All Forum Posts by: Brian Knier

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Portland.

Purchase price: $350,000
Cash invested: $18,000

Value-add St. John's duplex purchased off MLS. Rents $900 per unit (3bd/1ba) when we bought. Self-rehabbed one unit, second unit remains unupdated with inherited tenant still in place. Now bringing in $3600/mo overall.

How did you find this deal and how did you negotiate it?

Purchased off MLS. Moved fast and made offer on day one. Seller had accepted a cash offer, but we had them keep ours as a back up. Cash offer fell through and ours didn't.

How did you finance this deal?

Conventional financing with mortgage broker. Did a cash-out refi with bank at lower rate a year later after value-adds and higher rents in place.

How did you add value to the deal?

Complete rehab of one unit to bring it up to marketable condition. New kitchen, new bathroom, new LVT flooring, new paint and interior trim. Was able to rent this 3/1 unit at $1900/mo. (had been $900). Raise rent for inherited tenant in other unit to closer to market.

What was the outcome?

Had a successful value add with first investment purchase that we BRRR'ed into down payment for our second duplex.

Lessons learned? Challenges?

Don't keep inherited tenants if you can help it. (Difficult in Portland today with relo laws). Match rehab upgrades to rental market grade not to homebuyer grade.

Hey, @Jesse Rivera. Add me to your list, too. Thanks! 

Ok, @Mike Nuss, I'll stop poring over maps of Beaverton for the moment. 

I wondered about that LLC segmentation tactic as well but deleted it from my list of predictions because I didn't want to give Her Commisionerness any freebies when she googles her name tonight and reads this discussion.

I personally think the retroactive penalties will have a hard time holding up in court. (Again I'm no lawyer but it seems a bit ex post facto-ish) Even with their fig leaf (?), olive branch (?), red herring (?) to allow landlords to rescind notices already out there. 

Next week's meeting should be a humdinger. Looking forward to it. 

Thanks for taking the time to testify @Mike Nuss and @Account Closed We sent in a written statement that I'm certain will receive due consideration. 

If anyone watched to end of the hearing you may have noticed the rather nonchalant statement by a staffer confirming that they think that non-renewal of a fixed-term lease is also "no-cause eviction". I'm not a lawyer, but I suspect experts in real estate contract law may challenge the law from that angle. It effectively means a fixed term is in practice a lease in perpetuity until the tenant decides to terminate or the landlord pays a penalty. 

My trend predictions for how the relocation fees will affect the Portland rental market. (Spoiler alert: It doesn't result in an increase of affordable rental housing.):

1. Otherwise lenient landlords will become hardasses on enforcing every provision of a lease to document causes to evict. Coupled with more stringent screening standards that will result from this as well, things will get much harder for tenants than with no cause. 
2. Lower investor demand for deferred maintenance and below-market-rate multifamily properties with tenants in place. And subsequent deterioration of that stock. The BRRR strategy doesn't work nearly as well with an additional $2300-$4500 cost/unit thrown in.
3. Conversely, higher demand and competition for vacant multifamilies. This, in turn will lead to selling landlords issuing no-cause notices to tenants prior to listing and building the cost of the relocation fees into the asking price. (Again, ultimately harming tenants.)
4. The number of single family rentals will decrease as rental homes are sold to owner-occupants in this hot market. (With relocation fees worked into asking price.) 
5. The 1031 exchanges for #3 and 4 above will occur outside of Portland. 
6. The pace of tenant turnover will slow along as tenants stick around longer hoping to get a fat check before they move on. This could be a good thing for landlords as long as a tenants don't become troublesome in hopes of provoking a no-cause while staying under the threshold of for-cause eviction.
7. This will not sunset with the ending of the declared housing emergency (in 10/17 or otherwise). The cash penalties for choosing to not continue renting to someone will become a permanent rent control measure. 
8. And lastly local Portland landlords will invest elsewhere--at least until the effects of this brilliant plan are absorbed into the market. That's our plan, anyway. 

Mike, I'm curious how you see this will offer buying opportunities. What are you seeing differently?

Sounds great! See you there.

@Mark Davis I have to agree with the others here that you should probably pass on this one at that price. You want to calculate your offer price based on current rents not what you think it can get (because if it can get $2600, why aren't the current owners getting that?) As an investor, what you're buying is the upside of being able to force appreciation of this asset by raising income and reducing costs compared to its current state. If you calculate your offer price based on the projected income you'll get once you've made your improvements and turned over tenants, you're essentially buying the property at the price it should demand with those improvements made and higher rents coming in. Then your only upside (since cashflow is minimal here) is straight market appreciation, which most people on BP will tell you is not a good long-term investment strategy. (See 2008) 

With current below market rents and $430-450K pp, this would result in a rather high gross rent multiplier. (GRM=Price/current gross annual income). Even if the units were already renting at the market rates you estimate, I don't think this one pencils out as a non-owner-occupied investment.

I suspect the seller here is just riding the sellers' market we have going here and putting it out there at really high price. Unfortunately for us buyers, they'll probably get it. But maybe not. Keep an eye on it and see if ends up coming back on the market at a reduced price. In the meantime, keep looking. Like @Account Closed said, a decent deal in Portland does occasionally get listed. And if you do what @Neal Collins suggests and track details on recent listings and sales, you'll be set up to jump on it when it does. I've found that you can often see more property details including current rents on Redfin listings that other places. I suspect they may pull info from the more detailed agent mls listing data. (Or have your agent send you lots of recent comps) Recent sale prices along with their current rents can help you calculate the prevailing GRM for small multifamily properties in the areas where you're looking.

It's looking good. Inspection report revealed no show-stoppers but the overall interior condition warranted a modest reduction our offering price, which they just accepted. Barring any snafus between now and closing, looks like we'll be spending more time in St. John's. 

Thanks, @Account Closed, @Kory Thaut, @Jon Nelson, @Mike Hanneman, and @Mike Nuss for your insights.

I'll jump in to add a few details. Our original offer was a Submit Subject to Interior Inspection offer that we formulated based primarily on location, public information, and Google streetview. So sight unseen, but with the expectation to be able adjust when we did get to see it. 

LA let us know the sellers were we going with the cash offer but we could stay in it a backup. He got us a quick walkthough but since we figured weren't getting it and it was an awkward tour with tenants home (someone taking a shower, someone sleeping in one of the BRs, etc.) and all we didn't give it the full examination it warranted if we were truly figuring the price we want to pay.

Now we have an accepted offer at our full initial, non-negotiated (yet) best-guess price.

So the main question is when a seller lists a property insisting on having Subject to Inspection offers in hand to show it, how much are they expecting to negotiate once the we actually get to thoroughly look it over and get it inspected? 

Sounds great!

Nicely done @Account ClosedGood luck on the rehab.