All Forum Posts by: Andrew Johnson

@Emily M. Lots of responses but I'm guessing you're looking for the NEXT Austin!  Personally, I invest in Arkansas.  Not that I think it's the next Austin but because it cash-flows well for me.  As for your criteria it does check a few boxes:  warm weather, very little snow, low property taxes, still landlord friendly, it's just missing on the "growing, young/hip" qualification.  There are some areas in Central and NWA that are either growing or revitalizing but it's a case-by-case basis.  

@Kevin H. This is overly general but you're definitely going to get a different type of buyer with a bad T12 and 3 vacant units. It's going to scream "risk" and you're going to get "value add" offers because the higher the risk, the better the "deal". If you're confident in the new property management company get the units rented, the property performing, and is professional then after 12 months you should have solid T12s to share along with units with "newer appliances". In short, the property will open itself up to a much boarder buying pool. Assuming you can stomach a little more negative cash-flow I'd go that way.

@Vy Mai One think you need to do is look at any costs associated with refinancing.  Origination fee?  Cost of appraisal?  Since the fed raised rates would you have you pay a higher interest rate?  Would a cash-out refinance increase the rate further?  Let's say the equity has increased $25K and you want to pull out 80% of that, you're getting $20K out.  But if costs for the loan/refinance hypothetically run $2K and your interest rate increases 1/4 point, is it worth it?  The dollars amount might not be huge but as a percentage of $20K it may end up being high.  That being said, I'm certainly not a mortgage originator/banker/etc. so your mileage may very or there could be other financing products that you can leverage.

@Ann N. Have you read over the lease and looked at the terms?  If the owner knew he/she was going to sell the property there might be clauses in there that you can exercise.  However, if they're a good tenant (pay rent, unit in good condition, etc.) you might want to leave well enough alone.  Hypothetically if you want to raise the rent $50/month on a $500/month rent it will take you 10 months to get paid back (assuming it takes you 30 days to find a new tenant and get it rented).  And you might have to do a little clean-up, touch-up painting, etc. which will further push-out the payback period.  Not to mention if you know you have a good tenant you'd be replacing them with a new tenant that might not pay on time, be rougher on the unit, etc.  

@Donnell Durden Whether or not you can actually do the deal I would contact the realtor and ask for a T12. It can't hurt and would at least allow you to know what it tangible rents for in it's current condition (if anything, assuming it's occupied, etc.). You'd also need figure out what you think the other units would rent for post-renovation. As for renovations, you can look at pictures and scratch some numbers on the back of a napkin but I've only been "pleasantly surprised" once when I've toured a property regarding condition. It's usually worse that it looks online, sometimes a little, sometimes a lot. From the subsequent posts it looks like financing likely wouldn't come through without the heavy creativity. That being said, I'd take the chance to at least practice with a T12. And if creativity does come to fruition you'll have a head start on trying to figure out the numbers that would make the deal work for you and whatever person/institution is backing you financially.

@Ross Ellington  One thing that I don't hear talked about enough (echoing @Kenneth Reimer) is the age of the property relative to the cap-rate.  If you buy something built in 2015 and don't have to worry about a new roof for 35 years it's completely different than buying something that's 5 years away from needing a new roof.  The latter could kill your cash-flow for literally years depending on the monthly cash-flow.  Not to mention that major cap-ex expenditures may be acceptable at different points in your life.  Who wants to pay for a new roof the same year your child goes to college?  Random theoretical example aside, you have to look at your personal situation, the individual property, the market, as well as guideposts like the "1% rule".  

Side note, I've never found a deal that pencils out for me at the listed price.  I get the T12s and construct my own pro-forma and come up with purchase price that makes sense for me.  I make an offer below that price (but not too far below it) and hopefully get a counter at where I want to be.  I don't run around low-balling and hope to get a good deal, I make unemotional analytical offers based on what the property is worth (to me) today.  It might be worth more to me than it is to you, or vice versa.  Ultimately you want to find a deal that works for you.

@Jason V. This won't directly answer your question but might (at least) help you in terms areas you can focus on: set your budget. If you look at the list of cities there were listed in the link the pricing for ~30 unit multifamily properties you'll have a huge difference between Seattle, Indianapolis, and Boise. I know you said you were targeting secondary and tertiary markets in the northeast but even in those there could be vastly different pricing. ROI, potential for appreciation, etc. aside if you can't afford to be in a certain markets because of the type of property you're targeting it's easy to cross them off of your list. If you narrow the markets you can get more granular on what's left in terms of both the market itself and properties that fit your parameters in those markets. Side note: I have no idea if Indianapolis is awesome :-)

+1 for @Jay Hinrichs and e-signing contracts. When things are hammered about verbally, usually after a first e-signed offer was submitted, the accepted counter is created and e-signed within 24 hours. Usually it's done the same working day in under 4 hours because each side knows it's coming. If I'm in the sellers shoes the "verbal acceptance" means nothing until the contract is signed/e-signed and in my hands. He wouldn't have recourse against you if you decided not to sign, didn't send an EMD, decided you changed your mind and wanted $25K less, etc. Buyers pull out at the last minute. Sellers pull out at the last minute.

Side note: if this was an exhausting process for you it will likely be a similarly exhausting process for the buyers that have offered $25K more.  They may pull out if they find the deal is harder than they expect to drive to the finish line.  Not to mention, if they didn't do (pay for) an inspection beforehand they may pull out of the deal based on what surfaces in the inspection.  

I don't know much about the Tacoma market but @Luke H. has a great idea with a hunting area/deer camp/etc.  They are prevalent in the south and being wooded (not cleared) could actually be an advantage.  I don't think they would mind not having a front street and things like feeders, trail cams, tree stands, etc. don't really do anything to the land and would be put up by the people leasing the land.  All of that said if your subdivision is an infill for an existing area the thought of rifles or bows being fired off might be the least comforting idea on the planet...

@Ethan S. This may be oddly specific but I have typical "airline miles" card on the carrier with the (generally) cheapest flights to where my out-of-state multifamily properties are located.  I like to go back a couple of times a year just lay my eyes on the properties so I get periodic use out of the miles.  If you're a rehabber/flipper (I'm not) then @Max T. might have the best suggestion of all of us!