All Forum Posts by: Brian Anderson

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $174,000
Cash invested: $21,000

On-market 100 year old home, purchased from the MLS. Renovated kitchen and bath along with renovation on 100 y/o hardwood floors and new roof to make this a downtown Concord gem. Cash buy with sweat equity in renovation allowed for quick re-fi. Current long term tenants with good rent & equity appreciation

What made you interested in investing in this type of deal?

This was a great location (wish I had bought more in this area) and is an efficient SF home with a small lot minimizing maintenance. Walk able neighborhood

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

Was on MLS, negotiated an all cash deal with no inspection contingencies

How did you finance this deal?

Cash purchase and renovation. Refinanced after seasoning period with forced appreciation as well as more favorable comps once we arrived in the spring home buying season vs winter selling (when purchased)

How did you add value to the deal?

Replaced the aging roof, renovated kitchen, bath and mud room. relocated laundry to basement freeing up precious space in the home. Sanded and refinished original 100 y/o hardwoods to make this home pop. Fresh paint and new entry doors finished the house off and had it ready to rent inside 30 days.

What was the outcome?

Cash our re-fi later with long term tenants with excellent rental history and rent appreciation.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Worked as my own agent on this deal and having the cash on hand to get it bought was a huge lever in getting the deal closed. Due diligence was key in this deal as the roof needed replaced, chimney needed to come off (in disrepair) and entry doors needed replacement as well.

Ryan,

I'd be a little suspicious of the no entry policy but you can write your offer subject to inspection of the properties.  I'd run the numbers at that sub $100k level and then write that offer.  In the contract, put something to the effect of: offer is contingent upon buyer's inspection of properties.  IF they list it, they will have to do disclosures, and inspections anyway. Find a way to communicate that your offer isn't going to fall apart because of dirty carpet or a few holes in the walls. But major issues with plumbing, electrical, missing walls, methlab, massive termite infestation, etc. will.  Just don't communicate that last sentence ;-)

All in all, if they are in decent shape, it sounds like a decent deal.

Ryan,

A few Questions:

-Are the properties vacant?  The only reason I can see not letting you in is if they have tenants. Otherwise, beware.

-If there are tenants, what are the lease terms and rental history (are they current)?

-Has the seller given you a property disclosure for each house?  If they use a Realtor, they'll have to do that.  Asking for one may give you some insight to the condition inside. 

-What's the empty lot going to provide you from a value prospective?

-is your rehab budget per house or all in? 

-How's the neighborhood? Good rents? Desirable location?

-If you buy the deal, how are you going to finance the BRRR? An empty lot is harder to finance than a house so you may have to plan on owning it cash. It may not make sense to get a 50% LTV on an $18k lot.

-How are you paying in this BRRR? Cash in and refi later? If so, run those numbers on the holding costs until you can get the refi done.

If this were my potential deal, I'd start bay running the numbers on the rent as you plan to BRRR these. Also, find the value of the Lot to you or someone else. Unless you're going to develop it, it sounds like it's not worth buying unless it has to come in the package. 

The newer roof and new A/C unit says to me that (at some level) maintenance is or has been performed.  That's a good sign.  The 6% commission is worth $12,900.  My top price (assuming the cash flow numbers work for rental) would be $200k no matter what.  That's saving the seller commission and the hassle of showing it, dealing with the tenants (I'm assuming there are tenants). 

The rest of your math looks correct (assuming all in at $30k for both houses).  I'd imagine that your rehab budget would be shaved down a bit per unit if you do both at once.  You'll be able to negotiate a better deal if you're giving a contractor 2 homes side by side to do the exact same finishes on.  (same toilets, sinks, carpet, tile, paint, etc.)

I'd ask the seller why they are selling.  Repeat their answer to them and ask another Why question, repeat one more time.  This may get you to the real reason they are selling.  For example;

Me: 'Hey Ryan, why are you selling these houses?'   You: 'Well, we're just simplifying things..'  Me: 'Oh, great! I'd love to help you with that, what's your biggest challenge with these homes, what can I do to help you simplify?'   You; 'We are just looking to get cash out (or get out of landlording/or we have bad tenants/etc)"  Me: "great, what do you need to get for these homes to help me wrap this deal up for you?' 

I find that some just need/want $$$, some want our of being landlords, some have major home issues that they don't want to share.
 

Best of luck with this deal!! 

@Nadir M.

