All Forum Posts by: Brian Levredge

$150/ft for that size may be a little light due to the fact you don't get economies of scale building smaller.  Finishes will also determine where you land.  It is true your lot could constitute your contribution on the deal, but if you have a construction loan you're going to need to front the money along the way and get reimbursed by the lender as you're doing your draws.  That means keeping a fairly decent amount of money on hand to pay for materials/subs.  Getting the loan with a bank would be a challenge without employment or track record (if self employed) so you're probably looking at hard money and I would venture that may even be a challenge.  Lastly, you'll want to make sure you buffer your construction budget that goes to the bank.  I've been building here for about ten years now.  I typically do 4-10 specs per year.  Happy to discuss if you like.  

I would look at more than just residential if the goal is to get to 500k in cash flow.  It will also make it more challenging by investing in markets that have seen a lot of growth like most of the ones you list.  Reason being is that while I think there's still plenty of runway left in those markets they don't have the same upside they did five years ago meaning you'll have to adjust your time horizons some.  Case in point, in Chattanooga I was buying multi family at 30k per door seven years ago.  Today that number is 90-100k (or more) plus capex.  Prices may come down some but you still won't have that upside to sell and roll the equity over into something bigger to hit your cash flow goals.  

You might consider looking at other asset classes that are less popular such as commercial office.  You may also consider looking at smaller tertiary markets where there will be higher caps and cash flow but not necessarily as much upside on resale.  Best of luck! 

Quote from @Junior Francica:

Hey guys. I am a residential agent but have very limited knowledge on the commercial side of things. I have a commercial building that I am considering purchasing. It is the building that I am currently renting an office space at. The owner is willing to sell and here are the details. 

Sales price 950k, the owner is willing to take a second position on the down payment the bank would require so let's say 20% second loan position for the owner. 

The yearly rental income is $126.9k

Expenses are 48k

NOI is 78.8k

7 tenants are locked in until 2024, 5 are month-to-month, and 2 have leases ending by Dec of 2023. 

Built in 1991 and would say it doesn't need anything major repair at the moment. 

Any other info you may need please let me know, would this deal be worth it?

 Are you renting an office or a separate suite from this owner?  If you are leasing just the office then I'd imagine you have full-service leases in place where the LL includes all utilities and internet and maintains the common areas.  Tenants typically clean their own office.  

These buildings can be cash cows (but management intensive) so it really depends on the existing leases and how far under market the current ones are.  We typically spend a couple bucks bringing up the aesthetic, which helps push rents.  

You will have higher turnover with this type of building, but like an apartment building these are typically not difficult to release in a short time.  If you run your own business out of the building you may be able to qualify for owner occupied commercial financing which is more favorable.  I'm getting ready to close on another one of these, but in full disclosure, if it weren't right up the street from my other one (where we operate from), I probably wouldn't do it.  

Quote from @Tammy Wheatley:

Hello All!

First off, in my home state (Illinois) I have a duplex where I house hack the other side. This is my first investment property that I purchased Feb 2022.

I would like to retire to Tennessee in about 10 years. My son and family are there also. They are near Chattanooga. That area is growing and seems like there is opportunity for growth. My first thought for a property in that area is a vacation rental. That way myself and other family can use it when we come visit.

My question: I am going to visit this week and next. I have a meeting with 2 different realtors to start getting a feel for the area. Who else could I/should I meet with while I am in town? I am looking between Chattanooga, Soddy-Daisy and Dunlap. Anyone know anyone?? :)

STR doesn't make a ton of sense in Chattanooga now that they are pretty heavily regulated. In other words, the numbers won't work great at all. Best to look at long term. Rental appreciation has been great. Of course depends on what asset class you look at as well. You may already be back from your trip but happy to help if I can.

