All Forum Posts by: Daniel Kidd

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Louisa.

Purchase price: $450,000
Cash invested: $50,000
Sale price: $450,000

This is a Duplex and a Quad next to each other. This worked out well because my brother found this near my home town and it was a seller financing deal. I didn't initially think it was all that great of a deal given the numbers at the time, but went into it with him anyway. We were able to immediately up all of the rents by about $100/mo without having to do all that much to the property. Highly recommend starting out with Multi-Family

What made you interested in investing in this type of deal?

I knew pretty early on that I wanted to go with multi and residential multi is just what I was able to find that didn't need a lot of rehab. I had read a lot about BRRRRs at the time and other investment strategies, but for me at the time I just wanted something that was more or less turn key. I do plan to do a few BRRRRs just to have done it, but high functioning residential multi family has done very well for me so far. Also it is a bit easier to file taxes for four addresses instead of 12.

How did you find this deal and how did you negotiate it?

My brother actually found this deal and we didn't negotiate the amount so much as the terms. This was a seller finance deal and we wanted to make sure that we had time to get financing for it before our balloon came due and wanted to make sure the rate wouldn't hurt the cash flow too much. We got the rate at 6% with a 3 year balloon and with $50,000 down. I was kind of surprised that was all that he wanted down, but I certainly wasn't going to complain.

How did you finance this deal?

This is actually were I stopped having money to invest with. All of my investments past this point have been with what I call "fake" money because it certainly isn't mine. Anyway I financed this one by pulling my Roth IRA completely and having my brother help me out a bit on my half of the dp. We had also closed on another duplex that morning down in Fayetteville and this was the first time either of us had bought real estate. That one was conventional but this was a seller financing deal.

How did you add value to the deal?

We went in and rehabbed a few of the bathrooms and some floors, and then upped the rent by about $100/door. It took a little while to get all of the rents where we wanted them to be at but everything is up to market now and doing very well. A few of the renters left, but this actually helped us to accelerate the rehab and get better tenants in there. I am not a huge fan of keeping inherited tenants, because they are the only ones that have given me any issues so I was fine with watching them go.

What was the outcome?

The outcome has been great. Their are a few things that I have learned to look for on inspections that I missed the importance of on this one, but it all in all I couldn't be happier about how well they are producing and can't wait to get into more deals with my brother. It really is fun to do this with someone you trust and be able to share the workload when you are investing remotely in two different cities.

Lessons learned? Challenges?

Just that it is very important to stay on top of things from the beginning. Setting the pace with an efficient rehab and a strict property manager will help to get things off to a good start and ultimately make your tenants happier. This was also one of my first purchases with my LLC so there were a few things to figure out as far as setting that up and the paperwork involved in getting to closing, but it was not overly cumbersome at all.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Louisa.

Purchase price: $450,000
Cash invested: $50,000
Sale price: $450,000

This is a Duplex and a Quad next to each other. This worked out well because my brother found this near my home town and it was a seller financing deal. I didn't initially think it was all that great of a deal given the numbers at the time, but went into it with him anyway. We were able to immediately up all of the rents by about $100/mo without having to do all that much to the property. We have improved a few units and gotten some new appliances in there as well but the cash flow went from good to great in about 3 months. Now we are just waiting for the reserve to get big enough to buy some more multi.

What made you interested in investing in this type of deal?

I knew pretty early on that I wanted to go with multi and residential multi is just what I was able to find that didn't need a lot of rehab. I had read a lot about BRRRRs at the time and other investment strategies, but for me at the time I just wanted something that was more or less turn key. I do plan to do a few BRRRRs just to have done it, but high functioning residential multi family has done very well for me so far. Also it is a bit easier to file taxes for four addresses instead of 12.

How did you find this deal and how did you negotiate it?

My brother actually found this deal and we didn't negotiate the amount so much as the terms. This was a seller finance deal and we wanted to make sure that we had time to get financing for it before our balloon came due and wanted to make sure the rate wouldn't hurt the cash flow too much. We got the rate at 6% with a 3 year balloon and with $50,000 down. I was kind of surprised that was all that he wanted down, but I certainly wasn't going to complain.

How did you finance this deal?

This is actually were I stopped having money to invest with. All of my investments past this point have been with what I call "fake" money because it certainly isn't mine. Anyway I financed this one by pulling my Roth IRA completely and having my brother help me out a bit on my half of the dp. We had also closed on another duplex that morning down in Fayetteville and this was the first time either of us had bought real estate. That one was conventional but this was a seller financing deal.

How did you add value to the deal?

