All Forum Posts by: Chad Acerboni

Hi All, 

My business partner and I own small multi-family properties (2-4) and are currently under contract for an STR in Orlando. This is our first one, hence the outreach. The quick snapshot below is for context but I'm looking for some feedback as we are unfamiliar with this space. Curious as to whether you would GO or NO-GO on this opportunity. 

Keep in mind we are both W2'd in the Tech Sector and our goal is to build up our cash flow. This investment will be handled by a PM company so, yes, aware that is cutting greatly into our returns but right now we are looking to be hands-off. 

Asset: SFH (9 bedrooms and 7 baths)

City: Orlando, FL (Kissimmee) 

Purchase Price: $925K --> A similar house in the neighborhood just sold this week for $1M and has one bed/one bath less and fewer house amenities. 

Projected Returns based on multiple different data points, not just AirDna, etc from PM companies: 

Low-End Gross Revenue - $132K 

High-End Gross Revenue - $151K 

Overall Expenses (Prop tax/insurance/utilities/HOA fees/Management fee @25% /mortgage/CapEx @ 5%):

Low-End Expenses - $126K

High-End Expenses - $132K 

Financing and Cash to Close @ 20%: 

$215,000

ROI: 

Annual Cash Flow Between $5800 - $19,000

Annual COC Return Between: 2.79% and 8.8%

My notes/thoughts: 

PM fees are killing our returns but do not have the time right now to manage the property. 

Financing terms are also hurting us. 7.5% and different buy-down options. Have looked at Conventional and DSCR options.

What would you do? Transparent feedback is greatly appreciated. TIA!

@Raymond J. Rodrigues - Yes, we are in the jumbo territory. No need for properties proposed rental income as have underwritten it and discussed it with multiple PMs in the area. What alternatives are you seeing w/ loan options for 15% at 7.875?

@Jef A. - Following up on this. Did you end up purchasing something this year? 

@Nick Velez - do you know anyone that can get us to the 15% down? All of our quotes have been at 20%. Note: Our credit scores are above 800, good W2"s/Financials, solid assets, etc. 

@Tyler Gibson - Thanks, Tyler. We have the distance box checked but we are looking to leverage a PM company, unfortunately. I appreciate the feedback. 

Hi All - My business partner and I have an STR property under contract in Orlando, FL that is set to close mid-Janurary. Our goal is to put as little money down, ideally, 10% if possible. Happy to share details (location, beds/baths, etc.) if we decide to connect further.

We have had multiple conversations with lenders and I'm pretty sure I know my answer but wanted to check with the community because you never know if someone can get more creative.  

From what we have gathered we, most likely not going to be able to get to 10% down, and will be your standard 80/20 LTV due to the purchase price of $925K.

A couple of options that have been proposed are: 

1) Conventional loan (QM) with an 80/20 LTV. Normal underwriting and standard procedures. This goes against your debt-to-income ratio. Will be in the 7-7.5% interest range. No pre-payment penalties.

2) DSCR loan (Non-QM) is also most likely an 80/20 LTV because it exceeds the threshold of $726,200 and is a jumbo loan. Easier to qualify as this really takes into account your credit score and the potential rental income of the property. Does not hit your debt-to-income ratio. However, interest is generally 1-1.5% higher than a conventional loan right now. Has pre-payment penalties. Does have options for IO.

From our underwriting purposes and exit strategy on the property, we are leaning towards just doing the conventional loan. 

Was curious if there was anything I'm missing or if there is something else I should explore that might allow us to get to a 90/10 LTV to help our cash flow.

TIA! 

Chad

HI @Jef A. - I'm going to give you my personal experience on my first property and let you just run with it. I can't tell you to do one thing or another because this is based on YOU. Your goals, your risk tolerance, etc. Only thing I can tell you to do is make sure you know your numbers. 

My first purchase was a 4-Plex and I found it off market by sending direct mailers to owners. The original cost basis was $645,000. I put 25% down on it or $161,250. Over the year, I fixed some items up and raised rents as 3 out of 4 units were under market. For the short year I owned it I was lucky and the market was appreciating so I executed a cash-out refi. In one year I paid myself back 1/2 of my down payment (Roughly $80K tax free), lowered my mortgage payment, and increased my cash-on-cash return to around 30%. 

One thing to note based on your comment of 5+ units and you probably know this already but 4 units (residential) and below are valued differently than 5 (commercial) units and more. Residential properties are based on sales comps in the area and this is very difficult to control. Commercial is based on net operating income and this you can somewhat control. My point being is that I was lucky in the fact that I purchased my 4-plex at the right time and in the right market as it appreciated. I would have not been able to do that cash out re-fi if the area I bought in was stagnant. 

I have a good property manager that essentially handles everything for me. I probably spend 3-5 hours a month on it and that is my own accounting and keeping up with market updates. Ie; rental rates, buildings being built in the area, etc. 

For me, this was a good place to start. I was out of my comfort zone at the time but I didn't over-leverage myself or capital. Currently, I'm moving to self storage because I like the business model and can see myself running these when I quit my W2 job (software sales) here shortly. 

My .02. 

Chad

My wife and I are looking to buy a home in Sedona, AZ. We need representation as we are currently located in Newport Beach, CA. We are looking for refferals for experienced and detailed agents that have been in that specific market for 5+ years and know it. Thanks! 

Denise - leverage the website, AirDNA.co. It has all the statistics you will be looking for. I would then dive into the data they give you and cross-reference that with what Airbnb is showing to make sure they are compatible. When you have that, you should be able to identify how much $ and what the rate of occupancy will be. 

I just recently purchased a 4-Plex in North Boise. It is comprised of 2 bed and 2 bath units @ 900 sq ft. After expenses it is cash flowing nicely. In addition, 3 of the 4 units are under market for what they should be getting. When leases are up later this year, we will raise them to market value to help generate greater cash flow. Happy to discuss in further if you would like.