not sure I have a good answer.  However, I'll share my thought process:

It essentially boils down to the total cost of one over the other, in terms of actual out of pocket expense.

The biggest variables that would influence my decision would be:

-Financing - How well can you leverage when you compare building vs. buying

-Holding costs - How long will it take to complete a property?  The costs associated with holding the property, and even to some extent the opportunity costs of holding the property until it was rent ready.

I hope this provides some food for thought.  Let us know other things you identify as important and share your decision!

Thanks and good luck!

-Sam

@Ernad D.,

Spot on!  I use excel for my analysis tool.  It's not super pretty, and it has been a work in progress for a while now, but the thing I really like is I know how it's working so if I need to add a variable later, I can.

COC (Cash-on-Cash) return is something I use to evaluate a deal compared to other deals, using my financing assuptions.

Whereas CAP rate allows you to compare apples to apples in terms of multiple investors and multiple properties, COC allows you to measurably compare your specific financing to multiple properties.

In other words, COC allows you to evaluate the return on your actual cash you're going to invest.

You find COC with the following simplified equation:

RENT - EXPENSES(Taxes, Insurance, Repairs, Utilities, Vacancy...etc) - DEBT SERVICE = COC

Hope this helps!

-Sam

@Dwight Styles,

In short: Yes, with some caveats.

In long: Yes, but there are some important notes to consider when using a VA loan.

Double check the VA loan requirements, but here's what I remember seeing as important gotcha's:

-You have to intend on moving into a property within 6 months of purchase.

-You have to intend on living there for at least 1 year.

In other words, you can't "[buy] a house with [your] VA home loan just to rent it out". I don't mean to discourage you, because there are definitely strategies to make it work for you and maybe that's what you meant. What you can't do is purchase the house with no intention of living there and rent it out as an income property. That is a clear violation of the intent of a VA loan, and I would never condone it.

However, you can work within the system by finding a solid deal (another note that the VA has certain living quality standards, so it can't be a complete fixer upper) requiring a little polish to shine, and live in it and improve it over the time you're required to live in it. Once you are ready to move you can convert it into a cash flow rental at a super low fixed rate.

I know there are plenty of investors who use that benefit to their advantage.  Since it has such a low capital requirement, it is a great resource to get in the game with little money out of pocket.

Keep digging, there are a ton of great resources here on BP.

Good luck, and keep us posted!

-Sam

@Kal Abhari,

I'm not sure what your definition of "seasoned" is, but I've been at it for a while now, so I'll take a stab.

Without diving too deep into a discussion economics, I find that ROI follows the curves of supply and demand pretty well. Put another way, higher risk usually demands higher reward.

You can take a peek at my profile to see where I'm invested, but I've been analyzing properties on the market for a while, and here's what I've observed, in general:

-Lower income properties generally produce higher ROI, but come with a higher risk of damage/repairs.

-Multi-family properties generally produce higher ROIs than single family home rentals.

-I tend to think multi-family provides risk segmentation (meaning the probability of all of the units becoming vacant/requiring repair at the same time is fairly low)

-The more units in one property, the higher the efficiency. Thus, higher ROI.

In summary,

Large multiplex properties in the lower income range probably produce the highest ROI. However, nothing trumps buying the right deal.

Finding the right deal takes a good analysis and patience.  I try not to set timelines on acquisitions.  I just continue to monitor the market and when something I can't pass up comes along, I'll get it under contract and figure out how to buy it.

To use a baseball analogy, I tend to think that you don't have to hit a home run every time, but if you consistently get on base (positive cash flow), you get to keep playing, and will probably win.

I hope this helps you in your quest for the best ROI.

Good luck!  A good deal is out there, go find it.  Keep us posted.

-Sam

@Cody Kauzlarich,

I couldn't agree more.  I failed to mention it, but all three (inspector, realtor, and Prop manager) will be there for the walkthrough/inspection.  I haven't bought a property without a property inspection, and wouldn't advise it.

@Paul Ewing,

Thanks for the input!  What did the credit negotiation look like in terms of actual cash exchanging hands?  Was it a reduction in total price, or an allowance provided for the repairs via cash at closing?

I don't have the good fortune of being able to physically inspect the property myself, but I am blessed to have a great team that I know on a personal level and have worked with on previous properties in the area.

Have you ever bought a property outside of your local area?

@Adrian Chu, @David Avetisyan, @Cody Kauzlarich, @Che Chiu Wong,

Thanks for the responses fellas!

I actually found this property through my local real estate agent's auto-search.  It is a standard real estate contract, with one contingency being the property inspection by my representatives (realtor and property management).  I expect it to be move-in ready, as it is already occupied by tenants.

Hopefully the inspection doesn't come up with anything material to the purchase, but it sure is nice to know I have options.

Thank you for your time!

@Daniel Inglis,

Are you looking to invest in the UK or stateside?  

I'm not familiar with the UK laws of ownership, but that's something to be considered.  

I recall seeing an article about one of those places closing down here in the next few years, do you think it will have a negative impact on the rental market?

What type of RE investing are you looking to get into, and where?

Good luck!

-Sam

Hey BP!

I'm under contract on a 4-plex and I have the property inspection coming up.

I have a contingency in my contract for the property inspection, but what does that really do for me?

I don't expect to find much (or rather my inspectors/realtor/property managment, who are all walking through for me), but what if they do?

What options do I have in terms of re-negotiating price and what format does that take place?

Is the contract cancelled, if I choose to back out?  To renegotiate is it a new offer acceptance?

I would be interested to know if anyone has been down this road, and what experiences they had, good, bad, or otherwise.

Thanks!

-Sam