All Forum Posts by: Andrew F.

@Kuba F.

Great post, thank you!

Looking at an off market property, that “feels” like a good deal: estate sale, cosmetic updates only, ability to convert from 2/1 to 3/1.

Probably a pretty basic question, but what's the best methodology for estimating ARV (and post rehab appraisal). Right now, the best I'm seeing is to look at Zillow recently sold and try to find sold houses in a radius that seem comparable. But I feel like there has to be a more accurate way to go about this?

Appreciate any insight! The goal would be to BRRRR this property, so defining my ARV is of course critical.

@Charlie Moore

Just went through this same process a few months ago with my first property going up for rent post-rehab. Over the course of the first few weeks having the house listed on all of the usual sites (Zillow, FB marketplace, Zumper etc) I received probably 75-100 inquiries. The frustrating part is that a large majority of the inquiries are simply “tire kickers” and will never reply or respond back to anything beyond the initial message. A handful will, and I’ll usually send them a short prescreen questionnaire asking current rent, credit score, approx income and so on.

My experience could be summed up as this (over the course of about a month):

100 inquiries

20-25 follow up responses to questionnaire

15 showings

5 applicants

2 qualified applicants

1 placed tenant

So all that to say, don’t get too overwhelmed by inquiries. People apparently just like to inquire for no reason, with no intent of ever actually following up.

Best of luck!

Thank you both for the insight. I agree that I’ve probably gotten too far into the weeds on this, just a matter of getting too anxious with our first property and leases. I’ve still not heard anything from tenant, so if tomorrow (Nov 15) comes and goes, we will send them a notice on Friday with move out instructions for end of month.

Hi all -

My wife and I recently took the plunge and purchased our first duplex, which has two 3/1 units side by side. The previous landlord owned the properties for just over ten years, and did effectively nothing in the way of maintenance, upgrades, or even managing his tenants. Luckily for these tenants, their rents were way under market as the previous owner never once raised their rent from 750 month. He also never had them on leases, so side 'A' has been verbal month to month for 6 years, and side 'B' for 10 years. 

Right after we closed, on Oct 15th, we sent a letter to the tenants formally introducing ourselves, providing them key information, and also providing them with notice that either a written lease needed to be executed within 30 days (by Nov 15) or they would need to vacate by Nov 30. They were provided with two lease options, either 6-months at $900, or month to month (but with a written lease) for $975. [The local market is $1100+ and I also provided a printout of a rentometer report with 1-mile radius.]  I held their Nov 1st rent at their $750 rate that they'd been paying for years, just to ease the transition. 

Tenant A immediately called and asked to do 6 months, so we quickly executed a lease. 

Tenant B: When I stopped by after closing and tried to change the lock on the front door (old landlord didn't have keys) they were put off and told me they owned the lockset and nobody had a key but them - I didn't change the lock but took a copy of the key - but it was an odd interaction. On the lease front, these tenants said nothing until I reached out and asked them about 10 days ago what they were thinking. They indicated they were still mulling their options over, but if anything, would likely go 6 months. Last week, they reached out and asked if I could provide them a lease to review, to which I indicated I was happy to do if they were certain they were electing to stay and for which option (frankly, not wasting my efforts preparing a lease if they're not planning to stay).  They said 6 months, so I prepared a lease and dropped it off on Friday in their mailbox since they weren't home. I texted the tenant to let him know, and asked to review and let me know questions ASAP, as we need to get this executed. 

This evening (two days later) still hadn't heard anything, so I texted and asked if it was ready for me to pick up and fully execute. The tenant now says he would like to have his attorney review the lease before signing. I said that's of course his right and fine to do, but we have a strict deadline to have a new lease executed by Nov 15, otherwise they've been provided notice to vacate by Nov 30. Of course, no response to this, so now I'm left to wait and wonder what happens next. My gut tells me they may be a problem, as they also never filled out the 'tenant application' form I provided with the below letter (and I know they got the letter, because they asked me detail about security deposit from old landlord that I noted in the letter). Between being put off about someone now having access, the application that requires them to provide me with their income info, and the increased rent, I can see this being difficult. 

A few questions:

1. If they don't sign the lease by Thursday (Nov 15), should I serve some type of formal notice/reminder to vacate by Nov 30th? If so, what should that look like?

2. If they go completely dark on me and stop responding altogether, at what point should I contact an attorney to begin the eviction process? This seems a bit unique, as there are no written lease documents. 

3. Does my letter (see below) technically provide clear notice? I was told that verbal leases only require 30 days notice, so I felt that not only giving 30 days notice to sign a new lease or leave, technically I was giving them 45 days to know the options before having to physically vacate the house. 

Look forward to hearing your thoughts!