Quote from @Jacob A Clark:

Currently in the process of underwriting and finding equity partners for a deal our team sourced in Chattanooga. It's 25 units, off-market (we are direct to seller on it) and is a value add opportunity. Class B-/C+ property, currently being self managed and has been difficult to obtain financials. Currently assuming an expense ratio of 40%. Owners are open to seller finance a small portion ($300k) of the equity. Anyone have any tips on how to assume / run expenses when there is no formal rent roll / P&L statements? Price point is under $2.5million. 

 Your expense underwriting is probably light.  If it's in TN (as opposed to N GA) you property taxes alone will be close to 15% and with the habitational insurance markets going nuts, you're probably almost at 30% combined on those two.  We do quite a bit of multi family around town. Feel free to msg and happy to help if I can. 

I grew up in SoCal. Have lived in Chattanooga now for almost 11 years and have been investing here since 09. Clevenland TN is right up I75 from us and a good market. A couple things to know before dipping your toes in the pool out here. Use a TN LLC. It will be cheaper. Also, TN has a Franchise and Excise (F&E) tax levied on businesses that are set in limited liability structures. It's basically a business income tax and is two components. The franchise tax is .25 of a point of the net value of the asset. The excise tax is levied against the adjusted gross income on your property so you still take all the deductions you normally would. Obviously talk to a CPA who is versed in this so you can account for it when underwriting properties.

It's not a foundation issue.  I'm a builder here in Chattanooga as well.  Most of your framing lumber is #2 grade (cheaper) and isn't always the straightest.  So you might have a joist or two with a big crown causing the bump. If you don't feel any flex or give in the bump when walking over it then that's probably your culprit.  If you do feel flex you just have loose subfloor because the framers didn't use enough subfloor glue and/or nail/screw off the plywood enough.  

As an aside most older homes here in Chatt have some type of settling because of lack of soil compaction when building and the fact we get 50+" of rain a year.  No one likes buying something new with problems.  Don't get me wrong, but from a rental standpoint, your issue won't impact your ability to lease it.  

The problem with looking at crime stats is that they're done on a per capita basis generally.  So smaller markets with higher crime pockets are adversely affected.  I've invested in Chattanooga now for almost 14 years.  Yes, anything can happen anywhere, but it's especially magnified in sub-markets like East Chatt, East Lake, and Alton Park.  Conversely, there are other sub-markets in town where crime is very low. If you want to make things easiest from an analysis standpoint you can look for the highest ranked public schools.  You will see that property values around those schools tend to be higher than in other parts of town.  Of course, there are trade offs.  Higher property values generally translate to less cash flow though you're often renting to a stabler base of residents.  

Quote from @Ariana Soto:

FB=Facebook.  Leasing commissions are to an extent negotiable, but yes, you are generally correct.  Piggybacking on some of the other comments in this thread a good PM will allow you to scale your investing business.  Yes, it's a cost and not a small one at that, but there's also a premium for your time, or there should be.  If you're the type that wants to exercise a lot of control over the PM then I would suggest working with someone who handles most everything themselves.  They will be small because of that, but that also means more responsive to the clients they do have.  
A good PM (as mentioned here) will also have their own systems in place.  If you want them to manage your portfolio then you need to be willing to change and adapt to their systems/processes.  It's also important that you can communicate and get along with your PM.  Personality fit is somewhat important as this person will be taking care of your assets.  

Unless they have direct ownership of the property, whoever does your leasing must be a licensed agent.  As an aside PM companies (I own one) are real estate brokerages in TN and almost every other state.  Now having said that does this provision get ignored all the time?  Yes.  I"m not passing judgment or giving advice.  Make your own choices.  You'll typically pay 50% of one month's rent for tenant placement.  Some charge more, but that amount is pretty standard.  So if you have a unit that rents for 1k or 1.5k/month it may not be worth it to many agents.  Conversely, most of the PMs here in Chattanooga won't do just leasing but you might find someone.  I'd recommend looking on the FB search engine and typing Chattanooga Real Estate Investing.  It will give you a bunch of pages you can join and ask around.  Best of luck!