All Forum Posts by: Alan Smith

@Mark S. Sorry for the delay. I ended up purchasing my first and only (rental) property a little less than a year ago. I ended up with a conventional $60k mortgage in my name on a $75k purchase offer. I spoke to my attorney I used on the sale about transferring into an LLC after the fact and he advised me that it was not worth worrying about it. He basically said that banks weren't going to make an example of me as a little guy when there are much bigger mortgages that they could go after. He also said if the bank called the mortgage due that we could simply transfer back into my name. I also figure that 20% plue equity in a property (I put more into the home during rehab) in a great area, the risk is incredibly low. If for some reason transferring back into my name didn't satisfy the bank, I'd take the equity to another lender who would finance it. No burning desire to start the LLC and transfer in at this point, but still may do so in the future.

Again, this is what I did and what my attorney told me. I'm sure some legal mumbo-jumbo could be stated about how his advice could be different based on someones personal scenario. 

@Mark Costa This is definitely true. They would no doubt go up as we renovated and tenanted apartments. We could probably benchmark other properties to see their taxes and what we may be looking at down the road. 

@Ash Patel One of the ideas we had was paying for the property and owning it free and clear prior to renovation. We don't have a lot of existing capital due to purchasing our first rental earlier this year. That resulted in us dipping into "emergency funds" for maintenance and getting that property tenanted. Our existing REI plan subject to change was to look at the bonus I get yearly to be a down payment on a new rental property every year (~$15-20k). There's not a line of people waiting to put offers on this property and I figure we could continue to do more due diligence to get things in order financially as well.

Due to its current state I'm hoping we could purchase it for significantly less than the purchase price. Once the property and dwelling is owned, could we then approach a commercial loan for financing the renovation?

@Jeff Kehl I think I will try the Craigslist ad. A coworker of mine with ~20 units suggested the same idea. Is there as much risk with a complete renovation when you know you'll be doing all new plumbing, electrical, mechanicals, etc from the start? The numbers are certainly larger but what "surprises" are there for increased budget hits compared with a cosmetic renovation for a SFR? When you're doing a smaller reno and opening walls you can discover you need to replace old wiring or old plumbing and the possibility of the project expanding in scope is much greater is it not? With this renovation you're planning to go down to the studs and putting everything new in? If we know that from the start aren't there actually less surprises?

Thanks for the input!

@Kyle Ransom Mind diving into the 60% you referenced? We will need to pursue private and/or a construction loan none of which we have experience with. Are you saying we would only be able to get a construction loan for $171k (60% of ARV assuming a CAP rate of 12%)? Those numbers don't include any financing costs which will obviously change things too.

Other than the proximity to Rochester there isn't a large draw employment wise other than agriculture. We do have some businesses popping up in the last year or so highlighting the town, ie. craft cidery, winery, couple restaurants, etc. 

Town is less than 10k about 30 minutes from Rochester. It's primarily an agricultural community or those that don't want to live in the suburbs. Many choose to make the commute to Rochester for work. My wife grew up here and we moved back here when I took a new job. This purchase would also be us taking a risk to invest in a community we love. 

Speaking with the realtor we're personally connected with and others networked locally, there's a demand for rentals. The realtor often doesn't have a place to direct folks when they receive requests for rental housing. There are some local rentals with landlords that simply do not take care of the properties or their tenants. We would clearly be different in both aspects. 

Hi All,

I am currently looking at an 11,000 square foot commercial property in a small upstate NY town between Rochester and Syracuse. If you look up the definition of a distressed property you'll see this property. The buildings first floor was once a general store that closed ~10 years ago and okay shape. The second floor was once apartments but not since the 50's and 60's. We've been told the roof was replaced 6-7 years ago but during walk through there were some noticeable leaks. The 2nd floor will be a complete gut (electrical, plumbing, HVAC, windows, etc). I believe the first floor could be sectioned into rentals with the store front remaining a smaller commercial rental. The basement has a walkout entrance and could support some smaller self storage units. 

