All Forum Posts by: Brian Kantor

Investment Info:

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

Purchase price: $415,000
Cash invested: $130,000

An 1850's farmhouse duplex in Ski country as a "Vacation Home Hack", meaning that unit will be our vacation home and the other will be used as an STR.

Also a MASSIVE garage that we hope to turn into a 3rd unit.

Front unit rents for $17k/year GROSS, but is in need of a face lift. We'll put about $200k into the front unit to get that rent up to around $85,000/year GROSS ($21.5k NET). Front unit alone is 6BR/3BA, & the back unit (should we choose to rent it out ) is another 4BR/3BA + loft.

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

We've been paying to rent here seasonally for the past few years for about $7500/season (split with my sister-in-law's family), so we know the area super-well. My wife and sister-in-law have been visiting for 30+ years. The location is 10 mins from a major ski resort (Okemo) and within 45 mins or less from 5 more (Bromley, Magic, Stratton, Killington and Mt Snow).

We knew we could save $$ by not renting anymore which we saw as an added cash-flow.

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

It had been on the MLS for months because it was "a project" and most of the other nearby properties are turnkey. We were able to get it for about 8% below asking where other comps were going 20% above asking.

How did you finance this deal?

Personal investor loan (25% down).

How did you add value to the deal?

Havent yet, but after the front unit renovations are done, we'll either tackle the garage to 3rd unit conversion or renovate the back unit to add another BR and BA and more livable space.

Tons of potential here, and very excited as the process unfolds.

What was the outcome?

Can't say yet, but the potential as noted above looks really strong. Newly renovated comps in the area are going for $900K+

Lessons learned? Challenges?

Radon mitigation is a big issue in many parts of the country and a good mitigation system can cost a lot. Because this property has 3 separate basements, we need 3 separate systems that will cost us about $10k total.

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

Brandon Reilly of Keller Williams Hammond Team in Burlington (not on BP) was amazing. Highly recommended.

I'll add that the better books you keep, the less your CPA fees will be come tax time. My CPA (and many, I assume) charge for their time vs the number of LLCs. If you keep great books (via Stessa, for example), you can cut down on CPA costs while still holding multiple LLCs (ie, 1 per property).

That said, annual LLC creation and upkeep fess vary by state, so if in your state, these cut too much into your margins, then you may more want to consider fewer LLCs with multiple properties in each. @Charles Carillo said $500k per LLC, which is totally fine, but arbitrary. In California, $500k may yield 1 or 2 properties. In Detroit, though, that may yield 8 to 10, which are a lot more opportunities for something to go wrong and a lawsuit to happen.

As is the answer with most REI questions, there is no set answer. Everything is dependent on your budget, your numbers, your risk tolerance and your market.

You will run into mortgage issues if you try to purchase a duplex, triplex, or quad as a vacation home. (We bought duplex as an STR, and that automatically qualified it as a rental vs vacation home.)

As long as it's a SFH, you should be fine finding a bank to offer you a vacation home mortgage.

Hey, @Deshawn Peterson. You can really "choose your own adventure" in Detroit.

I only do buy-and-hold here, but the fix-and-flip market here is strong as well. It really depends on what your goals are and what neighborhood a particular property is in. 

Bagley, for example, is great for fix-and-flip or buy-and-hold, so long as you're not trying to BRRRR. BRRRRs are tough there because it's tough to find properties there that are so far below market that the appraisal will come in significantly higher than your all-in.Warrendale is great for buy-and-hold, but tough for fix-and-flip because margins are so small. I am sure others on BP have found exceptions to both of these, but it depends on how well you can source your deals.

Multis have been tough for me because most of the neighborhoods that hold them are not ones I want to be in (I'm looking at you, Fitzgerald!)

I will say that the wholesale market in Detroit is spectacular, and their are some great people out there to help you find a great deal, like Todd Chun, Jeff Shipp, and Dylan Tanaka.

Net net, there is something here for every investor.

Hi, Ann. This is essentially what my wife and I do, but the opposite direction (aka, we have a short-term rental in VT ski country). 