Where is this property located? I'm surprised no one has asked this question yet. As for 4 days of no applicants, I wouldn't worry about that yet. We regularly see ebbs and flows in our rental business. People will be thinking about moving when they see their lease is coming up at the end of the month. This is traditionally, where we see the spikes in traffic. I'd consider the real estate agent as an option as well. This shifts your potential turnover time frame to Summer rather than Winter (of course if you're in Phoenix or some other warm climate, that may not matter..see Q#1). I have a SF home coming on the rental market in mid January and am budgeting for rental in Feb or March (I'm in NH). I'm an agent so I can look up the area in MLS and see what's leased out recently, for how much and also see the rental history of the other units. I'd agree with a lot of the above posts as well but would sum it all up with this:

Rent- study the local area rents and price according to your finish, location, terms and competition

Term- go with a lease term that suits your business plan but consider the tenants' demographic as well (professional looking for short lease, family looking for long lease, college kids looking for the rest of the term...)

Qualifications- I look at WHY credit is bad and use that more than the number.  Active collections on a cable bill, phone bill, Macy's card or car payments late is a bad sign showing they can't manage their money.  Medical debt & student loans are usually not as big an issue on money management.  Never rent to someone with a history of eviction.  If their last address was with family or friends, call the prior landlord.  You'll need to establish a 1-2 year rental history.  Also, make sure you're actually speaking to the previous landlord.  I've had occasion that a tenant gave me a friend's number to act as a prior landlord.  When I asked a few more questions regarding the property, (the kind of lingo you can use with another investor) they got flustered, then I asked for a written statement and they hung up and wouldn't answer my calls.  I didn't need any written statement but asking for it called their bluff.  My applicant couldn't explain this odd behavior and refused to provide anymore references. 

Background check- I always do a background check.  I Always tell my applicant that I'm going to do a credit, rental history, criminal and sex offender registry background check.  Many will ask for the application but then I never hear back.  I'm sure I've avoided some people with records. 

Meet the tenant- IF you're managing these yourself, it's a great idea to meet the tenant.  There's nothing like the in person impression you get from someone.  I've rented to people that I thought seemed a little weird and regretted it.  I've rented to people with bad credit that seemed like genuinely nice people and it's worked out just fine.  Use you gut on this. 

Advertising- I advertise on any source I can, I use Apfolio through my office to do so.  If you don't have access to a service like this, use Craigslist, FB, Zillow and the like.  Differentiate each of your ads so as to know who's contacting you from what source.  Track this and you'll have a great idea what source works best in each market.  When advertising on CL, I put all the criteria in the ad.  This keeps people that are unqualified (by your standards) from wasting your time.  On FB, I'll respond to all 'is this available' inquiries with a note that has all the criteria and it has the same effect as the CL ad criteria.  On Zillow and the like, I do the same as FB.  I also have a nice 'For Lease' sign in the yard with a number on it.  I'll sometimes do flyers with the information but they typically don't do much good in my area so I just have the sign.  I like the 'For Lease' better than For Rent and I use the term Resident rather than Tenant.  I can't say for sure but it seems to change people's mentality on the whole thing.  Think "used car" vs 'Certified Pre-Owned'.  

Pictures- Make your best aspect of the property your first picture.  This is what's going to hook someone.  This is the picture they are going to show their friends when they tell them where they are moving to.  Look at any Airbnb Superhost ad and you'll see what I mean. 

Section 8- Many will inquire about Section 8 housing (again, where is your place located?).  Section 8 many times does not cover the desired rent in certain markets.  I call the local housing authority and find out what their top end payment is for Housing Vouchers.  In my area, it's $1637/month including utilities.  If my rent alone is $1750 then I simply let the people inquiring about Section 8 know that the home does not qualify.  If my rent is $1575, then I'll accept it if they fit my other criteria.  Section 8 housing can be a great thing or a bad thing, just depends on your tenant.  The upside is that you'll get rent every month without fail and if they are violating your other lease terms, you have someone to take those issues to (Housing).  They know that if they get evicted from a Section 8 home, they'll be kicked out of the Housing program and nearly all of them know that and will act accordingly.

Hope this helps.  This was a long read so if I can sum it all up in one thing: Don't rush & put a bad tenant in.  This is always more expensive than waiting another week or two. 

Alyssa, 

We can discuss more in depth but some of the simple math I use is: 

Figure ~100 nights/year of rental income. (Based on 52 weekends/year).  You’re not going to rent every weekend but your not going to rent Only weekends.  Our 3-season property (mud season is slow) has us at 107 nights this year.  We are priced on the higher end of the local market.  We could price a bit lower and bump that to 125+ but this increases wear & tear and turnover.  The price point we use provides a good balance of cash flow and vacancy for us. 

