All Forum Posts by: Allan Smith

I've kept an eye on and off on Columbia. It seems to be appreciating pretty well, despite being a rural suburb of Nashville. Rents are on the rise. On the south side of town there's a pocket of "rough" that doesn't seem to be doing much, so beware of that. Otherwise I think it is a great area for rehabs and rentals. Just too far for me!

@Roman CobbIf you do post the details elsewhere, be sure to post a link here so we can follow the bread crumbs and help you out.

Not to oversummerize, but it sounds like what you decide to do (re-fi or no) depends a lot on your goals. Do you want to grow and expand? Get that re-fi and put the cash to work! Otherwise, I have a couple great lenders I work with that I'd be happy to put you in touch with. They can advise you on where you stand financially and how it would affect your loan-ability. Send me a PM.

@Eric F. This is great feedback and I will definitely see how to implement it in future deals. 

I did ask if I could put a keybox on the house at my first appointment with the GC and seller. She declined.

I'll certainly limit "parades" on future deals. Didn't realize how bothersome that is.

What would be a better way to get bids from GCs without wasting their time? I wanted to make sure my estimated budget was accurate before I bought it. 

I certainly didn't realize I was lying frequently. I'll admit she didn't know I might wholesale it, but from my experience, sellers almost never know that. Do wholesalers outside of Nashville explain to sellers that they may "flip" the contract before closing?

At the end of the day, it's clear that (with this seller especially), I should have been more communicative and straightforward. Again, thanks for helping me adjust my perspective!

The wife had me email the husband, the decision maker, and he signed. Wife did not sign, so I suppose fact remains that it's not fully valid. They seem to be under the impression it's fully valid though. As long as both show up at closing, I would be okay..

I have a BRRR under contract to buy. Somewhat distressed Landlord. Here's the timeline, and I'd love to hear feedback on whether or not I should change some of the things about how I do business. Quick skim will give you the gist.

Seller calls from a town outside of Nashville, TN, I send contract via email (60 day close, 30 days due diligence), and her husband is out of town on business but he signs quickly to keep us on schedule for the appt for me to see the house. I tell Wife that I'm pretty much good to go, I'll buy it. A few days later, she asks who mows the lawn as she's never sold a house, but bought several. I reminder her she still owns the house.

I immediately promote the deal to potential buyers, including posting on Craigslist.

A little later, I take a GC in, she meets us to unlock the house. She refers me to another GC. I make another appointment with that GC and another GC (without realizing it was Good Friday), and ask Wife for access to house for contractors. I didn't tell her a third person would be there as a potential buyer. Everyone leaves, Wife and I chat for a bit. Decent rapport.

Few days later, I ask about getting access for another contractor (i forget who it was), and she calls and proceeds to tell me that my way of buying houses is unusual and they would never do it that way. They look at a house once, estimate repairs, and buy it a month or so later. I explain that I need to hammer out the rehab budget, need competitive bids from GCs to hit the ground running when I buy, blah blah. (My contract even says seller will allow showings for buyer representatives.) She doesn't get it, but I tell her I will do what I can to not need access until closing. I apologize for not communicating better on the front end. I personally think they are crazy for flying blind and buying houses like that, but I certainly don't say that.

A little later, a friend tells her her house is for sale on craigslist. I explain that sometimes I flip houses so I throw that up on CL, but I intend on buying it (truth). Ruffled feathers. I apologize.

Yesterday, about 3 weeks into the deal, I text wife that I'm surprised they don't have electricity or plumbing on. Not good for house if sump pump isn't running with all this rain.  I explain they still own the house up until closing, God forbid I don't buy it. Turns out, she was coming out of the hospital and was upset by my text.

Husband calls today and says he'll still honor the agreement but he didn't read it very thoroughly and thinks 60 days is a long time and that basically my due diligence period is sketchy. I apologize for not communicating better on the front end. Needless to say, my rapport and trust with the seller is on thin ice. 

Did I do something wrong? What could I have done better?

Wow! First post. This is a big moment!

This question gets asked a lot on biggerpockets, and is debated in the investor community quite frequently. In short, I'd say buy it in your name since it's your first deal. Don't get bogged down on these details, keep charging forward! Maybe even buy your 2nd and 3rd properties in your name. Depending on your net worth, perhaps you just need an umbrella insurance policy. Remember: property insurance has some liability coverage. 

Once you find yourself wanting to scale the business out, go ahead and look into other options. A land trust is cheap to set up. It's good for anonymity, but there's no liability protection. 

One other thing to consider: what kind of loan are you getting? The cheap fixed 30-year loans don't let you have an entity on title, I believe.

This is great. Thanks everyone. 

So based on what she's told me, it's safe to assume that her annual NOI is close to $53k.

I'll need to find out the cap rate that people look for in the area, but here would be the valuation:

8% cap = $660k.

6% cap = $880k

5.7% cap = $925k

So only if cap rates have gone all the way down to 5.7% for the area would her price be reasonable. According to this BP article, this type of property should have an 8 - 10% cap in most cities.

Sounds like if I really want to know what the property is worth, I'll have to reach out to some brokers. Not sure how to find them but it probably won't be hard!

@Austin Fruechting Yes, we would verify all the info once under contract. These are rough numbers. 

But you do make a good point. Maybe she/I meant her gross was $97k once vacancy is factored in? Either way, I don't think we need that number to value the property.

The 2-BRs start at a base rent of $825. She's adds $25 for the 2nd person, again for the 3rd, and so on.

The 1-BRs start at $700.

Looking for help on figuring out what this complex in Nashville, TN, is worth so I don't over pay. I will likely syndicate or wholesale the property.

I don't know standard cap rates for the area, but the area is Madison, TN, which was historically low-income, but houses are being rehabbed and rents are going up as affordable housing within 15 minutes of nashville is slowly disappearing. Here's what I know:

Seller uses 2 2-br units, and rents 2 2-br unites and 10 1-br units. She claims her net income was $97k in 2016. Seller is asking $925k but isn't particularly motivated.

• gross monthly income is about 8900 with section 8 tenants mostly.
• property in great condition except for old aluminum windows and parking lot is a little beat up.
• Taxes $10k annual
• Insurance $4300 annual
• Let's assume $15k maintaince annual
• Assume $15k capex
• Assume 8% vacancy

That puts her current cap rate at about 5.7%

Value-add cap rate after we purchase, by renting those two unused units, goes up to 7.6%

What can I pay for this place?? Thanks everyone!

A "cash out re finance" is simply getting a loan on your property, and taking the extra equity in the form of cash. As everyone has said, depending on the loan product, it's 70 - 75% Loan To Value (That means 20 - 25% of the appraised value has to stay in the house as a down payment. Anything over that is your cash). The 80/20 is not to avoid PMI, but is rather a requirement by the banks.

You also mentioned a HELOC which would be the only other option (that I know of) to turn your equity into cash. There are no other options you are missing. HELOCs have a pretty good interest rate, not sure what you mean there. The beauty of a HELOC is that you don't have to pay interest on anything unless you decided to draw on the line of credit. You can be a "cash buyer" then refinance to put a typical loan on the new property, and pay off the HELOC from that new loan.

I did not know you can't use a HELOC on an investment property, so it looks like your only option on those three units would be a cash out re-fi. To calculate how much cash you could actually use, we would need to know your loan balance. You can do it yourself with two steps:

1. $400k (present value) x 75% = $300k

2. $300k - Loan amount = Cash you can take out

My assumption is you put about 20% down when you purchased the triplex, so you'd have $60k you could cash out.