All Forum Posts by: Andrew Johnson

@Andrew Tegeler Other people might have specific answer for you but I'll just give you my thoughts:

1.) You'll likely need a portfolio loan to accomplish this if you want to do it yourself.  Commercial debt is different than what you're used to so you probably want to start calling banks.  Often times they'll want to see that your net worth is equal or greater than the loan amount.  If that isn't the case then you might have the "go solo" option shut down immediately.  If you do, great, don't waste time on it. Start to figure out if you want to somehow raise the money with other people.

2.) I'd posit that if there are 23 homes you have some great ones and some dudes.  Nobody sells 23 awesome homes all together.  If they were that great then the owner could sell them off one-by-one and (presumably) make more.  Usually you have to "take 'em all" because they want to throw a few junk properties in there.  Like @Ryan Murdock says you'll have to be sure you're confident in your numbers and you know what you're getting.

3.) Are you really sure you want 23 homes scattered across an area?  How big is the area?  With 20+ homes you're always going to have "bumps" every month.  So it's going to be a "smoother" experience that you're used to because right now you have a few units.  However, the path to that smoothness is constant bumps :-)  It's not "bad" it's just a very different way of doing things.

As many as my 4 year old will let me...

@Brian Burke This might not directly help you but I use my property manager as my agent for all of my purchases, offers, etc. where I invest.  I know it's not exactly a large sample size and I used her as a PM before working through her on purchases but it does have several advantages:

1.) She knows the kinds of property that I like and can visit a property to see how it does/doesn't match up.

2.) She knows how I like my properties kept up/maintained and can provide perspective on maintenance costs.

3.) She knows she'll have me nagging her if units are vacant so when she says "I think they should rent for $____/month" she has ownership of that number.

4.) She knows when other property owners are thinking about selling and can make me aware of off-market properties.

5.) If there's small-scale rehab (handyman-ish stuff) she can provide those estimates as...well...it will be her handyman who is doing the work.

6.) She can make the distinction between: "I will manage that for you" and "I would *like* to manage that for you" (it's a BIG distinction).

And the reality is similar to what @James Wise mentions, PM isn't exactly a high margin business.  If they aren't buying/selling themselves then they're closely tied to someone that is.

Matt Kistner It should raise a red flag when it’s $39K :) But, seriously, odds are it will be incredibly difficult to get a mortgage on a $39K property. Most banks have mortgage minimums so it basically reduced the buyer-pool to cash-buyer-investors. Have you talked to a bank about giving you a loan on a $39K property? If you haven’t...make a few calls...

Chase Gu I like newer buildings but I’ll also pay more for them. So, well, there’s no free lunch. You can’t look for the same ROI for a 1910 build as a 2010 build. Since the vast majority of people on BP have CoC or cap-rate thresholds it will (almost by definition) push them towards older construction. Older construction also allows for a little better shot to BRRRRRRR. If something built in 2010 needs major rehab it might be bad construction or it’s has a really bad owner. Either way, it’s dicier than buying a well maintained complex of the 60s. If you do buy post-78 you skip all of those LBP, asbestos, etc. issues. You won’t have the issues the galvanized plumbing. Of course, if you’re buying in 2018 a lot of these issues could have been addressed already. So, as with all things, it’s pretty much case-by-case.

Harsh Singh Short answer is that the 50% rule should cover everything but debt service and profit. That said, you can swing to 60% pretty easily so you’ll want to take a peak at a T12. And if there’s $75K worth of rehab the owners annual expenses are likely artificially low, which is likely what created the $75K need in the first place. So you’ll have to walk that balancing act. I don’t think 6 units is harder or easier to manage than 20 units. With 20 units something is “always going wrong” so I’d propose that it’s actually easier to manage. You don’t have a “bad month” because there is always good and always bad. Or, put another way, all things equal it’s easier to manage a 20 unit complex than 3 buildings that are 6 units each.

Stefan B. Make whatever offer you want and move on. Odds are (if your broker is correct) then it will be a hard and quick “no”. I’d guess (from what your saying) the roof might be good for a while but you’ll be footing some solid bills for HVAC systems. If anything, make your offer and get the “no”. Since it’s not “on the market” (yet, somehow, there’s an asking price) you can wait 12 months for HVACs to start to fail. A few $5K hits and ownership won’t feel so fun anymore. Or maybe the $1.1M is a high anchor position, you just never know. All that matters is what it’s worth to you.

@RaeLena Morrison Sounds like you're going down the right path when it comes to diligence.  I know that the path (regardless) is a long one.  I think it your shoes I'd be explicit as I could be (at the formative stages) with the your plans for the property with the contact that you've made for tax credits.  I'd be shocked if she was the sole arbiter of these things.  I would guess that you'd have to put together plans and potentially some sort of plans and get those passing through state and federal review processes.  And if you want to get both you'll have to deal with whomever the most restrictive agency (or committee) is that's reviewing those plans.  

Now, personally, I think I'd have a heart attack if nobody in the county had done this before.  That means there are zero contractors in the county that have gone through this process.  There's nobody that can let you know about issues, pitfalls, etc.  And to be really, REALLY granular they don't necessarily know where to source period-correct materials.  And to get more granular, if you break a window it's not like you can replace it with the white vinyl windows you likely have in your house that you can order through 50 suppliers or your local Home Depot.

Anyway, it sounds like an ulcer-inducing adventure! Just be sure you ROI is better than a 10-cap for the hassle, effort, time, money, etc. in the deal.

@Jimmie Feaster  I think where you're running into issues is the relatively arbitrary figure of 85%.  I know that I've have my "lens" through which I evaluate property.  And by "lens" what I really mean is "spreadsheet".  I can monkey around with variables within the spreadsheet based on what I think of the property but at the end of the day it always spits out some price.  What's more, it can spit out some oddly specific price ranges where I can make the deal work.  However, those prices that it spits out have nothing, absolutely nothing, to do with the "listing price".  So there are times when that price is close and there are times when it's literally hundreds of thousands of dollars away from what the owner is asking for (through their agent).  

From my limited experience there are two types of agents.  Those who care how you came up with your "I want to close at-or-below this price" and those who don't.  The one that I work with now knows the different prices, where my comfort lies, where I will wave contingencies, etc.  And she knows that before we make the first offer.  I let her tell me where she thinks we should start.  Ultimately I don't know that she deeply cares about "how the sausage gets made" (read: my spreadsheet) because I've closed deals before and she knows I'll close more in the future.  If we win, we win, if we lose out, we lose out.  

I'll also tell you that I've shared my spreadsheet with other agents (in other markets) when my offer price would be extremely different from the listing price.  I'll point-blank ask them to take a look, see what I might be overlooking, if estimates are low or high for certain areas, etc.  In all cases (so far) the feedback as been "nope, your numbers look right to me...it all makes sense...we can go ahead with an offer if you like but it probably won't get the deal done".  

The net result is that some care, some don't but I don't take a listing price and throw an offer out at 90%, 80%, 70%, or any other fixed percentage.

Prashant Sharma I don’t think there’s a “right” answer. I own one 5 unit and it’s not great because you’re stuck with commercial debt. However, the 5-8 unit properties where I invest move incredibly quickly. That said, I bought the property I did because I liked the property itself, the location, etc. I didn’t specifically set out to buy a 5 unit. To go the opposite way, I don’t really “want” to buy a triplex. However, if there was one in a great location that I liked, then I would. The threshold is just a little bit higher for me because it’s not exactly (ie commercial) what I’m targeting.