All Forum Posts by: Cody Warhurst

Throwing in my hat, I'm down for the zoom!

Quote from @Nicholas L.:

@Cody Warhurst

i just skimmed your post but the short answer is, you're not misunderstanding anything.

no one selling is worrying about your cash flow.  especially if a property is on the market.  a lot of people in both SF and MF are just listing at absolute top of the market prices, regardless of whether they did any value add or not. 

your job as an investor is not to get enamored of one deal, but to find a deal that works for you, and if a seller is being unrealistic, you move on.

i'm happy to do numbers but i actually don't think that was what your question was.

hope this helps

It is definitely good to know I assessed the situation accurately--thanks for confirming! I guess what I'm driving at with my post is finding a way to do exactly what you said: "find a deal that works for [me]" and one of the preliminary ways I was hoping to use was this back-calculated asking price based on my desired cashflow so I can look at a particular deal and say "if I can't cashflow $X per door or I can't reasonably negotiate the asking price to get there then I won't even consider it."

I know its unrealistic to think I'll find something reasonable on say, LoopNet, but I'm very early on in my getting the lay of the land phase and I'm already seeing that at the list price for many properties in my area, nothing will have positive cashflow as-is so it is going to take some legwork to get to where I want to be.

Hello BP,

I think I have a simple calculation question that I'm a little stumped on. I read another (quite old) post on BP where a user stated they back-calculate the debt a property can support based on their desired cashflow;  if the deal can't hit the cashflow threshold, then they would walk away. 

My question is, how can I quickly estimate the amount of debt a property can support based on my desired cashflow so that I can approximate a reasonable purchase price and thus down payment amount?

For example: 

My cashflow target is $200/mo*unit 

The property is 9-units with a listed NOI of $84,000/y

Therefore, I would have $21,600 cashflow/y and debt coverage of $7000/mo (NOI/12mo)

So if I subtract the cashflow target from the NOI (Ignoring taxes or including them for simplicity...), then I should have $64,400 in debt that the property can support per year.

In this example, pulled from an actual posting on LoopNet, the asking price is $1.2M. If I do this calculation....the property is overvalued by 100%. As in, their asking price is 2x what its worth. Their materials state it was purchased in 2020 for $500,000. So...does that mean my conclusion is correct? They basically bought the place for $500k, maybe did some updating (nothing of note in the listing), and they now want over 2x their purchase price for this property??

So how, with all of the above info, do I get to a purchase price that would satisfy that? I know I'll need to make an assumption on the rate I'd be able to get on the loan...or is that it? Do I just keep plugging in these numbers in a mortgage calculator using trial and error with reasonable assumptions on the mortgage until I hit $64,400?

I've been have trouble conceptualizing, as a newbie, how any MF property listing I've seen can possibly have a  positive cashflow without a huge down payment. Now, it's probably a mix of my bad math, bad deals, and my misunderstanding of financing--because surely some properties must have positive cashflow from day 1, right? 

Very confused.

Quote from @Christian Ehlers:

I think the most important thing here when starting bigger is to have somebody experienced you can bounce ideas off of, ask questions, and can take a look to see if there's any major issues with your deal.

That could be an experienced multifamily agent, a friend of yours who has done this before etc. 

I also don't believe that you have to start small with a 2-4 unit, plenty have started in the range you are looking for and that may make it easier in some ways as at least these units are designed for cashflow so you don't have to compete with emotional home buyers when looking for a deal. There's a great BP podcast interview with Cody Davis talking about how he bought a 12 unit at 21years old and has scaled from there, Titled: 81 rentals units at 21 by doing what 99% of investors won't

Christian, that's emboldening to hear because we have quite a few people to lean on for help in mf REI owing to my family's connections. I will give that episode a listen, too. 

thanks!

Quote from @Robin Simon:

Quote from @Cody Warhurst:

I'm located in PA, sitting on a bunch of cash, and looking to jump right into multifamily real estate to begin the process over the next several years of replacing my w-2 income and gaining more license over my future than corporate America is willing to give me on its own.

I hate to act like I know a damn thing and I likely don't, but I have at least been attempting to get an education on multifamily REI by reading books, lurking REI forums, listening to podcasts, talking to others I know that have owned and operated multifamily bldgs, etc., and I can confidently say I am committed to doing this.

Growing up, my parents operated about 20 student apts and half a dozen townhomes, so I'm not unfamiliar with multifamily and I at least have people very close to me that know the ins and outs of running commercial, granted they've been out of the game for a decade. 

The plan is to acquire 10-20 class b LTR units in 2024, value add, raise rents accordingly, and hold. Long term plan is 50-100 units. 

So my goal is replace my w2 income and objective 1 is cashflow (not the negative kind!). I plan on have a property manager from day 0.

