All Forum Posts by: Charles Soper

Hey Ben, great job getting a multifamily under contract!

I'm not sure I'm following your numbers. You said 25% down would be 106,250, which equate to a purchase price of 425,000. With rents at $475/month and assuming 100% occupancy and 50% expenses that gives you $28,500 NOI and a cap rate of 6.7%.

Let's assume you do nothing but raise the rents and still maintain a 50% expense ratio you get an NOI of 39,000, with the same 6.7% cap you get a valuation of just over $582,000, which is a difference of $157,000, not $262,000.

Where are you getting an 11 cap and 26% cash on cash? Assume a loan of 318750 (75% LTV) @ 5.5%, 5 year/30 Am your payment is around $1800, which leaves you closer to $1450/month net or $17400 annually, which is more like 16% cash on cash - that also assume you aren't splitting the profits, if that's the cash it's more like 8.2% CoC.

Now as a passive investor one could certainly do worse than 8.2%, but this also assumes no hiccups (like long vacancies).

Given your statement about not knowing how to do rehab, I’d be pretty nervous giving you a check for $100k, and as for the alternative option, you’d be hard pressed as a rookie to find a hard money lender that will give you 90%.

As for other options, will the seller finance the whole thing for a short while while you bring up the NOI? Or maybe carry the down payment with interest only payments until you can Refi? They are selling for a reason, if you can find that reason and solve their pain/problem it could work to both of your advantages.

Hate to be a downer but that’s a tough one.

And I think GC’s last live webinar he talked specifically about that point :)

With our red hot economy due for some kind of correction, going bigger might be better for the simple logic of sustainability.

If you buy a nicer 6-Plex in a nice area vs. a working class 30 unit with lower rents in a decent stable C neighborhood what happens when you get a vacancy?  3 vacancies in the 6 Plex leaves you at 50% occupancy, can you cover the note and all your expenses if that happens?  How about 3 vacancies in the 30 unit?  90% occupancy, that’ll definitely cover the note and expenses (assuming you bought right).

Nice might be right for you’re choice of living conditions, but not always the right choice for your investments.

Building affordable housing is a noble cause, but to your concern it still needs to make good business sense. When you say the city may give you money is that in the form of a property tax credit for X years(which impacts NOI) or maybe impact fee credits (which effect your overall construction costs)? Ideally you can get them to cough up both and you're numbers still pencil. Does the 80% allow the property to cash flow well enough for the returns you want? If you are planning on holding long term at some point the agreement with the city will expire and you can raise rents, or use it as a selling point when you are ready to trade the property.

Welcome to BP, the link isn’t right but I figured it out, www.biggerpockets.com/calculators/shared/1291659/8383e2a7-29e8-4b1f-b186-3274c6c94596

Anyway congrats on looking for your first property but even with a great price for the area I personally would pass. Your expenses should be around 50% of your gross rents and it looks like you got that part right but only because you reduced the different expense categories to make it work. Based on the age of the building, only holding back 4% for each CapEx and repairs/maintenance. Is asking for it. I see you only accounted for 1% management fee which might work if your self-managing but what happens when you grow into other properties and need to hire paid PM? Last thing in the numbers, vacancy seems low.

So if it were me, I would need o decrease my expenses and or increase m rents, I’m not sure you have either option here unless is grossly under market for rent.

I forget who said it, but @Brandon Turner shared on he podcast at some point about how it’s better to pass on a bad deal than try to force a good deal.  Try to separate your emotions from what the numbers are telling you and go from there.

Have you tried calling the larger STR management companies in the markets you're looking in? I would imagine much like a commercial broker that they would have some sort of marketing or market data that could help you.

Build those broker relationships!  Bring value to them and they will give back in spades!

Send them referrals

Maybe the occasional coffee or lunch

See a building that might fit their criteria but you have no interest in?  Pick up the phone.

I’m still working on these myself so just make sure you are added value to them and not just taking - beat way is to buy a property through them, get to be known as the guy who closes and they’ll give you anything you want within reason

I would reach out to a commercial multifamily broker either in the area you want to invest or local to you and see if they can provide CoStar or Yardi reports on those areas.  Tools that have pretty awesome data but aren’t meant for the little guy to consume (price wise anyway).

careful how much you leverage yourself. If you pulled cash from a HELOC then the cash flow from the 2 family should be repaying that HELOC and covering your expenses before anything else. If you take out a line of credit or mortgage the 2 family you start to build a house of cards that may not withstand a downturn or even a longer term vacancy.

Leverage is good but make sure you are personally secure along the way.

So I know California is expensive but if you are going to owner occupy, you should look into FHA or VA loans, low or no down programs. As long as the property at least covers most of your mortgage and expenses it could be a way in.