(Letter below...)

On October 12, 2018, the property located at “XXX” was acquired from the previous landlord/owner.Through the due diligence process during the purchase, it is our understanding that there are no formal written leases in place, and your tenant status has been on verbal month to month terms. Rest assured, your security deposit of $750 was transferred to us at closing. We sincerely appreciate your assistance and patience during the inspection and appraisals that were necessary to complete the purchase.

Please accept this as your 30-day notice that the current month-to-month verbal lease is terminated, and if a new written lease is not executed with the new property owners by November 15, 2018, you will be required to vacate the premises at “XXXX” no later than midnight on November 30, 2018.

As we discussed, your November rent is due no later than Nov 1st, and we are holding November at your current October rent rate. Please mail a check or money order to XXXX. The check should be made payable to XXXX.

In order to provide you with flexibility, we would like to offer two different term options under a new written lease. Additionally, we’ve provided you with an attached market rent report, which provides data on average rents in a 1.5-mile radius.

The leasing options are as follows:

• Six (6) month term; effective 12/1/2018 and expiring 5/31/2019.
  • $900 per month + all utilities (gas, electric, water, sewer)
  • Requires written lease; 60-day minimum notice terminate at expiration
• Month to Month; effective 12/1/2018 and no expiration.
  • $975 per month + all utilities (gas, electric, water, sewer)
  • Requires 30-day minimum notice from either party to terminate & vacate

Either of the above options will require a written lease outlining all terms, conditions, and rights of both landlord and tenant parties.

Please consider the options and call, text or email to let us know what you would like to do. I’ll prepare a lease to that effect, and then stop over at a mutually agreeable time to review with you and execute. In addition, please complete the attached ‘Rental Application Form’ to the best of your ability and mail back to us for our records.

In the meantime, if you need anything please do not hesitate to contact us. We will be in touch with you to coordinate a few different repairs on the property for general upkeep and in order to pass the borough code inspection. We appreciate your patience during this, and will try to take care of these repairs as quickly as possible to minimize interruption.

Hello, Does anyone have any specific contacts at local or regional banks in the Pittsburgh area that are good to work with for investment properties? I’ve called on a few banks, but haven’t found many folks that are truly familiar and active in supporting real estate investing. Thanks Andrew

Originally posted by @Andrew C.:

Andrew, look to acquire properties under value (with cash if possible), do some rehab, then cash-out refi, and you are generally left with a lot less than 25-30% into the property. 

Example:

Acquire property A for $40K

Rehab property A for $20K

All In equals $60K

After repair value (ARV) is $80-100K

At $80K Market Value/ARV you can do a $60K loan (75% of $80K) and have no money left tied into the property, then repeat for Property B.

At $100K market Value you can cash out immediate profits and have none of your original money tied up into the property. 

If in the same scenario your appraisal comes in low at say $70K, your 75% LTV loan would be for $52,500; which means you only have $7500 tied up in the property, or only a little over 10% (cashing out $52,500 of your initial cash investment of $60K), plus maybe $2-3K in closing costs.

Hope this concept helps. I have done it repeatedly. Network with wholesalers, build a network of reliable contractors (probably the hardest part), and be patient for the right deals. There are no perfect deals but many right deals that will work with this type of scenario. 

Feel free to contact me directly for any other help I can give. 

Andrew.   

Thanks Andrew. Sounds like a great strategy, how do you go about funding the purchase and rehab? Do you use hard money, or all cash for the purchase and rehab, then refinance through a traditional lender?

@Caleb Heimsoth@Josiah Collins

Thank you both for the quick responses. It's what I was expecting, but just wanted to make sure that I wasn't overlooking anything and not 'beating the bushes' hard enough to find the right bank with better downpayment terms. 

I'm just starting out as a REI, and looking for some advice and insight as to the best approach for down payment requirements within various scenarios.

I've talked with a handful of local banks and mortgage brokers so far, and they've all indicated the same general numbers. Since I already own my primary home, and not looking to "house-hack," I am required to put down the following:

• SFH = 20% minimum (or 15% + PMI)
• 2-4 units = 25% minimum

If I work through the commercial group within a local bank, they're willing to do 20% down on any 1-4 unit, plus potentially provide a small rehab budget. Unfortunately, they don't offer anything more than 20-year loans, as opposed to the 30-year in conventional residential, which makes my cash flow calculations a little tougher to hit. 

So my question is, are there any lenders who would fall outside of these standards on the residential mortgage side and have lesser requirements for an investment property down payment? Or is this going to be the exact same with every lender, regardless of size, location, etc? 

Thanks!

James Triano Hey man! Small world, I had no idea you were into REI. I'll shoot you a text - we definitely need to catch up!