Every post I see on mf REI is inevitably full of "house hack a duplex or 4plex" advice. The problem is I don't want to do that, i have a home and I don't want to just get my feet wet, I want to jump in.

So my questions are...

did anyone else start their REI journey with a small multifamily greater than a 4plex?

How did it go and what did you wish you did differently?

And of course, how terrible is my plan? :)

Check out this article on Multifamily DSCR Loans - a great option for the 5-10 unit niche which I think you could have success starting out in. Once you get above 10 units or the ~$1.5M range, there are a lot of experienced and more "institutional" MF players there and competition is very fierce. This is a great little niche where the "little guy" or those starting out can find success

https://www.biggerpockets.com/blog/multifamily-dscr-loans

Great, will do! Thank you for that. When you mention the 10-unit niche, I kind of look around at my peers and realize we are in a unique position where many people our age are bitching about not being able to afford a SFH while we own our home and have enough liquid cash to jump into a 10-unit mf building.

Quote from @Alecia Loveless:

@Cody Warhurst While I didn't buy one larger building all at once I bought a SFH, a duplex, and a 4 plex within about a 9 month period. There were some renovations and getting tenants put into the SFH. I moved an existing tenant from a building I sold into 1/2 of the duplex and the 4 plex was rented.

Certainly a larger building is doable if you have a property manager and some sort of plan in place. You will learn from trial and error and 10 units isn’t so large that a few mistakes will ruin you.

Mostly it’s not the action you take it’s that you take action.

If you find a good deal I say jump right in! Best of luck.

That's awesome! Thank you for the encouragement and the perspective on the 10-unit strategy. I love the quote, too!

Quote from @Account Closed:

Quote from @Cody Warhurst:

I'm located in PA, sitting on a bunch of cash, and looking to jump right into multifamily 

Do you like people? 10 units is a little small to have an on site property manager and it doesn't usually produce enough revenue to pay for an outside pm. You'll be spending a lot of time with your tenants. When you hit 15 to 20  units, that is the starting point of having someone onsite which means you have little work to do. When you get to 60 to 100 units you might want to look in to doing syndication.

 As much as the next guy does. I have a sales background and I teach a combat sport at a local martial arts gym, so I'm pretty good with people, like em or lump em.

Good advice re: on site pm. 

I'm located in PA, sitting on a bunch of cash, and looking to jump right into multifamily real estate to begin the process over the next several years of replacing my w-2 income and gaining more license over my future than corporate America is willing to give me on its own.

I hate to act like I know a damn thing and I likely don't, but I have at least been attempting to get an education on multifamily REI by reading books, lurking REI forums, listening to podcasts, talking to others I know that have owned and operated multifamily bldgs, etc., and I can confidently say I am committed to doing this.

Growing up, my parents operated about 20 student apts and half a dozen townhomes, so I'm not unfamiliar with multifamily and I at least have people very close to me that know the ins and outs of running commercial, granted they've been out of the game for a decade. 

The plan is to acquire 10-20 class b LTR units in 2024, value add, raise rents accordingly, and hold. Long term plan is 50-100 units. 

So my goal is replace my w2 income and objective 1 is cashflow (not the negative kind!). I plan on have a property manager from day 0.

Every post I see on mf REI is inevitably full of "house hack a duplex or 4plex" advice. The problem is I don't want to do that, i have a home and I don't want to just get my feet wet, I want to jump in.

So my questions are...

did anyone else start their REI journey with a small multifamily greater than a 4plex?

How did it go and what did you wish you did differently?

And of course, how terrible is my plan? :)

$300k is a healthy down payment on a smaller multifamily. With 80/20 financing on ~$1M, you still have $100k for various and unexpected expenses. Not sure about your market but if it were me with $300k, I'd be looking for 10ish unit class b deals around the $1M mark in about a 3h radius.

absolutely don't listen to me--i only own my own house right now and am absolutely a novice at this. 

Quote from @Adam Daneff:

Your parents don’t pay your bills. It’s your life and you only get one shot, take it. Run your numbers, be confident with your decision and go for it. Don’t stress on the what ifs about buying RE, it’s the what if’s if you don’t buy RE. Once the ball gets rolling, crazy things can happen. I do agree with the self storage though, I have enjoyed SS a lot more than residential 

@Adam Daneff I appreciate the words of encouragement. It was very much the what ifs of REI that were giving me pause because besides being what ifs, they were coming from a source I generally trust that has decades of experience. Realizing now that the experience is decades old advice.

what do you like about SS? How did you get into that particular market? Edit: nevermind my questions, I just read your bio! Awesome

@everyone: Im stoked to start my REI journey after posting here. Thanks, BP!