All Forum Posts by: Andrew Varney

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Hey BP! 

I'm working on my first entirely REI focused deal and could use advice on a couple of points.

There are two separate duplexes owned by the same couple up for sell. They are immediately adjacent to each other (they actually share a well). They are asking $215K for each, but we're offering $188K & $192K ($380K together). For ease and speed, I've combined the two purchases together in the BP Calculator linked here - all maintenance, taxes, lawn care, etc. are combined.

My biggest challenge is that we have enough for a 25% down payment to meet the necessary requirements for a 30yr Fannie / Freddie loan, but it will bring the reserves down a lot. My Mortgage Broker is saying the lenders we're working with want ~$14K after down payment and closing costs as a reserve, which is going to make things tight, and they are worried it won't get approved. I haven't been able to find this, but I was also told you can't use Gift Funds for an investment property through FanFred, so I couldn't ask for temporary help from family to show better reserves. 

Edited to add:

We have $127K in cash and stocks as liquid resources. Down payment of $95K, then reserves of $14K, plus estimated closing costs of $15K leave <$3K of a buffer, so if the seller counters or anything else changes, it's razor thin.

I think the cashflow on the purchase looks good; I plan on self managing for now, but have factored in Property Management in case that changes. I also think they are priced under market, there are similar properties on the same street renting for $1250 - $1375 /mos, while these units are currently $1000x3 and $1100x1. I'm not betting on it, but I also think this area is growing as it's close to a lot of business and tourist investment and Florida just approved $$ to renovate local state parks (walking distance to a tourist attraction).

Last, my W2 pay is solid and ~ $8300 a month, but I get stock vestments 2x a year, so in November I'm set to receive ~$40-45K more after taxes which will alleviate any reserves concerns.

My biggest questions is what to do if I run into problems with the loan, if they are worried about the reserves post DP and closing costs. I have thought of a couple ideas, but would love feedback based on your experiences. 

1) Offer slightly more on the purchase price, but ask seller to cover closing costs which would free up reserves

2) Ask someone (most likely family) to go in on the loan itself only to show reserve funds, as we should have enough, as gift funds apparently won't work.

3) I can go with a portfolio loan with 20% down and no need for a reserve, but the rate would be 7.5% or higher. 5/1 ARM.

- If I go with #3, do you think that would be worth it to gain control, and then in November I could start refinancing into a 30yr FanFred for a better rate? I know this will cost additional refi origination costs, but would save a few $K a year in interest.

4) Any other ideas on how to get around concerns with too low of reserve if it comes to it?

5) Last ditch, I thought about trying to find another buyer who would buy one of the duplexes and I would buy the other at the same time for the seller's 1031 obligations, but this is not my ideal solution.

Thanks in advance for any ideas!

ASV

There are three which quickly come to mind:

1) HELOC - You can take a Home Equity Line Of Credit (HELOC) out based on the equity between what you owe and for what it appraise. This equity can increase with appreciation and through mortgage paydown.

2) Refinance - You can refinance the the loan with the lower amount based on the mortgage paydown up to then. You have to consider rates and closing costs, but this can help in two ways: 1) it can lower your monthly payment, increasing your cashflow on a property, 2) you may be able to do a cash-out refinance where you actually recapture some of the equity you've built through appreciation and mortgage paydown. Research many of the BRRRR resources on this website to learn more about this.

3) Sell - It may not be on your radar if you want to buy & hold for a long time, but you can tap into some of the equity you've built up through mortgage paydown by selling. You'll lose your cashflow from the property, but you can absorb some of the mortgage paydown your tenants have been paying for you, in addition to the cashflow you've been collecting, and any appreciation which has occured.

Not sure if others have additional ideas.

Cheers!

ASV

@Jack Glazer

HI Jack,

I'm a newbie working to close my first deal in Sarasota, but happy to help out if I can. Let me know if you need boots on the ground for something or anothwr realtor / broker recommendation.

Cheers!

ASV

He may be perfectly fine, but I stopped watching him on Youtube a while ago. I felt like his guidance was missing some important info. He had a video talking about analyzing a rental property, but I think he only included Rent - PITI and called it cashflow, so he was talking about how a few properties could completely replace your income with passive income. However, he didn't include repairs, property management, CapEx, PMI, misc., etc., so the $3-400 'cashflow' would probably be closer to $0 or a loss on the property they were analyzing.

I put my questions asking for clarification on the operational costs in the comments, but never got a response. Neither he nor his team had any responsibility to respond, but they were responding to all the other comments giving love to the video before and after me. Also, I may be mistaken, but I think the video was removed shortly afterwards - I may have just not been able to find it again.

There is enough free education out there, that I didn't see a need to keep reading/watching him if I had ???s about his numbers and model.

Just my humble $0.02 with his free content, not his Guru-ship.

@Joshua Rountree

Thanks! I'll try to drop you a message. I am out of the country for the next week and a half, so I scheduled the inspection for the 24th and will talk to the tenants then. It's a ways out, but I included an extra long inspection period in case anything critical comes up then, I'll still have more than a week to back out.

Cheers!

ASV

@Joshua Rountree

Hey Joshua,

My wife signed us up for nextdoor. Com. People use it to share events, ask questions from their local community, etc. I've seen a few rentals listed there by people who didn't seem to know about Zillow, craigslist, etc.

I've also seen offmarket FSBOs on Nextdoor as well, but nothing in Sarasota which has grabbed my attention yet.

There is also Facebook marketplace, but that is more known.

Cheers,

ASV

Thanks Aaron T.

The seller moved from Sarasota to Texas and doesn't want to manage @ a distance; at least that is the story as I know it :-). I thought about and agree on the challenge with fixing it up with existing tenants; it should cashflow $250-300 once closed at the current rents, which I'll be ok with for now until they move out. Unless they become problem tenants, I'd rather deal with the slightly lower rents (maybe $50-75/unit) than turnover for the near future.

There was also a recent flip a few homes down which sold for a large margin over my offer - I don't plan to flip/sell, but its good to know there may be margin for forced appreciation.

ASV

@Bernard Sanga there is a local REIA in Sarasota as well which may be good to connect with. Sarasotareia.com.

Note that there won't be a meeting on July 4 due to well... July 4th 😊.

I'm making an offer on an occupied duplex in the Tampa, Florida region. I've bought empty property and primary residences before, but this is my first offer on an occupied property to buy-and-hold. What things should I ask for/about which I may not think of? 

One tenant has been there seven years and is Month-to-Month and the other has been there three months and is on a one-year lease.

Things I will ask for:

1) Tenants' Contract / Lease Agreements

2) Rent Roll Receipts

3) Transfer over any deposit + accrued interest

4) Extended inspection period (I wasn't able to walk through one side of the duplex due to the tenant not responding to the seller/agent/door knock day of).

5) Transfer any pre-paid rents

Should I ask for:

6) Should I ask them to sign the Month-to-Month tenant to a new one-year lease?

7) I want the tenants to pay through Cozy or another online platform (haven't decided on which yet). Should I ask that to be included now or just wait until I close?

Any other things which should be included?

Thanks for your suggestions!

ASV

@Colin Russell

The Sarasota REIA Charles shared also meets on the first Thursday of the month from 7-9pm. This session has some networking, but they also bring a speaker in to share education on specific topics. The details are @ the same link he shared.

I've not been able to make the last few, but the ones I've been to have been great.

Cheers,

ASV