All Forum Posts by: Christopher Erwin

Hey BP community, I recently acquired my 1st Midwest Duplex. Below I provide full transparency into the financials and bid process, plus some key learnings. 

Documenting the acquisition process helps me best retain everything I learned along the way...now sharing with you all in the hopes you learn something too! 

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ROI Analysis

• Opening bid = $137.5k + $500 escalators up to $145.5k
• Closing price = $145k
• Deposit = $1k
• Loan = 4.75% fixed conventional w/ 30 yr amort
• Down payment = 25% or $36,250
• Due at signing = $37,216 (incl lender fees, title fees, taxes & insurance impound, negotiated seller credits, pro-rated rent, et al)
• Current Rent = $1,425 (700 + 725)
• Market Rent = $1,800+ (900 + 900) → used for CoC analysis below

• $3k repairs (planned for Jan/Feb ‘18)
• 5% vacancy
• 7.5% CAPEX
• 7.5% OPEX
• 13% prop mgmt (incl placement fee)
• 5% insurance (actual)
• 11% property taxes (actual)

• 2% expenses
• 3% rental income
• 3% property value

• Yr 1 = 9.5%
• Yr 3 = 11.5%
• Yr 10 = 20%
• NOTE: return estimates are based on the . It’s a simple yet robust financial tool that I highly recommend for both newbie and seasoned investor types. More calculators (flips, wholesaling, etc) can be found .

MISCELLANEOUS TIPS

My property listing came up Thu afternoon → I spoke to my broker Fri AM, had her and mentor visit it Fri night, and bid early Sat AM before hitting the Mammoth slopes. While people start taking the weekend mid Friday, get busy! Doing so can provide you a small advantage that can help you get a deal in a hot mkt.

I researched mkt rents by talking to multiple property mgrs, area locals and skimming sites like Zillow and Trulia. I learned rents are under market by 25–35%, but be careful adding to your fin model. If you make that assumption for your bid range and it isn’t true, you expose yourself to compressed returns.

I used conventional financing, and got multiple loan bids. Important to be upfront with the lenders about your process — those who are willing to work hard for your business are worthy partners…those who aren’t willing are not. Just don’t blindside them with a pass after getting their bid and follow up questions >> let them know you’re in talks with others.

I had multiple mentors who gave me exceptional guidance in evaluating and consummating the deal, and I rewarded them appropriately (and plan to keep doing so). Take care of those who look out for you, and the rewards will keep coming your way.

Have systems set up to eval deals. My custom google map filters, MLS drips, local broker who's super responsive, local mentors, etc all allowed me to move quickly and aggressively.

I did a full home inspection that cost me $680. Critical for a newbie buyer for the education alone, plus it’s an obvious choice to protect your investment if rehab assessments are not your specialty.

Property mgrs have their standard monthly fees (usually 7–12%), but they also have a placement fee for new tenants (usually 50–75% of 1st months rent). Don’t forget to factor that in to cost assumptions...that was news to me!

I had to sign an affidavit upon closing that I would NOT enter into another property purchase, lease, credit card, job, etc for 1 month. This is a LOT to navigate when many of our lives are so often in flux, so just be mindful that the credit diligence on you doesn’t always end at closing…particularly if your mortgage broker is planning to sell your loan.

I admittedly over-indexed on diligence $ and time on this investment, as it was all part of my planned RE education. I spoke to multiple property mgrs, lenders, lawyers, mentors, and it cost me proportionally. I don’t regret it for one second, as I now have the confidence and experience to be that much better on the next one…and the next…and the next…and the next…

While harder to find deals in this mkt, they def exist. Don't sit on the sidelines, just get smarter. No one knows when the market will actually turn...could be in 6 months or 6 yrs. I got lucky (let me rephrase that...I strategically put myself in the way of luck) and found a motivated seller >> she was an out of state owner looking to wind down her portfolio, and had a property mgr on salary vs direct commissions, so there was no incentive to raise rents. AND, I found this on the MLS, not via a private listing. So yeah, get out there!

Seeking advice for a friend --> His bro just bought a 2nd home, and he's talking to his bro about keeping his 1st home and converting it to a rental property. My friend would like to invest in the 1st home.

