All Forum Posts by: Aliz Raksi

Thanks so much for the comments. So far we are continuing through due diligence, although we will be a lot more cautious. To give you all an update, we've presented to the seller our calculations on what the property should be worth based on cap rate calculations assuming rents are what they claim (which brings the purchase price way down), and have asked for an extension on the due diligence period, since they have so far failed to give us all the leases, expenses or the rent roll, despite the deadline we had in the contract. The apparent reason is that one of the partners is out of the country, but I'm guessing this might be a delay tactic..? Anyway my hopes aren't high at this point; if the seller doesn't cooperate, there's no way I'm buying the property blind.

@Joel Owens, calculating how many years it would take to save up the amount of cash at risk is a great way of quantifying risk tolerance. To answer that question, it did take us a few years. And thank you for reiterating about the importance of value. That's one thing that bugs us, that there's no opportunity for that with this property. Also the fact that higher cap rates are often because it's compensating for the higher risk you are taking.

I'll keep you all updated!

The property is in Silverton, so a better area than those. Hmm good point about the cashflow being gone for x years if I were to rehab the last 1 or 2 units. But then you'd get a gain in equity, so it balances out, right? And just think, if you put in $10k and can get $100/mo more after that, that's a 12% return on your investment, and your cashflow will be greater going forward. @Michael Gansberg, your calculations are correct that rents are on average $450/unit, but these are studios. So the rents are on the low end due to the size, not the tenant quality. On the other hand, these being studios would probably mean a higher turnover, so that's one concern and I am making sure to account for turnover costs in my calculations. I don't know how I might battle-test the PM (other than references and online research); if you have any advice, I would love to know! And yes, those last 2 are long-term tenants who opted out of having their home rehabbed, since they would rather stay.

Thanks again all for the helpful discussion!

@Anna Buffkin, it's great that you guys play to your strengths and make it work! We also have different personalities and strengths, and it took us a while to realize how to work well together. For example, I love running numbers and analyzing spreadsheets and databases, and I get the nitty-gritty stuff done. My husband loves face-to-face contact and has really good memory, and can tell me which neighborhoods are good from conversations he's had with PMs a year ago, but likes planning rather than executing.

@Account Closed, those are great ways to explain how it doesn't matter what the previous guy paid. Thanks!

Thanks everyone for your comments! Hopefully as we do our due diligence, we will uncover anything that might have been covered up, and if so, I would adjust our offer accordingly. @Andrew Hargreave, agreed, we don't want to be the out of state sucker who overpaid! I will happily walk away if that is the case. I've since then talked to my husband and communicated this better, he's also doing his own research about the area and comps and he agrees with my assessment about the location being good. Also on my end, I ran some more detailed calculations and agree that their asking price is high and it wouldn't cashflow as much as I had thought initially. So in short, we're on the same page now. We have yet to get the detailed financials, and we'll see how it goes..!

Jumping in, I'd also love to make connections and meet fellow investors. I'm flying out there end of next week to check out a property we have under contract. Would anyone like to meet up for coffee?

I'm in a bit of a pickle, because my husband and I disagree over investing philosophies and whether we should invest in a particular property. We're both pretty conservative with our money and have been keeping most of it in cash because we'd been looking for a "home run", we're worried about a possible correction, and as you all probably know, deals are getting harder and harder to find. But he's a complete pessimist and doesn't want to pay for a flipped property that he sees was $180k cheaper 1-2 years ago. I, on the other hand, think that if the flipper took all the risk and did all the work, he deserves the gain, and there's still gain left for us (in the form of cashflow). 

We already own a duplex that we bought in LA in 2014, it was a flip that the seller had bought at an auction and done a lipstick job with, we put in an extra $30k to get it rent ready, redo plumbing and electrical, and have been managing it ourselves since. Note, my husband had wanted to back out of the contract at the last minute but I convinced him to go through with it, and now it cashflows around $1000/mo and is the best investment we've ever made, yet all I hear is how we could have done way better and we should've bought something like that property but before it was flipped, in a different area that had later gotten gentrified. Hindsight is 20/20...

Fast forward to today, after I've spent months looking, developing a relationship with a broker, and passing on multiple opportunities, we have a multifamily property under contract in Cincinnati, OH. According to my calculations, it's a 7.5 cap, we could buy it for $420k and rents are slightly low at $5000 gross/mo, we would be cashflowing $800/mo with $105k down and no work. It pencils out, but my husband doesn't even want to hear it, because he's jealous of the seller: he had bought the property a year ago for $240k, rehabbed 9 out of the 11 units, and is looking to make a huge gain from what we can see.

