All Forum Posts by: Carl C.

I would look at a location that supports not just students but other industries. You never want to be overly reliant on one source of renters. Interestingly, our college rentals have had way more demand than we ever could have expected. It seems that with colleges likely opening back up, kids don't want to live in dorms and prefer off campus living to minimize exposure to the virus. Not the situation we had expected. 

This is the answer to the question "how do I scale?" that everyone asks. @Joe Villeneuve is giving good advice here. Sell and use your proceeds for a down payment on a larger property. This is a no-brainer in my book. 

We have purchased two properties under our LLC in the last year. Let's start at the beginning though. In order to set up an LLC you need a business bank account. In New York, we couldn't form the LLC without it. We funded that account with our personal money that was intended for purchasing our next property. Now the business has money with which to start operating (buying properties).

Our first was a cash deal so there was nothing to it with regards to needing credit. The second we needed a mortgage. The bank wanted to see our history of profit/loss, tax returns, and pro forma financials for the property we wanted to buy. Our LLC was less than a year old at the time and we had not completed our taxes. They were willing to accept our personal tax returns as well as profit/loss statements for each of the properties we owned to date.

The bank was happy with the history we were able to show them and provided the loan. Our LLC is now building credit history for future deals. Keep in mind that you will likely have to personally guarantee the loan to your LLC so whatever bank you work with will likely be more focused on you and your financial history when you start, rather than your LLC.

That's correct. We did 25% down and got 4.625% for ten years with a 20 year amortization. Our goal is to pay off before the ten year reset.

Conventional loans with an LLC is a craps shoot with lenders. Some may be open to it but I suspect as a "new" investor with them, the best you might get is a 20 year amortization with interest rates resetting at 5 or 10 years. I just did this exactly with personally guaranteeing the loan and high W2 income. Once I have a record with them it seems I might get a better deal but this was a good as it would get starting out with them.

For the one property we paid cash for, it was purely a psychological move. It felt really good for us to know that we owned the property free and clear and if all went wrong in our lives, we would have that property to fall back on. I love not having debt on it. It just feels good. And knowing that, I am fully aware that it was not necessarily the best financial decision. We were looking at using the purchase price as a down payment on a much more expensive property but we found that the cashflow wasn't much better. We also managed to get a terrific deal in a fantastic neighborhood. Our cash offer got attention, by the way, because it was a cash offer. We wouldn't have gotten the same deal if we had to finance it and we may not have gotten it at all. I know that if I needed to, I could pull a reasonable amount of that money out and use it to invest in something else if a worthwhile property came a long. And if I could find something else in that neighborhood, I'd do it all over again. 

From my experience, you'll have a hard time finding a lender who will be willing to do 15% down. You may be able to find a local bank willing to do 20% but it would likely be a 10 or 20 year amortization with interest rates resetting at 5 or 10 years. 

Thanks @Pat L. We were surprised to be able to purchase the next property so quickly after the last one took so long. But we have refined our criteria for what kind of deals we like, and we have improved our ability to be decisive when something good pops up in an area we like.

Getting a mortgage through the LLC was a big concern for us going in but it ended up being no big deal. We were both surprised how little information the bank asked for compared to properties that we had bought personally. In addition, our LLC was only a year old and we didn't have the tax returns done when we first started the process. I thought that would be a problem, but they accepted our income and expense statements from the previous year.

I think this is a situation where our W2 income helped a lot. We are working towards full time investing but the W2 income is setting the foundation for us. Looking at our projected income, we should be ready to look for another property at the end of this year. It is amazing to see how it takes a while to get going but once you build up some momentum, you can start to see how this can really grow.

I thought this might be interesting for folks here. It’s a little long but I have tried to include details to make it worthwhile. We closed last week on a nice 4-unit building in New York’s Hudson Valley. We have been slow and steady with our investments to date, doing our best to minimize financial risks. This is important when your partner is your wife. We both need to be on the same page before doing anything.

After a slow few years looking for the right property, we purchased a 3-unit last year and then suddenly found ourselves ready for another this year. We started looking at properties in December and settled on this one in February. This building is 4 units, about 3200 sq ft, built in 2005. The asking price was $399,000 with rental income for $4,400 per month or $52,800 per year. Expenses were listed as $14,890 per year giving us an NOI of $37,910 or $3,159 per month.

We planned to put 25% down and buy it through our LLC. This was our first time getting a mortgage through an LLC, so it added a little bit to our learning curve. I can save that process for another post but the short takeaways are, find a local bank (as so many have said before), and the process is just not that hard. In fact, in some ways it was the easiest we have done to date. We assumed a 5.5% rate with a 25% down payment would mean roughly $20,388 in annual mortgage payments. So that leaves our cashflow around $1,460 per month. Not bad, though not quite as good as we would like. We ended up with a 4.625% rate for ten years at which point it will reset, however our goal is to pay it off before it resets.

After some back and forth negotiating in late February/early March we settled on $378,500 purchase price. The contract was signed the week before New York went into lockdown. At this point my wife and I are seriously wondering if this was a good idea. Will the house appraise? Will the tenants keep their jobs and be able to pay rent? Could we have waited a while and gotten a better price? So many unknowns, but we looked at this and realized that if the world was normal, this property still made sense. It was in the right price range, it was the right size as we are trying to grow our portfolio, the income was good, the location was good, the condition and age of the property was good. Let’s keep going.

The bank, unsurprisingly, got caught up with Covid related issues. They had lots of borrowers approaching them looking for forbearance and our deal got sent to the bottom of their underwriting pile. Initially we were looking at 4 weeks to close. It ended up being almost 12. In the process, we found out that all of the tenants were deemed essential employees and so they all continued to pay their rent. We also got through reasonably well with our other units which gave us confidence to keep plugging along.

After closing we found out that one of the units was only paying $1,000 rather than $1,100. Rather than try to immediately raise their rent we will give them some time before we gradually bring it up. We also found out that the previous owner didn’t account for the coin operated washed and dry in the building. I don’t know what to expect from that but we collected $44 from them yesterday. So after adjusting for the lower rent we expect to cashflow around $1,360 per month.

There are a few minor items to be repaired in the house, but no major deferred maintenance. Several tenants have already sent in rent. Three days into ownership, I’m happy with the decision to continue the process during the pandemic. Prices in the area have been going up due to New Yorkers trying to buy places outside of the city. As we have been going through this purchase, I’ve been slowly developing a plan to continue scaling into syndications. So I’m thinking the next property will likely be 8-12 units to keep us getting a feel for operating larger properties while we flesh out the syndication plan.

I was very worried about a major recession holding back our forward momentum but it seems pretty clear now that if a deal makes sense, it makes sense. I’m glad we didn’t jump ship when the world went haywire. Stay steady and keep moving forward one s

We own a three unit built in the mid-late 1800's. We have a lot of capex that we budgeted for prior to closing. As long as you prepare for the unexpected its not necessarily a big deal.