How Would You *Simply* Structure It? 

My Thoughts:

• Make it a hybrid debt / equity vehicle
• Provide XX capital upfront, which entitles him to:
  • XX% of NOI (and mutually agree to definition)
  • XX% of sale proceeds after mortgage paid off
• For any major capital calls (new roof, siding, etc), contribute XX%
• Original property owner keeps name on title and mortgage (no change)
• No 2nd lien on property
• NOTE: It's like a note investment, but because there's unlimited upside since it's % based and not capped, the increased risk that comes with it is that there's no asset-based guarantee via a 2nd lien

Welcome @Aaron Ohri!!

RE is a fantastic long-term game, and LT passive wealth along with a diversified inv portfolio makes a ton of sense. Stay laser focused and you're realize your goals much faster than you might except! I'm LA-based but started investing in Omaha over the past yr, and have a ton of respect for the Midwest mkts and the mentors I've found there. 

Congrats on the start of your journey, it's going to be a lot of fun ;)

@Derek Eskens, that was a great kick-off note. I'm LA-based and invest in Omaha along with a few peers (some remote, some based there). I really enjoy the midwest markets compared to the coastal cities where I typically work (LA, SF, NYC)....welcome to the BP community, wishing you must future success! 

My friend's brother just bought a 2nd home, and my friend is looking to convince his brother to keep his 1st home and make it a rental property. 

My friend would like to "invest" in the 1st property by writing his brother a check and helping manage the rental conversion. My thoughts are to keep it super simple and structure as a hybrid debt/equity investment.

BP community, what are your thoughts? How would you do it different?!

My Proposed Deal Structure

• Original property owner keeps name on title and mortgage
• Friend gives brother $XX capital upfront, which entitles him to:
  • XX% of all Net Operating Income (and mutually agree to NOI definition)
  • XX% of proceeds in the event of a sale, after mortgage paid off
• For any major capital calls (new roof, siding, etc), brother contributes XX% (perhaps same as NOI%)
• No 2nd lien on property 
• CAVEAT: consult an attorney!!

Looking for a "diet" of books for understanding the broader RE industry and all the moving parts and key players. It's hard to find a single book that covers everything from residential/commercial/industrial to greenfield construction, financing vehicles and closing procedures...therefore, what set of books and literature do you all recommend?! 

A friend asked me for my preferred reading list and I realized my bookshelf prob only covers 20% of the massive RE industry! The focus is simple education, no specific investment thesis.

Thanks for your help BP community ;)

Hey BP, my friend's wife lives in the US but is not a citizen, nor has a green card. They want to purchase real estate together, AND she wants to invest in RE on her own. 

I'm aware that financing can be trickier (need more money down, etc) and in selling property the future purchaser may have to withhold a % of purchase price to ensure sale taxes are paid, etc...

Anything else they should be wary of? All tips are welcome!!

This is super helpful feedback all, thank you. Yeah, I have approvals for all expenses over $250, and we have an agreement to have a min of $200 in a reserve account to prevent a negative balance. Seems I should simply offer to increase that as needed, which is much simpler and less risky than providing access to my personal account, even if I set up a separate one. I also contracted in our agreement that I will provide payment in a timely manner, so this should more than offset the need to provide withdrawal access. Love the BP feedback!! @Deanna McCormick @Anthony Hurlburt @Nicole A. @Kim Meredith Hampton @Andrew Johnson @Michael Brown

A property manager I recently hired asked me to sign a form giving his firm permission to credit my account for rent deposits, as well as permission to make withdrawals as needed. He noted that he has never made a withdrawal from a client account in the history of the firm, but it is a protection to ensure the separate account his firm has for repairs and maintenance never goes negative, which would be a violation of governing laws. 

Is this normal practice? 

The firm and my point person are background checked and highly recommended, but this is very unique to me. At the least, I will definitely create a separate checking account so my liability is limited. 

Any other thoughts?

Hey @Ben Katt, thanks for the info. I have a few mentors in Omaha, so I'm learning from them and leveraging their connections in the local Omaha market. And yes, the returns and entry prices are much more reasonable than west side in LA, where homes typically start at $1mm+. I actually just got my first Omaha duplex under contract over the weekend, hoping for a swift close!