All Forum Posts by: Daniel Rasmussen

@Aaron K. and @Bonnie Low thank you both for the advice. On a couple occasions I have discussed the option of combining my existing loan with the new property or getting a portfolio loan for multiple properties. I must admit, I am not as familiar with the nuances of those types of loans, and the one or two people I talked to said they didn't have a loan product like that, so I moved on from the idea pretty quickly. 

Based on both your comments, however, it sounds like both approaches may be worth looking into further.

Thanks a bunch!
 

As the title and description suggest, I feel like I have found myself in the perfect storm of circumstances that have made it impossible to find a lending solution for a single family rental property I am interested in. A little back story on my situation:

I currently own one single family rental (almost identical to the one I am currently trying to purchase) in Milwaukee, WI. It is an 800 square-foot, 2br/1ba single family home in a C neighborhood with a purchase price of $52,500 and a rental rate of $750 a month. I bought this property a year ago and was able to get a 30-year conventional loan with 20% down. I am a resident of California, so I am obviously in an out of state market, which poses its own challenges, as I will discuss below.

The property I am looking at now is virtually identical to the one I own. It is a 2br/1Ba listed at $55k and rents slightly below market to a long-term tenant at $700 a month. As we all know, the economic uncertainty surrounding Covid has caused lenders to shrink and/or restructure their lending capabilities. The lenders that were willing to lend me 80% of $53k last year have now told me they cant go below a $50k or even $100k loan amount.

I have spoken to dozens of credit unions in Wisconsin. The only ones that were willing to lend less than $50k had membership rules that required that I lived in Wisconsin, which I do not.

I have spoken to several banks. Wells Fargo was the only one who was willing to lend on it, and they came back the following week and said they just had an update to their lending standards and that they were no longer lending on any investment properties (which makes no sense to me). 

I have also looked at hard money and personal loans. While those are actually attainable, with the high interest rate, the monthly payments put me in a negative cash flow position. In a best case scenario, even if I were to borrow a small enough amount to maybe break even for the first few years, the amount of money I would have to put down would make my Cash-on-cash return not even worth the investment. 

All this to say I feel like I have exhausted every idea and I am not totally sure if there is actually a viable solution that even exists. I am hoping my trusty bigger pockets community can provide some input/advice that might bring some new perspective.

Thanks, and happy investing!

Daniel

@ALYSSA Feliciano Alyssa, congrats on your decision to get into REI, the first purchase can be intimidating, but it sounds like you're approaching it the right way.

I live in the Los Angeles area, and have one out of state rental (currently under contract for my second one) so I understand the hesitation in making the first step into out of state investing. As many have already said on the forums, your first purchase is not going to make you rich, but it also won’t kill you. I would encourage you to look at the first one as a learning experience and anything on top of that as gravy.

In terms of choosing the right market, I would say my search thus far has been done in two phases. First, I do a broad search for markets with many of the indicators you mentioned. Net positive population growth, industry/job diversification, and pockets that show a relatively low crime rate (trulia has a great crime heat map feature).

Once I determine the general area, I start looking for other indicators that help measure return for the specific property I am interested in. The 1% rule is helpful, although be mindful this is a general measure and varies from market to market. The general rule is your gross monthly rent, say $1000 should be at least 1% of the value of the home. So a $100k home should rent for at least $1000 a month. (Good deals in the market I’m in tend to be around a 1.4% RTV, so again, it depends).

Cash on cash return, basically your ROI, measures your net operating income against your total all-in investment. So if after all management fees, taxes, insurance, mortgage, etc. you net $5,000 a year, and you spent $15k on down payment, closing costs, etc. your CoC return is 33%.

There are other measures you can use but I have found these to be helpful for a quick “back of the napkin” analysis. I would encourage you to not get caught in the weeds with all kinds of measurables as many people on here like to make themselves feel smart by over complicating things. I would say the most important thing is seeing how your deal numbers measure up against comparables in the immediate area, and go from there. Hope this helps!

@Charlie Anne based on what I have seen, people tend to have different definitions of what turnkey quality means.

For some people it’s a complete renovated interior with state of the art appliances and top notch finishes for a higher quality product. For others it simply means making sure the bones are good and it’s in a fresh but basic rentable condition. I found it’s easier to avoid as big of a premium in purchase price if you’re not paying for all the high end shiny bells and whistles with the finishes.

Now keep in mind, I’m in a C neighborhood where the quality of tenants, homes, etc. is much lower, and therefore the price and expectation of the product from a tenant perspective is much lower as well.

The surrounding market and comparable rentals should determine the quality you should be expecting from a turnkey provider and what price point you should be comfortable with as well. Hope that helps!

@Jake Wong

Jake, congrats on diving in! The hardest part is taking that first step. I bought my first rental property from out of state last year, and it took me awhile to gain the confidence to go for it.

If you ever want to bounce anything off someone who was in your exact spot a few months ago, feel free to reach out.

@Bill Brandt Bill, thanks for the thoughtful response. It’s always great to hear the first hand experience of someone who has already been there/done that.

You’re right that timeframe and amount of cashflow per “door” is a big variable when considering all this as well.

@Alyssa Dyer thanks for the reply, you make a good point. A possible need for discounting is definitely worth taking into consideration as well.

@Jaysen Medhurst I understand people have strong opinions on SFR vs. multifamily rental properties. My decision to start with single family boiled down to a few factors.

1. Limited capital. Im 25 years old currently, and was in my early 20’s when I picked up my first rental. Instead of waiting 5 years to save up for a multi-unit property, id rather find the quickest way to get my feet wet and start cashflowing, and then take steps to expand from there (hence my question).

2. Learning curve. When I bought my first rental, I didn’t even fully understand the home buying process as a kid just out of college, let alone how to navigate owning/managing an out state multi unit building. Making a mistake on one (or a few) $50,000 single family homes seemed a lot easier to recover from that a six-figure multi unit property.

3. Liquidity. Sure a 1031 might be more complicated with several SF homes, but individually speaking I think they’re a lot easier to dump if you find yourself in a pinch. Im sure if you have the right pool of buyers you can sell a multifamily property easily enough, but I feel pretty strongly that generally speaking, days on market are going to be a lot less with a one-off SF home if you’re pressed for time than a multi unit property.

Hey all,

A little backstory - I’m in the process of locking down my second single family rental property. The neighborhood I have focused on is a C neighborhood with 2-3 bedroom homes in rentable condition going for around $50-65k.

My long term goal is to 1031 in to some sort of multifamily project. Given the time frame restrictions of a 1031, I was curious what some of you have found to be the “sweet spot” number of properties that you can sell off in a grouping in a reasonable amount of time.

My plan is to get 5 properties in this market before I look to diversify (geographically speaking) Is that too large of a grouping to sell off together?

I appreciate all of your input!

@Charlie Anne My first purchase was a 2/1 single family home in a C neighborhood in Milwaukee, WI. I negotiated the price down to $52,500 from $55,000.

The deal went as smoothly as I could have hoped being an out of state investor. No major issues with inspection, it was an off market sale and the property was already being managed by my brokers management company. After all was said and done, 33% CoC return and 1.43 RTV.

If there was one thing I wish I had known when I started, it would be that no matter how good of condition you think the house is in, there are going to be R&M issues that come up, and to budget accordingly.

Best of luck to you on your first rental purchase!