All Forum Posts by: Account Closed

@Gary Kong that's top secret brother ;)

@Mark H. Porter as a full time investor, acquiring a new property for 0$ out of pocket when all is said and done constitutes free in our book. My team consists of my partner and I. Thanks for the input

Q&A - Deal Breakdown: FREE 23-Unit via BRRRR Strategy - Courthouse Capital Investments

Hello all, I thought I'd provide everyone with an update on our most recent deal and how if all goes according to plan, we'll have acquired it for 0$, or even receive cash back at refinance. Below is context on how this strategy works with apartments along with how to value apartments based off cap-rate.
Price: $1,000,000 (20 units at time of purchase)

Total Leverage: $1,050,0001 Hard Money and 1 Private Lender: $725k and $325k (10% interest only and 7% interest only)(total payments around $8.5k per/mo)

Cap-rate: 9.44% Gross Income: $167,000 w/43% expense ratio (#'s based off T-12)

Property Details: The property is located about an hour and a half from the greater dc metro. At the time of purchase 90% of the leases were month to month and severely below market value... and I mean severely. 1BRs were going for 600 when 850 is market value. 2BRs going for 600 when 1100 is market value. It was a classic example of a mismanaged property neglected by the owner. There were two vacancies at the time of purchase, one of those units being a studio needing a full rehab. It's worth mentioning, the day after we purchased the property a tenant OD'd and passed away in one of the 3BR units which resulted in another vacancy. Lastly, after touring the property we discovered a storage area with room to add two additional studio apartments.

Value Add: First off, anything over 4-units we prematurely look for banks in the area that will refi specifically based off the income approach. Income approach is the method of valuing the property based on the income it produces. 

The formula consists of: NOI / MARKET Cap-rate = Property ValueThere are three main ways we plan to increase the NOI.. which is most important when it comes to APT value add;

1. Rehabbing one studio and adding the two additional units. Estimated at a total of 40k in costs, which we will pay out of pocket. Each studio will bring in $630 per month. Adds an additional $22,680 to NOI or $238,736 in total value
2. Raise rents and put tenants on a year lease. After raising rents and equalizing #'s across the board, gross income goes from $15,500 per month to $21,240 which is around a 37% increase.
3. Reducing expenses. Not only is increasing income important, cutting expenses also helps raise NOI. We cut property management to 8% from 10%. We have 30 units in town all under the same management. We cut the trash bill from 400 per mo to 250 per month.

New Value: $1,538,894

New Formula: NOI $146,195 / 9.5% cap = $1,538,894We actually believe the market cap-rate is more in the range of 8.5-9%, which would increase the value by more than listed above. 9.5% is a very conservative number for us to hit. It's important to be conservative and do your market research when deterring what the actual market cap rate is. There's a huge difference between the cap-rate you bought the property at and the actual MARKET cap rate. Lower cap results in higher value for you. This is the one number that is out of your control, the appraiser the bank uses will determine the cap rate. Do everything in your control to provide the appraiser with similar comps with your desired cap rate.

BEST CASE SCENARIO we refinance at a 75% LTV ratio which would make available $104,171 in funds available for a cash out refi.

Math: New Value $1,538,894 x 75% LTV = $1,154,170... then subtract that from our current loan of $1.05M = $104,171 available. We will likely pay ourselves back and not take any cash out to keep our loan balance as low as possible, and cashflow as high as possible.

Final Thoughts: The benefits of this approach are clear, #'s are fixed from the beginning which puts the majority of the uncertainty in your control. If you know your margins and the general market cap rate you have to hit, risk is relatively low.. ESPECIALLY if the property covers your loan payments at the time of purchase. This property cashflows $2-4k per month on our hard money payments and will bring in around $65-90k in cashflow post refi depending on loan terms and whether we decide to pull out cash.
Please feel free to ask any questions and hopefully use this information to buy your own apartments!

@Corey Young thank you bro!

Investment Info:

Large multi-family (5+ units) commercial investment investment in Harpers Ferry.

Purchase price: $275,000
Cash invested: $5,000

Final Purchase Price: 275k + an expected 40k Reno + 15k Closing Costs = 330k NEEDED

Funding: I have OK credit, little time, and even less cash to my name, so, I had to find the absolute best "wedge deal" out there where a lender couldn't say no. In the meantime, I developed a great relationship with a hard money lender who really trusts me. He could tell I had done my HW and put in the time, and even more importantly I'm HUNGRY. He agreed to lend 70% of the ARV. I knew that hard money, combined w/the BRRRR strategy was the way I had to go. All of this was pretty uncertain until I received all the inspections and told the hard money lender I planned on closing in 5 days. I put him in contact with the refi lender I planned to use, who confirmed the numbers, and the rest was history.