A few points to consider:

• When you are buying a vacation home/investment property, you will need a larger downpayment on your mortgage and pay a higher interest rate. Not a problem, but worth considering. You'll be closer to 25% down and 4% interest vs 20% down (or less) and 3% interest
• From a tax perspective, you should still be able to write off expenses in the same way, but if you use the property 1 month a year for vacation, then you'll be able to write off 11/12's of your expenses against your income instead of 100%. CONSULT AN ACCOUNTANT ON THIS.
• Airbnb allows you to set minimum stay durations, so if you only want people staying for a 4-week minimum or whatever, you can set that up in the software so it's only available for people looking for that.
• Beware that laws can change on a dime in any state or municipality, so just because short-term rentals are legal today doesn't mean that they will be tomorrow. So plan ahead. If the law changes, can you convert to a long-term rental and still have the numbers work? If not, you may want to reconsider purchasing this property.
• Once you get a team in place to turnover a rental (cleaning staff) and have a handyman on call, it shouldn't matter all that much that you aren't local whether you are turning it over a few times a week or a few times a year. If you're concerned, hire a property management or rental company to handle everything for you.
• Short-term rental insurance is typically 2-3x long-term rental insurance. Again, not a problem, but something you need to account for when doing your math.

Good luck!

Thanks, @Cliff H. We will take a look!

@Amber Titus, if your plan is to do a cash-out refinance after the renovation, then you are correct. You'll want to do 70% of the ARV. I think BiggerPockets has a "BRRRR calculator" specifically for these types of deals.

Worth noting, that just because in Year 1, you don't have positive cash-flow, it isn't the end of the world if you can cover the difference in the sort term. If you plan to hold this for the long term, at some point with rent increases, your cash-flow should flip into the positive. 

With that said, there are plenty of deals out there in which you can cashflow from Year 1, so again, this may not be the right deal. Tough to say in looking at your analysis, because your renovation assumptions are what this hinges on.

@Rebecca Acer, we ran into a "similar" issue with a property we're purchasing in Vermont. The property is zoned as a SFH, but the seller built an addition onto the property without pulling the right permits. The addition is larger than the original structure, which apparently causes headaches with financing because Fannie and Freddie have pretty rigid guidelines.

TLDR, the stranger the property, the tougher it will be for a bank to pull comps and provide an accurate appraisal. For us, they did end up offering us a mortgage, but are unable to flip the mortgage to Fannie/Freddie. As such, they need to keep the loan in-house as a portfolio loan and thus had to give us a higher mortgage rate (3.875%). At the end of the day, we made it work, but it was a hassle and cost us more money in interest. 

All of that aside, most banks will not offer a mortgage on a partially finished property or something that they deem unlivable in its current state. You may need as @Anna Laud suggested, get a hard money loan to cover the purchase and renovation, and then refinance into a traditional mortgage after the renovations are done.

Mold in and of itself is not a big deal. A mold remediation specialist can take care of this pretty cheaply.

With that said, the cause of the mold could be a bigger issue if there is, in fact, an issue with the foundation. @Kevin Sobilo brings up some good points in that sometimes this is also an easy fix. Gutters, downspouts and grading are relatively cheap as well. (I had grading done in Michigan for $1.5k along one outside wall, which solved my problem.)

BUT, if there is a serious horizontal crack in the foundation, that could be an expensive repair ($10k at the low end). If I was in your shoes, I'd make sure to put your offer in "subject to inspection" and have a pro check it out for you. If he/she does fond a foundation issue, you can either get the price discounted, require that the seller handle, or back out of the deal without an issue.

Something to be mindful of, though, is that since the basement appears to be finished, the interior wall is likely hiding the potential problem, and a typical inspector is not going to rip open the wall to confirm, so they may tell you they can't give you a definite answer.

Without clarity, I would walk away from the deal. There will always be another house, and the risk is high if you have to repair the foundation and it doesn't fit in your budget.

Closing the loop on this for everyone. I ended up going with Proper. They were more expensive, but really know what they are doing in the STR space and we were much more confident with their proposal than the cheaper one we got from our usual broker who had less experience with STRs.