We went in and rehabbed a few of the bathrooms and some floors, and then upped the rent by about $100/door. It took a little while to get all of the rents where we wanted them to be at but everything is up to market now and doing very well. A few of the renters left, but this actually helped us to accelerate the rehab and get better tenants in there. I am not a huge fan of keeping inherited tenants, because they are the only ones that have given me any issues so I was fine with watching them go.

What was the outcome?

The outcome has been great. Their are a few things that I have learned to look for on inspections that I missed the importance of on this one, but it all in all I couldn't be happier about how well they are producing and can't wait to get into more deals with my brother. It really is fun to do this with someone you trust and be able to share the workload when you are investing remotely in two different cities.

Lessons learned? Challenges?

Just that it is very important to stay on top of things from the beginning. Setting the pace with an efficient rehab and a strict property manager will help to get things off to a good start and ultimately make your tenants happier. This was also one of my first purchases with my LLC so there were a few things to figure out as far as setting that up and the paperwork involved in getting to closing, but it was not overly cumbersome at all.

@Justin Tahilramani I honestly didnt dig into this farther than calling my insurance agent and letting her know what was up and asking to make sure I was covered. I know that sounds a bit lazy, but I know her pretty well and she has done well for me so far. I was considering putting an umbrella on the property but have not done that yet. 

@Neil Henderson VA does require owner occupancy for the first year. It is very similar to FHA, but the rules are a little less strict. As far as short term rentals in Fayetteville, I have found them to be great. I went above and beyond on the rehab to make the AirBnB unit very nice, like a hotel room, and in my first month I had about 80% occupancy. it is a little odd to have two different property managers for the same property, but I like the additional cash from the AirBnB unit. One thing about this area as far as short term rentals goes is that you not only get the people who are visiting Fort Bragg or any of the various colleges, but you also get anyone traveling up and down the coast.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Fayetteville.

Purchase price: $263,000
Cash invested: $1,700
Sale price: $292,000

This property is easily my favorite of all of the ones that I bought starting out. I made a large bid to tie it up, knowing that the appraisal on the VA loan would drag the PP down and it did. It was only after I started the rehab that I decided I wanted to attempt to AirBnB one of the units and so far that has been a great decision and really took some of the burden off of the more extensive rehab I did in a few of the units.

What made you interested in investing in this type of deal?

I had been looking for a quad for a while to maximize the effectiveness of the VA loan

How did you find this deal and how did you negotiate it?

This was an MLS deal and I bid over list knowing that the appraisal would come in low.

How did you finance this deal?

The deal was originally listed at $292,000.00 and I knew that it would appraise at $255K so I bid $293K and won the bid and was able to actually purchase it at $255K and about $33K in seller concessions. This was a VA loan

How did you add value to the deal?

I did extensive rehab and increased all of the rents by $150/door. I also opened one of the units for AirBnB and that has made it higher performing that the other units by about 150%.

What was the outcome?

This is easily one of my highest producing assets at the moment. It needs very little to keep moving. It functions right about a 1.2% at the moment and I expect it to go up to about 1.3% over the next year.

Lessons learned? Challenges?

Always get your deposits at closing. This was such a pain to track down later. Let inherited tenants go without a fight and just be done with them and move forward. Landscaping is one cost I will remember to pay for quality on. The cheaper landscaper destroyed my front yard and charged me a lot to do it. Always look up and assess if you will need tree removal.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Shelby Osborne - Agent and Team lead for Five Pillars Realty, She was my agent before I became one.
Patrick Stoy - Lender
Stephanie Foley - Insurance
Jennifer Kirby Fincher - Closing Attorney

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Fayetteville.

Purchase price: $263,000
Cash invested: $1,700
Sale price: $292,000

This was one that I had been waiting for since I had started looking into real estate at all. Being Military and having access to the VA loan I was eager to maximize the benefits of this loan and really kick off my investment career. The List price was 292,000 and I knew that it would appraise around $255K so I bid $293K and won the bid. After waiting for the appraisal to come in and getting the seller to drop to the $255K appraisal I then went used the inspection to get about 30K in repairs and concessions for repairs for the property. This enabled me to make everything rent ready after about a month of rehab for only $7,000 of it our of pocket. On this one I had a few issues with current tenants breaking all of the doors as the left and some not paying the last month of rent and things like that but in the end it worked out because they did not provide a follow on address or ask for their deposit.

What made you interested in investing in this type of deal?

I had been looking for a quad for a while to maximize the effectiveness of the VA loan

How did you find this deal and how did you negotiate it?

This was an MLS deal and I bid over list knowing that the appraisal would come in low.

How did you finance this deal?

VA Loan

How did you add value to the deal?

I did extensive rehab and increased all of the rents by $150/door. I also opened one of the units for AirBnB and that has made it higher performing that the other units by about 150%.

