All Forum Posts by: Cory Carlson

Get your license if you want to help others buy and sell real estate. The license isn’t really for knowledge it’s so you can market real estate within the law. Wholesalers seem to be dancing across the line in my opinion. 

Generally property managers have these connections for the repair type work. Its up to you to manage the manager and see what services/contracting services they offer. You can always use your own contacts for the work. Develop an operating agreement and plan. For example, any repair/maintenance item over $1000 requires to be signed off by you and 3 quotes. Also depends on the property type size how the agreement is drafted.  

Exp and Keller Williams have great training programs for new brokers. My friends who have got their licenses have eventually moved away from KW. I wouldn't write off a smaller brokerage to get some 1 on 1 help. Also depends on what your goals and background is in. Where is your sphere? Take some consideration into your current sphere and background. If you had a finance degree or grew up in a wealthy part of Portland or worked in property management that provides three different brokerages. See where I am getting at? 

@Karen Higgins

Unless you’re coming under leveraged or all cash the lender is not going to lend on it. Use that in your offer and work closely with your bank on how they will underwrite it. Use the financing to your advantage. If it doesn’t cashflow then the Debt-service-ratio will not meet the 1.2 required. Use 70% ltv as the baseline and work backwards use an expense load that the underwriter would use.

Have you called the title/escrow and seen if the buyer can just walk with a check at closing? I would go with your strategy to adjust the sales price first, but if sellers for some reason can't wrap their head around it, maybe the buyer just gets a check at closing of the difference. That certainly never happens in my market, but Im in the NW! HA!

I think there are two options just based on your description. An actual analysis with real numbers would help determine a next strategy as well as hearing about your goals. 

1. Refinance: If you have an FHA loan, you are paying a PMI. Rates are low today, and if the numbers you provided are true (owe $350k and its worth $500k) you could refinance into a conventional loan, drop the PMI, improve the cashflow (potentially, rate depending) and reposition yourself. You may be able to pull a little cash (about 5% of the value, based on your numbers) out considering your current loan-to-value is 70%.

2. Sell: Roll the ~$115,000 (after selling fees: broker, title/escrow, state taxes, I est. 7%) into another investment. Did you live there for 2 of the last 5 years? If no, you're going to need to exchange and do not qualify for the exclusion. I don't think exchanging is your best option since you bought with a low down payment and all the work you have done has essentially set you up to buy the same sized building. 

If it shows healthy returns, I'd wait. 

REFER THIS CLIENT or find a broker who is willing to co-broker with you that will let you look over their shoulder. If you're familiar with single family homes and not sure where to start on financials, analysis, financing, etc you are not doing what is best for the client. 

Why can't the seller contributions go towards the cash required at closing? You should be able in some way or form use the excess cash to buy down the rate if it makes sense. Makes sense if its a buy/hold or principle residence. 

The seller has no obligation to change any of those things but if its laid out in a way that shows no effect to the sellers NET and its to accompany the buyers financing then i suppose that works. 

I would call the lender if you haven't already and see what they think. 

Are you finding yourself low on your expense projections? 30% of the effective gross income seems low especially if its INCLUDING vacancy. . Also, the lender doesn't look at vacancy as an expense subtracted from the EGI. The EGI is Scheduled Rent + Other Income (RUBS, parking, laundry, etc) minus vacancy. Then I subtract taxes, insurance, owner paid utilities, repair/maint/turnover, property management and reserves to give me the operating expenses. Subtract debt service and investor specific effective tax rate to come up with the NOI. This spreadsheet shows the flow of our thinking to analyzing a deal. Its a partnership scenario/illustration so ignore the returns. I work in high cost, highly appreciative markets and am curious of these low cost, higher CoC markets. Appreciation has played such a huge role in building our clients net worth.

Ellie,

I am very familiar with the house hack strategy in our market and it can be tough. One thing to point out with the strategy is where to draw the line for expenses. In the owner occupied situation it is different for everyone. How do you want to calculate your monthly out of pocket? I helped a client buy a 4-plex in Bend recently and we calculated his monthly out several ways ranging from the simplistic rents from 3 units minus mortgage to the annualized monthly out of pocket including taxes, insurance, repairs/maintenance, MI, reserves, property management (if applicable), etc. Is the broker you're working with versed in this property type and strategy? 

Repair and maintenance really depends on the upside of the building and your connections or abilities. The client mentioned above, using the income approach we worked backwards. Similar buildings in Bend go for a 5 CAP, so we determined with the purchase price of $618,000, after the units are updated, achieving market rents, the new value would be $750,000 - $775,000 after about $12,000 per unit in updates. The thing is my client is the contractor type, gutting the units and doing all the work himself. We project rents to go up from an average of $850 per unit to $1300.

Perhaps these units just need "soft turns" on turnover - carpet, paint, fixtures. Or hard turns - appliances, counters, flooring, etc? 

I guess my point here is that every property is different and based on your questions (which are all the right questions by the way) you should consult with your "team" comprised of broker, lender, CPA (the other three units are to be depreciated) and understand the strategy first before making any offers. 

Do not be afraid to lose this one. A broker can find off market deals for you if they work with the property type.