You’ll want to price (and be able to get that price in the market) at:

your carrying costs + desired profit divided by that ~100 nights/year. 

It’s VERY important to keep all of your costs in the above number. Things such as HOAs, maintenance, furnishings, decor changes, broken items, and utilities are a few that I see people “forget” to put in and then they lose a little money.  That’s not the worst if you’re using it yourself but we Are here (BP) to make money right??  

I assembled a spread sheet that I can plug in the house cost and the estimated rental numbers (nights and average per night) to give me a quick valuation on a particular home.  We’ve been very successful this year even with Covid shutting things down a bit.  
STRs are a little more work to get set up but like anything once you have a system set up, you should have a pretty easy time running it.  

The second home market has been HOT lately with Covid causing prices to drive way up. I’ve seen houses in NH go for 40% over asking!  Key point, know your numbers and buy what fits your numbers and desired location/property type.  We got a house under contract recently after 4 lost bids and a dozen showings.   

Best of luck in the search and I’m happy to discuss further any time. 

If the tenant (dog owner) meets all your qualifications and the dog is a well tempered, etc. dog, the size shouldn't be a problem if you follow the above advice.  @Sean McDonnell has it right, charge a pet fee that will go to your reserve fund to refinish floors.  I have a 50# lab mix in my house and he's an amazing dog but his claws have marred up the new hardwood in here a bit.  Point being, any dog is going to do this to a degree.  Just plan for it or don't allow pets at all.  

State Farm has a renters policy that covers dogs, you can require the tenant to carry this during the lease period as a condition of the lease if there are concerns with bites, etc.  Ultimately a dog can only be as good as its owner.  

Good Luck !!

@Brendan Harding, you could always wholesale the deal to a local investor.  That would remove the bulk of your risk and put some cash in your pocket for the next local transaction. 

Javier, 

I'll echo what @Aaron K. said.  My SF homes are all at a 9% management rate.  I got that by shopping around and bringing 3 homes with tenants in place to get below their normal fee.  I get quality management (that is absolutely key) for the homes and proper accounting, escrow of funds, etc.  

Stuff will break, (ask my roofer in Aurora, CO) just make sure that you have the correct budget for it.  The guides on x% capex and vacancy, etc. need to be flexed to any large or small price point.  A backed up drain pipe will cost $250 to get emergency rooted and if there's water damage, you're easily in the $2000+ range.  Will your $74/mo property manager get you a good reputable contractor to do the repairs or are you managing that aspect due to the rate?  

Some things to consider if you're trying to make the numbers work: manage it yourself, add value to the building, negotiate a lower sales price, have seller pay your closing costs.  All of those help move the numbers an inch or two but you are on a 300-yd football field.  Take a step back and look at the numbers again.  Even with an 8% rent raise ($1458/mo), you're still below the 1% rule ($150k x .01= $1500/mo).  

Best of luck whichever way you go! 

Adam, 

I think some more details would help.  If you're bringing in roughly $19k/year that's a pretty thin return on $560k in my opinion.  Some things that could shift that metric are if the building is newer or has had recent major rehab; the vacancy rate in your area is very low and you are certain that rents Will go up.   Can you provide some more details on the building, condition, area, tenant pool, etc?  Is there a potential to quickly/easily add more value? Is there rehab required to raise the rents?  Do you have a quality management team identified at 6% and what is their leasing fee per unit? 
I'm working with an investor on a 9-unit and a 3 unit building and we're taking an average of 20 days to land a quality tenant for each unit that comes available.  So, for a 12 month lease the investor is collecting just over 11 months' worth of rent (the investor gets 75% of that 1st month rent after leasing fees).  As such, we try to land longer term, stable tenants to keep the turnover low.  

 I think your vacancy number could be a little optimistic unless you're in a very high demand area.  Your number comes to 3 months' vacancy at a mathematical average of all rents.  If you were to turn over each of the six $900 units in a year, the leasing fees (depending on your management contract) could cost you $4000. If they turn over annually (again, quality tenants reduces that) you can see the numbers go up quickly.  

Any other thoughts out there in the BP universe?  

Hope that helps! 

@Ashvin Patel, Have you done a vacation rental yet?  It's a great way to invest and get a place to play in the same deal. Feel free to shoot me a message if you have any questions.  Currently running a 3 season 5-star AirBnb in NH.  

Good luck!!