All Forum Posts by: Brian Turnbough

@Brian Turnbough That's great! Keep up in the loop as you close on these and rehab them.

1,000 sqft house as a shed? Sounds like an episode of Hoarders!

Thank you for the advice guys! What if I were to just keep moving into each rental property I plan to purchase? If it is owner occupied, doesn't that typically lower the down payment amount or is that only for VA/FHA loans, not conventional?

Not sure if how many I own really matters or would be instructional for those on this thread.  Most of my ownership is in part of several communities.  I once read a post from someone who stated I own 600+ units.  Upon further investigation, he essentially is in one of those clubs where you can put in like $10K in say 10 communities.  A total investment of $100K and can say he owns 600 units so I don't go there.  I will say I just finished raising $1.5m over the last 3 weeks on a 320 unit apt community where I'm on the sponsorship team; invested as part owner in others in Texas; have a personal real estate coach; read tons of books on apartment investing, SF investing, etc. I own several SF, small MF.  My experience leads me to believe apartments are superior investments to SF.  SF has its place and believe that is where most folks should start.  

Most value add apartment owners do not hold onto their properties very long. They add the value / re-position, then re-finance once the NOI is much stronger, pulling a ton of cash out for themselves and investors, or lock in long term or move out the LP investors giving them a solid return and keep a cash cow long term. I've never seen a greater business model than apartments.

Beyond economies of scale, value add apartments offer a forced appreciation model unlike SFRs. If I create $1 of NOI on an apt (by increasing income or decreasing expenses) and my cap rate is 8, I've just added $8 to the value of that property all things being equal. I can't think of one thing I can do to a residential property that would create such exponential value.

Try this on for size. I have a 100 unit apt complex. I implement a RUBS program which essentially re-allocates utility bills formerly paid by the owner back to the resident based on unit size and # of folks in unit (formula). The utility company helps set it up and manages it. If each unit now pays ~ $25/mo that owner used to pay x 12 mos that = $300/unit x 100 units = $30,000 improvement to NOI. If cap rate in area is 8, I have just created $240K in value to the property. That's why folks like to own apartments as its based on the income not as much comps in the neighborhood like SFRs. It's about controlling your own destiny.

@Brian Turnbough With a conventional loan on a multifamily it is 15% down here in Minnesota. The best way for "least money" out of pocket would be the FHA loan. It constantly changing.

@Eric Bate IMHO: You'll want to do an FHA loan here, it'll benefit you more. Even with the additional cash on hand you'll still be able to get a better COC return. I've debated 20% down route vs 3.5%. With the other 16.5% down, 32k or so, you could earn enough to pay for the PMI and still be liquid, if/when needed. I'm a fan of multifamily, although their more difficult to find.

I am constantly amazed that the economy of scale with the MFU is not self apparent and given equal opportunity(meaning loan qualification for either/or), an investor would opt for SFRs instead.

I am an absentee owner of a 6-plex 120miles away.  Try doing that with six different locations at different points on the compass from home.  Yea I burn 2hrs one-way but IRS mileage deduction PAYS me to drive to-and-fro :)

The MFU has another economic advantage other than just building maintenance: I've forced grown the property value!  In '97 I bought at 305k; current escrow is at 775k.  That's 254% growth in property value (some might read this appreciation).  Take 254% / 18 yrs is 14% growth per year - - in San Bernardino County.  Many will cite 2-3% appreciation per year in good times.  Anyone holding in 2008 knows it's not always rosie.

Another metric (or measure) is NOI/door. In '97 it was $280/door; today it's $577/door.

What was the magic? Simply increasing rents. A $10 increase times six units nets +60 to the NOI. @Brian Turnbough Any improvement to all units adds value times six and the SFR doesn't have any such multiplier; just dollar for dollar. We all know the cash-on-cash and cap rate math depend on NOI so it's easily seen that the property value grows over time by how you manage your GSI.

There is one major advantage to holding SFRs;  you can partially liquidate and still retain an income stream.  I attempted to bifurcate (divide) the two triplex's to make that opportunity as an exit option, but zoning requirement and city planners would not consider a zoning variance, so that thought went up in smoke.

IMO, it's the entry price to MFUs that kill the opportunity for the beginning investor. The higher LTV requirement becomes insurmountable to most, but especially those seek creative or no money down opportunities.

The two triplex's is a rare find, but 4plexes will perform similarly for the small investor and I highly recommend rolling a couple of SFRs into a 4plex at your earliest opportunity.