I needed about 315k (PP 275+ Rehab 40k) but ended up having to borrow 330K because of 15k in closing costs.

He charged 3 points at closing (9,750 which is tied into the loan) and 10% interest only (of the 275k amount/$2708 per/mo) paid per month which is paid in arrears, so... the first payment isn't due until April 1, 2020, meaning I get about a month in cashflow w/out any debt service. The remaining 5k consisted of survey, title insurance and settlement fee.

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $90,000
Cash invested: $7,000

Purchased the property for a $2,000 downpayment using creative financing then put in $5,000 more of my own money on fix up.
Details: 4BR 2BA - 1345 Sqft
Rents for $2000 month + utilities
Expenses are around $1,000 per month, depending on cap-ex
CoC: 170.87%
Current Cap-rate: 20.01%
ROI: 225.57%
Cashflow: $11,961

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

LOW prices and HIGH rents

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

Found it on Zillow, negotiated it by making lowball offers and negotiating further after an inspection.

How did you finance this deal?

BRRRR

Purchased w/hard money where I was charged 3 points (which is a considerable discount) + 800 service fee and tied in closing costs into the loan.

Lessons learned? Challenges?

ALWAYS GET MULTIPLE BIDS

First step is to read the lease and see what it says. It probably includes something about notice and you can likely keep their security deposit as damages.

**This will be post 1/2. I will post an update w/pictures and final numbers after refinance**

Please read and let me know what you think of the deal!

I'm a 26 y/o full time law student in the DMV area who graduates in May. I work at a RE firm/settlement co in the Tysons area and have been closing deals as a licensed settlement agent for 3+ years now. I began getting anxiety about my post grad life which would consist of a 60hour a week desk job closing other people's deals.. and making other people financially free.. Over the past 2-3 years I've probably listened to 70% of the podcasts, read several RE books and met everyone I could to get an advantage on everyone else out there, so when the right deal came up, I'd be ready. 

After closing the deal this past Friday, I couldn't be more thankful for BP and everything it's brought to my life, whether that's knowledge, positivity, or the encouragement to take that first step. Here's to many more!

1. The Buy

How the Deal Broke Down: My brother sent me the deal off loopnet where it had been listed for a few months, but the price had just been dropped to 325k from 350k. We immediately went out to see the property and could see why it hadn't sold yet. It wasn't very appealing, has an ugly a** roof, and is in WV, but it was FULLY rented and each tenant was wonderful... and upon further inspection, has a waiting list of tenants waiting to move in. I went back to the seller and offered 275k cash w/a 30 day study period, no other contingencies, he countered at 290k and I accepted. After having a commercial inspector out there we discovered several issues (some expected), so I went back to the seller and asked for a 20k credit, he agreed to a 5k credit. Then the septic/well inspection came back (both need work), and I asked for the full 20k credit again, he then agreed to the 15k CREDIT! So, I ended up getting the original 275k price I had asked for! 

NOTE: I said I didn't pay any money out of pocket, however, there was a $2k EMD and $2.5k paid in inspections + $100 in LLC fees

Final Purchase Price: 275k + an expected 40k Reno + 15k Closing Costs = 330k NEEDED

Funding: I have OK credit, little time, and even less cash to my name, so, I had to find the absolute best "wedge deal" out there where a lender couldn't say no. In the meantime, I developed a great relationship with a hard money lender who really trusts me. He could tell I had done my HW and put in the time, and even more importantly I'm HUNGRY. He agreed to lend 70% of the ARV. I knew that hard money, combined w/the BRRRR strategy was the way I had to go. All of this was pretty uncertain until I received all the inspections and told the hard money lender I planned on closing in 5 days. I put him in contact with the refi lender I planned to use, who confirmed the numbers, and the rest was history.

I needed about 315k (PP 275+ Rehab 40k) but ended up having to borrow 330K because of 15k in closing costs. 

He charged 3 points at closing (9,750 which is tied into the loan) and 10% interest only (of the 275k amount/$2708 per/mo) paid per month which is paid in arrears, so... the first payment isn't due until April 1, 2020, meaning I get about a month in cashflow w/out any debt service. The remaining 5k consisted of survey, title insurance and settlement fee.