I believe the property could easily support 5 2BR (900 sq ft / $850 utilities included),  5 1BR (600 sq ft / $600 utilities included), and 10 (10x20) self storage units if the town allows it. A nearby smaller property nearby has 8 units. We will certainly find this out before moving forward. At this point I would assume nothing from the store front commercial portion. I believe rents could be slightly higher when including utilities and I assumed 15% vacancy when I believe it will be less than 10% based on conversations I've had with other locals. Taxes would clearly grow when the property reaches its end state. I also believe there is margin left in the yearly expenses and would be comfortable if the 12% cap rate drifted lower. Out of the gates we'd self manage, but would leave the possibility of outsourcing it later.

Would love feedback on the numbers. Obviously would need more due diligence to see if $250k is even realistic for renovation, but I think it has a ton of potential. They currently want $70-80k for the property, but I can't see them getting that in its current condition and its been generating $0 for a long time now. 

Does anyone have a roofer in the Rochester, NY area they'd recommend for this type of property so we can get an assessment on the existing leaks as well as someone to get an assessment on the foundation/brick structure? 

Thanks,

Alan

Thanks for the feedback @Mike Cumbie. I've been in the shadows on BP and listening to the Podcast for 2+ years now. Figured there's no better way to learn than to jump in by making a purchase. I over relied on others input to this purchase and will approach things differently the next time I pull the trigger. 

The comment of the night when I met with another PM yesterday was, "You're taking this very well." in regards to how much capital it would take to make it the premium property I desire and the realistic rent this property would pull in its current state. He was a lot more detailed in his pro forma and the long term maintenance the property will require. Might meet with another person or two to get an overall assessment on the property's capability and go from there. 

Alan

I met with another PM yesterday just to get another opinion on the property. I'm going to get as many inputs as I can just to get an assessment on where I'm at. He typically only deals with higher end properties where this would slide into the lower end within his PM portfolio. He mentioned this would struggle to land the long term hospital employee or grad student in its current condition. Additionally he was a little more pessimistic about the potential to finish the existing attic space due to the amount of capital it would take and time needed to obtain an ROI. Unfortunately I'm still looking at injecting some capital to get it nicer, but looking to get it stabilized with a renter sooner rather than later.

Any further opinions from Rochester locals would be greatly appreciated. Thanks!

Hi All!

So I made it a goal to buy my first buy and hold in 2017 and established relationships early on with a realtor, PM, and a tax adviser. I ended up purchasing a property in the South Wedge (Rochester, NY) directly across from Highland Hospital and can be found here for reference.

I purchased at $75k with 20% down conventional resulting in a 60k mortgage. As an engineer by day I could have easily had analysis by paralysis. I relied on initial feedback and info and I obtained what I believed to be the worst case Pro Forma pre-purchase. 

Rent: $12,000

Mortgage: $3861

Taxes: $3280

Insurance (Replacement Cost): $698

PM: $1200

Maintenance/Capex: $1800

Vacancy: $1200

Cash Flow: -$39

Yes, I realize breaking even is not a good deal. That said, I believed the above to be a worst case (correct me if I'm wrong). I believe >$1000/month rent to be achievable and as a highly desirable location the vacancy and the maintenance costs will be less than forecasted. Additionally, I purchased primarily on adding long term value to the house and knowing its value is very unlikely to decrease. Its a 2 bed 1 bath currently but the 2nd floor could be finished into a 3rd bedroom or bonus room by injecting future capital to increase rents and/or refinancing in a BRRR manner.

The last 3 months have been a learning experience for sure. PM did not work out as the 1-2 weeks of required maintenance was significantly delayed and 3 months out from closing the property remains vacant. I terminated the PM contract yesterday and will either dive into self management and/or explore other PM options. 

Let the criticism begin. Thanks! 

Alan 

Fellow BP'ers,

I've been researching the due on sale clause this evening. Much of this will be discussed with an attorney in the couple weeks. I'm a bit torn on what direction to go with my first deal. My desire is to get an LLC setup to offer the appropriate protection to my family and other assets, but a lender won't finance at this point unless the mortgage is in my personal name, correct?

If I want to avoid the DOS clause, is the only other option a large insurance policy? But still my personal assets could be liable.

How have others proceeded from the get go to get protection that an LLC offers, but had a mortgage?

Alan