All Forum Posts by: David M Trapani

Hello Shane,

Have 2 NNN QSR's in arguably higher than avg crime areas East Memphis, TN and Dearborn, MI. Both are brand name fast food businesses owned by 2 of the largest QSR operators in their field. Long term NNN leases with bumps built into the leases. They both do very well. People need to eat & fast food (esp with drive-thru) tends to be high demand even during pandemic times. Highly recommend the drive-thru aspect. Hope this helps. Cheers & best wishes.

David

Hi Jayne,

What's the current value of the property? Have you paid down the existing mortgage on the property? Sounds like you took a HELOC on your primary residence to fund the balance of the down payment, which is fine. Typically they'll only loan 75% LTV on appraised value for a cash out refi on rental props. You may find someone to go 80%. If the property is worth say, $830,000 and you owe $500,000, a 75% LTV cash out could bring you $122,500 in tax-free cash (75% of $830k = $622,000 - $500k (existing mortgage pay-off) = $122,500. That should be enough to shore up reserves & also go buy more income property.

Cheers & best wishes,

David

Hi Ikenna,

The answer is yes. If you do a nice rehab & get significant rents you might consider a cash-out refi (borrow more than the existing subject to financing) and use that cash to shore up reserves or go acquire more income property. Cheers & best wishes.

David

PS - I don't know the Landlord/Tenant law in NY (assuming that's where your building is), so be sure RUBS is legal in your jurisdiction. 

Hi Rob,

Do your rental agreements contain a RUBS ( Ratio Utility Billing System) provision? If so, I would pass those expenses onto the tenants upon notification for next month. If not, on lease renewals, add RUBS to the rental agreement so you pass those along to your tenants. This will be an immediate boost to your NOI and property value.

Hello Jayden -

Sounds like your wanting to sell you home to generate the cash to buy another duplex. Since your home is free & clear, what if instead of selling, you keep the home & put a new 1st mortgage (lower rates bc it's your residence) for say 90% to generate $130k tax-free cash. Then, depending on the cost of the new duplex or MFH, you have money to use for a down payment or if it's only $130k-$150k pay all cash. If you want to spend more on the duplex or MFH, you may get the same lender to make the new first loan on the newly acquired duplex as well. This way you expand your portfolio, you keep your home and will have 2 income producing MFH's. If you do this and pay cash for the newly acquired MFH, fix it up with some of your extra cash or put on zero interest credit cards. Increase rents. Apply RUBS to pass on water, sewer & garbage expense to tenants (if applicable in you jurisdiction). Increase rental income, lower expense and boost that NOI. Then go and do a new loan on the free & clear duplex (probably limited to 75%-80% LTV) and then use that tax-free cash to shore up reserves and/or go buy another duplex & do it again...Hope this helps. David

Substituting collateral with seller carry back notes - An amazing (life-changing) tool! Used it 5-6 times. A win-win for borrower and lender. Try substituting free & clear property as the collateral...an excellent way to raise hundreds of thousands of dollars in tax-free cash to shore up reserves, add improvements, and/or (of course) acquire more well-located income producing real estate. Keep LTV's to reasonable minimum at all times. Guard against over-leveraging.

Hi Frederick!

This can be a highly effective (and profitable) business model. Buy in a high demand, resort / vacation type areas with growth i.e. Palm Springs or Great Smokies. I agree with other folks here (before you buy) regards to investigating regulatory climate in the Cities you're interested in: 1) Do you need a permit? 2) If so, what's required to get one? Can you comply? 3) Which way are political winds blowing with STR's - read all local news articles, etc. 4) Follow City ordinances and pay your TOT (transient occupancy taxes). Or, buy in an area with desirable properties (lake-front, etc) with no regulation. Boots on the ground - you must have cleaners and repair folks committed to your property. Commercial STR insurance is a must. Furnish & decorate and take good pictures. Set up on a platform i.e. Airbnb, VRBO, etc. Set competitive pricing. Communicate effectively with guests and be responsive, build good reviews. With rare exceptions, my suggestion is avoid HOA's, gated communities, C, C & R's. Collect cash flow and aggressively pay-down mortgage; cash-out refi & buy more.

Best wishes & good luck!

David

Completed 6+ STR cash out refis, 3 cities, 2 states. As folks mention here, they use comps just as in any residential appraisal setting. The challenge has been, in fast moving (high appreciation) locales, the appraisers have trouble coming up with current (actual) FMV. Often appraisals are low. One example was Palm Springs, CA. Appraisal came at $680,000. My realtors have that house valued at $900k to $1M+. Have been able to get 75% LTV. On the bright side the mortgage is smaller, so it's an easy decision...the tax-free cash comes in handy for doing more deals & shoring up reserves.

Hi Keegan!

I'm a lawyer who's moved into r/e full-time. You're on the right track. Flips are good to build capital / gain experience. I recommend using 1031 tax free exchange (if you can) to defer those cap gains and build your capital faster. It's a judgment call on whether to bootstrap / partner with your relative on the MFH. I generally prefer to go it alone, any kind of partner (even relatives) mean you have less say in management, operations and exit strategy. You will always need permission or approval from someone else. 

My journey involved (initially) condo LTR's, some of which I paid cash for in Sacramento area ($95,000 and $105,000 etc), then 1031 into duplexes. A few flips in between - Always 1031 exchange. Then into Airbnb and NNN QSR's. Keep working as a CPA, save your money, keep flipping, always keep looking for good deals & opportunities in hot / up & coming areas.

Best wishes on your journey!