2. The Rehab

Plans: 

   - Replace current septic tank w/2 new tanks ($12.5k)

   - Add UV filter to well/raise well ($3.5k)

   - Fix Plumbing in Crawlspace ($3k)

   - Properly vent bathrooms through attic + new gutters ($8k)

   - Coin operated w/d ($1k estimate)

   - Blow insulation in attic/other handyman work ($2k)

Total Rehab Estimate: $30,000 (leaves slightly less than a $10k buffer)

NOTE: We received estimates for mostly all of the above listed items. Because of the area, the cost of labor is much cheaper than most urban areas. The first estimate we received for the septic from a NOVA company was 22k, a smaller local WV company will do it for almost half.

Plans to Increase the NOI

   -  Adding insulation to the attic should greatly reduce our $11k per year utility bills

   - As leases expire, new leases will have a 30$ per month utility fee implemented w/RUBS

   - Coin operated w/d

   - Actually enforcing late fees

   - Hiring a different property manager at 7% per mo

3. Rent

   - It's fully rented!

4. The Refinance
     NUMBERS

NOTE: Because this is over 4 units, what's most important, is the NOI  

9-unit (8 singles + 1 double) $5640 per/mo (5640 x 12 = 67,680 x 10% vacancy = 60,912 effective gross income)

Expenses: 3.2k taxes, 11k in utilities, 2k insurance, 5% maintenance, 7% management

CURRENT NOI based on Lender's Numbers: $37,203

CURRENT Income Cap Value: $37,203/.08 = $456,037... then $456,037*.70-.75 LTV = $325k-$342K

Potential Refi Loan Terms: 20-25 yr amo, 4.75% rate that will adjust every 5 years, at a 70-75% LTV. 

- (DSCR comes out around 1.40 depending on terms. It must meet a minimum of 1.3 per lender requirements)

NOTE: Because of my lack of experience, credit, or cash, I had to call 10+ local banks until I found one that would lend off income cap with ZERO of my own money invested into the deal. I ended up finding an AWESOME loan officer at a local bank w/50 units himself who agreed to lend, and who has been more helpful than I ever could have imagined.

I may have the opportunity to get cash back after the refi, especially if I increase the NOI or if I get a loan at a 75% LTV. For those wondering how I'll get approved as a student w/little savings, I've found a family member who will personally guarantee the commercial loan for a few K worst comes to worst.

Potential Post Refi Cashflow

Terms; 25 yr amo, 4.75% rate w/a principal balance of 330k

(-) 3% vacancy (all units are filled combined w/the waiting list of tenants make a 3% vacancy more realistic)

(-) 5% maintenance (-) 7% management = $18,795 in Potential Cashflow

5. Almost time to REPEAT

**Stay tuned for part 2 w/pictures and final numbers**

I really appreciate any feedback! Hope you enjoyed the read!

@Paul Moorer @James Wise Yeah... so wholesaling without a license is not illegal if done properly... and there are many state to state intricacies that can effect how you have to conduct your business, there's no Federal law on brokering Realestate LOL. Do your own research if you are really interested in it, Paul. 

James hates wholesalers because he's an agent and they technically steal his business. Wholesalers are very valuable IMO bc they're constantly sourcing deals... that being said, some of the methods wholesalers use can be shady and morally wrong. So if you do it, make sure you do it right. 

@Arthur P. from what I've seen, hot markets are flooded with tons of 1031 money and foreign investors who are willing to pay higher prices just to keep their money relatively safe at the moment. I'm with @Russell Brazil, the ROI's your getting aren't as appealing to you because you're paying all cash. In my opinion, that money is better spent as a downpayment for another and another deal as opposed to using all cash to purchase one or two properties. The rates are so low right now so it makes since.

One option, If you buy with cash, then value add, then refi, best case scenario, you can get away with making a 100% ROI in your first year. Then it's all cashflow. Here's another option to make your scenario more appealing, instead of using 100k to buy one property where you might get $1500-1800 in cashflow and a 15-20% ROI, I'd use 20k as a downpayment for 5 properties each bringing in $500-750 in cashflow and with a 30-40% combined ROI. If that's your goal, that could be a real way for you to scale and reach the numbers you prefer. I'd say cap rate is much more so important if you're buying all cash but if you're using leverage IRR or ROI is what I'd day matters because once you make your initial investment back it's all profit from there.

I'm in the DMV market and parts of WV.