What was the outcome?

This is easily one of my highest producing assets at the moment. It needs very little to keep moving

Lessons learned? Challenges?

Always get your deposits at closing. This was such a pain to track down later. Let inherited tenants go without a fight and just be done with them and move forward. Landscaping is one cost I will remember to pay for quality on. The cheaper landscaper destroyed my front yard and charged me a lot to do it. Always look up and assess if you will need tree removal.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Shelby Osborne - Agent and Team lead for Five Pillars Realty, She was my agent before I became one.
Patrick Stoy - Lender
Stephanie Foley - Insurance
Jennifer Kirby Fincher - Closing Attorney

I saw that someone had posted something the other day about a "Turn and BRRRRN"  and was kind of upset that I hadn't posted my version of that first. Anyway I suppose I should thank them for getting me to start posting the ones I have come up with and so I hope you enjoy the AirBRRRR. Turn and BRRRRN to come later once I figure out if mine is different or not.

AirBRRRR

Any BRRRR that has roughly 5-7K of additional equity in it is a prime candidate for the AirBRRRR method. For your AirBRRRR, assuming you are using delayed financing, you will need to get a quote that will allow you to make the property flip worthy and then some and use this on the Closing Disclosure. This will allow you enough money in your rehab to get your Airbnb rolling without you having to come out of pocket after the delayed financing has come through.

• Look for BRRRR deals that have extra equity in them of roughly 5-8K after the rehab
• Educate yourself on Delayed Financing, as there is no need to do the CD quote for a Refi
• Ensure that you trust your contractor
• Airbnb rehab needs to be to a higher standard than a rental for it to be as effective as possible. Plan on not cutting any corners.
• Find an Airbnb property manager
• This is a great solution for those homes that are on the border of appraising as high as they need to for a lender to meet their minimum loan amount and not have you lose out on spending that extra amount on rehab that would likely not affect the long-term rental numbers by an equivalent amount.
• Even if you must leave cash in the deal the return on an Airbnb is generally 150% that of the same long-term rental, so even without an equity play to be made in the deal.

Ex.

PP 35K

Rehab for Long Term Rental 15K (Requires less work to get ready for long term rental)

Rehab for Short Term Rental 25K (Needs to go on Closing Disclosure for Delayed Financing to work)

ARV 80K

All in with Short Term Rental Rehab 60K, which allows for the buyer to pull out everything with the 80K ARV at a 75% LTV.

@Guy Primo

For an accurate account of the 1% rule that includes a HOA expense you need to add the monthly HOA directly to the calculated 1% rent. So if you have a 100K property with a HOA of $100/mo then you would need the rent to equal $1100/mo for it to still follow the 1% rule. This applies to any and all fees outside of the regular. What this really means is that, as far as rental properties go, for every $1 of HOA fees charged on a property you have lost $100 of the equity potential of that property. This may not be a rule that can carry into every market, but when I see a condo that should sell around 75K selling for 50K I have generally found that it has a $250/mo HOA fee with it. I also generally avoid these as a rule because I don't like the idea that someone could limit my ability to choose between a long term and short term rental opportunity on a property or up the HOA and kill any equity that I have in it at a $1 to $100 ratio.

Also for IRR or internal rate of return you should consider tax depreciation and taxes paid on the mortgage in your numbers for ROI because they allow your CoC to be what it actually is before and after taxes and then some. Principal pay down and any equity you have in the property is gaining at a rate equal to the rate of your loan (5% if the rate of your loan is 5%) and appreciation is fun to consider but generally follows the same rate in the long run as the rate of the depreciation of the dollar or worse, so you get a net zero there unless you happen to get lucky.

@Daniel Kramer I just finished helping an out of state investor with a home purchase through auction.com. The Transaction Coordinators that they have are very responsive and I found Auction.com unreasonably helpful every time that I called or emailed them. 

You will need roughly 5% of the purchase price as soon as you win for the earnest money, and so long as you can close in 30 days you should be fine. Having a good agent will help you be more creative if you need an appraisal or something for a LOC situation or hard money.

We had no issues getting all inspectors in the home, and it would have been rather simple for an appraiser to get in there as well.

@Nicholas Sambrick Be sure to get a CMA of the property so that you have some idea of what the appraisal will be. If this is just a nice to have and not a deal breaker then it is less important, but in a situation where the buyer simply can't close the deal without this method then it is critical that the property is being bought low enough to where the appraisal will allow the addition to the loan. Lenders will not lend above the value of a property and you don't want to get caught depending on money that you don't have.

All of that being said, I think that this method should always be used in some form for every deal that can support it. Keeping cash out of a deal to leverage it further in another one is always the best way to grow faster.