What's your advice? Pass on it, or try to convince my husband to buy like I did 4 years ago? I don't want to pay for inspections, fly out there, etc., if my husband will veto the purchase anyway. On the other hand, if I go through with the due diligence, it all looks good, and yet we back out, my broker would probably never speak to me again.

Granted, we won't be able to do the BRRR strategy with this property since there's not much value-add left (that would have been ideal). But it's a low-risk investment that would give us some stable cashflow until we find the next one. It might be worth noting that my husband would love to reach financial independence and has pretty lofty goals but no specific plans/actions to achieve it, our goal would be to find value-add properties that could give us a balance of gain in equity and cashflow.

My husband says I can buy if I find my own money. What do you guys think? Should I start looking for other investment partners? 

I'm considering buying an 11-unit property (all studios) in Cincinnati, OH, in Silverton. It's in a B- area and most units have been recently rehabbed and are occupied at $475/mo, but the rental history doesn't go far back enough to know if these are long-term, stable tenants or not. I think rents could be raised to $495 per unit, but that's not a huge value-add, and I'm concerned that with these being studios, expected higher turnovers would kill the deal. What would you use to calculate for vacancy rates in this situation? Usually, I would use 5% for a better unit mix, 10% if the property were in a worse neighborhood. Would I be safe to assume 10%? What's your experience with turnover rates for studios? Also, is the vacancy rate supposed to account for the cost of turnover? E.g. if my property manager would charge one month's rent in order to find a new tenant, in addition to the lost rent while the unit sits empty plus the turnover costs (painting, carpet cleaning, etc), shouldn't vacancy rates be padded even further? I will be getting more details on the condition and the income / expenses soon and will share then! Thanks ahead for any tips.

I don't know if it's any different in your city, but where I live, you don't need any sort of license to rent out a building you own, you just take some pictures, put up an ad on Craigslist, and download some tenant application templates for your potential tenants to fill out. If you don't own the property but are managing someone else's property, then you do need a  property manager's license (at least in CA).

Screen tenants well, verify their income, and definitely do credit checks. I use a service run by Experian called Experian Connect. You invite the tenant to get their own credit report and share it with you (don't forget to get their email on the tenant application!). Otherwise if you try to run credit checks yourself, you need to meet a bunch of regulations such as proving you're a legitimate business, keeping the files securely, etc.

My advice would be to find/write up a solid lease that spells out everything. When you find your tenants, actually sit down and go through all the points with your tenant so there are no misunderstandings. Good luck!

Thanks @Craig for the awesome info on the area! And thanks @DL for clarifying. I think I'll go ahead with the deal and negotiate if I can, I'll let you know how it goes!

Thank you for the feedback! @Paul Sian, you're right, the property is in Mt. Washington, I didn't realize that earlier. That's good to know about the abundance of multifamily in the area in general and how it compares with Anderson. I found some zoning maps and they're very helpful! And it's good to know how much it sold for earlier, the selling agent (who's also the manager and part owner) said they put some money into fixing it up over the last few years, now it looks like they aren't even gaining much forced appreciation, and $350k doesn't look bad (if they really did put the money into it). I will find out about whether it has any deferred maintenance. 

@DL Martin, you say Mt. Washington is the good side of town, but from what @Paul says, it sounds like Anderson is better. Could you clarify? 

To answer your other question, I would love to stay local but there's too much competition in Los Angeles for meager returns. And if we're going to invest further from us, where we'd have to hire property management, it might as well be in a landlord friendly state. It helps that my husband has relatives there, and Cincinnati meets our metrics for things like affordability, population and job growth. Now we're just trying to narrow down what part of Cincinnati to focus on. 

As someone who owns a full time job myself (and so does my husband, and we have an almost-3-year-old), I would recommend the BRRRR strategy (buy, rehab, rent, refinance, repeat). The point is to find something that needs a little fixing, but then instead of flipping it, you rent it out, and after 6 months or a year, refinance it to get some cash out for your next deal, and repeat. Although, the feasibility of this depends on your market. (The way we got started, we didn't have the spread to make refinancing worth it, instead we lived frugally and saved for 2-3 years and are just now looking to buy our 2nd property.)

The monthly cashflow from buy-and-holds is great, because it lets you save more easily for your next property, and it requires less time investment compared to flipping, which is a lot more active and more like a full-time job in itself. I haven't met a flipper where both spouses had 9-5 jobs outside of real estate.