All Forum Posts by: Dan Sargis

@Shawn Q. Totally agree that it is a great strategy.  If I were in my 20s and single (or no kids) then I would definitely be going that route.  

Hi everyone, I've been loving learning from this site and listening to the podcast.  I just wanted to introduce myself and start getting more active on the forums.  I currently have two buy and hold rental properties and I'm looking to add to my portfolio.  My goal is to generate enough cash flow to be able to support myself and my family so that I could quit my job if I wanted to.  I do have a great job, but I really desire the independence of not relying on a paycheck.  

My current rental properties are both single family residences, and I'm looking to scale up into small apartments.  I would love to be able to get a fourplex with a 30 year mortgage with current interest rates.  I have a few target areas I'm looking at that include Champaign county, the southwest Chicago suburbs (I'm from Midlothian and my parents still live there), and the Quad Cities.

I've learned so much from the podcast and from reading the books recommended here.  I'm still trying to learn more about creative financing and setting up business systems.  Right now I feel like I'm just doing the brute force method of putting down 20% and then landlording by myself.  I've come across some great answers for these problems on the site and I'm looking forward to learning more and implementing them myself.  

Investment Info:

Single-family residence buy & hold investment in Urbana.

Purchase price: $162,000
Cash invested: $29,700

This was my first time purchasing a house specifically as an investment, as my other rental was my home turned rental property. This one is a different ball game for me because it is located one block from the University of Illinois and is used as a rental for college students. It is a single family, 4 bed / 2 bath house. It gets a pretty good rent for the size, but I still need to catch up on some deferred maintenance.

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

I was originally looking for a SFR away from the university, but it was tough to find something rent ready that would cash flow. When I looked at this one, the cash flow was there and I was able to get very good financing. It is also pretty close to my house so travel to and from wasn't going to be overly burdensome.

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

It was an MLS listing. Negotiated through my agent, I came in pretty close to asking, but also asked for a lot of closing credit.

How did you finance this deal?

Standard residential mortgage with a local bank. I was able to get 30 year fixed at 3% with 20% down payment. Hooray for low interest rates!

Lessons learned? Challenges?

The biggest challenges have been that the house wasn't in great shape, and I don't have landlording systems in place for when issues arise. I am also still trying to figure out appropriate COVID measures. I feel bad coming into the house unless absolutely necessary because I don't want to potentially expose anyone. But at the same time there are improvements to the house I really want to perform. I don't think I've found a balance I'm comfortable with yet.

Investment Info:

Single-family residence buy & hold investment in Urbana.

Purchase price: $162,000
Cash invested: $29,700

This was my first time purchasing a house specifically as an investment, as my other rental was my home turned rental property. This one is a different ball game for me because it is located one block from the University of Illinois and is used as a rental for college students. I've had it for about 5 months from the time of this writing and it has been quite the journey. I've been fortunate to have pretty good tenants, but the house is old and had a ton of deferred maintenance. I thought I would be able to catch up on it over the course of the year but several issues have found me before I could find them. Once the house is in better shape, and with proper tenant screening, I expect the house to bring in around $500 per month, which includes a pretty big cushion for maintenance and vacancy.

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

I was originally looking for a SFR away from the university, but it was tough to find something rent ready that would cash flow. When I looked at this one, the cash flow was there and I was able to get very good financing. It is also pretty close to my house so travel to and from wasn't going to be overly burdensome.

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

It was an MLS listing. Negotiated through my agent, I came in pretty close to asking, but also asked for a lot of closing credit.

How did you finance this deal?

Standard residential mortgage with a local bank. I was able to get 30 year fixed at 3% with 20% down payment. Hooray for low interest rates!

Lessons learned? Challenges?

The biggest challenges have been that the house wasn't in great shape, and I don't have landlording systems in place for when issues arise. I am also still trying to figure out appropriate COVID measures. I feel bad coming into the house unless absolutely necessary because I don't want to potentially expose anyone. But at the same time there are improvements to the house I really want to perform. I don't think I've found a balance I'm comfortable with yet.

@Ryan Shannon yeah that makes sense to me.  It also seems like banks are a little more cautious now because of the uncertainty with everything covid related.  I think the lease option idea sounds like a good strategy, I would just make sure to give yourself more time than 6 months unless you are 100% sure you would be able to get the financing in that short of a time period.  I would feel uncomfortable with anything less than a year, but everyone has there own risk tolerance.

@Tom S. Does the bank not mind if you do the 2nd mortgage at closing?  I love the idea of this, but I would think a lot of lenders looking over the contract and closing documents would not be happy about immediately seeing the property leveraged 100%.  Have you run into any hurdles like that?  Definitely an interesting strategy that I'd like to try to use.

Edit: I just looked at your original post a little closer and I see that it seems like you have the transaction separate from the actual closing.  Do you spell the 2nd mortgage out in the sale contract, or is it controlled in a separate contract?

This is something I've been trying to understand as well.  So if I see a pre-foreclosure on zillow, I understand that the owner isn't necessarily trying to sell it.  But if I were interested in buying it, I assume I could just try to reach out to the owner directly and try to buy it from them.  Is that a strategy any of you have tried?  Are there any obstacles to being able to buy from someone in pre-foreclosure like this?  It seems like it would be a good way to try to get a motivated seller and put in an offer on the house before it goes to auction.

Yeah it'll be pretty hard to analyze it without knowing what kind of work it needs on the front end.  Your numbers that you put in for rental estimates make sense to me (not that that carries too much weight).  If it doesn't need much work it seems like it should cash flow, but if extensive repairs are required it seems like it would take a while to get a decent return.  On a side note, that place is in my old neighborhood!  

Hey Vincent, I also used to be stationed down at kings bay so this post caught my attention. I am also new, so take my words with a grain of salt. There are a few things in here that I don't fully understand, and a few things that make me think it might not be a good deal. It starts off with a purchase price (125k) and repairs (30k) and closing costs (7k) that exceed the after repair value. So that means you have to fix it up to have something worth less than your investment? They show a refinance amount of 160k, but an ARV of 150k. I might be misunderstanding, but that doesn't make any sense to me. Also, in the analysis over time, you have to wait until year 4 to get a return on investment, and you have to wait till year 5 until you have any equity in the property.

There is a good chance I'm getting confused by the numbers because it is showing two scenarios and there is a rehab in the middle, but it seems like a lot has to go exactly right with no margin for error in order to get the returns they are talking about. Maybe you or someone else can help clear up the confusion for me. Specifically, why is the ARV less than the refi amount?