All Forum Posts by: David Walkotten

@Jeff Mauerman Hey Jeff. Thanks for posting. It’s pretty late in the expansion cycle but you might get some slow/small exposure or a moderate amount if you find a good deal.

There’s a lot of that info on the forums/podcasts if you search a bit... there are some great markets right in & around GR here.

Side by side built duplexes (not converted) are of course going to be better for you and your tenant. But you should be looking primarily at the numbers. They both will rent just fine in a good market. This is a very minor issue compared to everything else you must consider. 

Doesn't matter; look at the numbers. 

Take Kenneth's numbers above and compare. 

Scenario 1: Let's say you get 82k cash-out if it appraised a touch under 120k. Your cash flow would be around $185/mo assuming his numbers. $185/mo + $150/mo in principal pay down average over first 10 years = $335/mo on $0 investment.

$4020/year at infinite COC

Scenario 2: Keep all your 82k cash in the property. Your cash flow would increase to the $185/mo + $485/mo (the debt service not utilized). In that scenario you are making $650/mo on $82000 investment.

$7800/year at 9.5% COC

Now if you can go buy 3 more properties with that $82k, assuming you keep your 20% down and have the same numbers as this property, you would then make $16,080/year with the same amount of money. 

@Ethan Smith once you get over 1MM loan amount you can get better terms. Like 30-year amortization, longer fixed periods, better interest rates. A Fannie/Freddie product. I’d recommend that. Only kicker is net worth > loan amount.

One thing you are forgetting is your principal paydown to calculate your full return. It starts at $60/mo and ends near the $385/mo. Meaning your total return should be much higher than your CoC!

Grand Rapids is slated for a 9.2% price increase in 2019, the highest in the nation. Forbes. However you might calculate a 1.5% spread in appreciation versus your rise in costs. 

Finally, there are many new property managers hitting the GR market where your PM cost could be nearer 10.5%. 

Hope that helps! 

@Stephen Mayers thanks! @John Casmon @Kyle Ransom I can share more on the deal. 

The property is a 40-unit garden style complex with 4 buildings. Built in the late 60's/early 70's brick. All units are 2BR 1BA and around 850 sq ft. Market rent is $800-875 for this style unit/property in the area. The property is probably best categorized as Class C+. 

I had the property under contract from February 9-September 18 when we finally closed. 2.07MM + 60K in Buyer Concessions to hang on to the deal and have the Seller certify all bldgs. 

Financing wise, I brought in a private equity partner for 25% and they contributed 25% of the PP. The LP also receives a preferred return. On the commercial Freddie Note the numbers were: 4.88% interest; 80% LTV loan; 10 years fixed; 10 add'l years floating for a 20-year term; 30 year amortization period; 1 year IO up front.

The rent roll went from 27.3k at contract Feb 2018 to 29.4k at closing Sep 2018. As of Dec 1 2018 the rent roll will be 31.1k and fully leased 40/40. Tenants that were behind have been catching up and appreciate our attention to fixing their problems. 

Management expenses were extremely high with an on-site manager. We switched to our solid management company and will reduce management costs by around 25k on the year if you also factor leasing the 40th unit that was previously taken by the on-site manager. 

I bought at a 5.5 CAP and it is currently a 6.5 CAP. Within 10 months it will be a 7.6 CAP. This is factoring in the 60k paid up front into the Purchase Price.

Property Value was 2.1MM at purchase and will be 2.6-2.75MM within 10 months. I plan to hold indefinitely at this point and refi at likely 10 years. 

Let me know if you have any questions! 

@Cristy George or just place the offer that would make the numbers work for you. Could be lower PP or some low interest seller financing.

I was faced with the temptation to marginalize my integrity on a deal that I just purchased. Drywall glue was failing and a few ceilings collapsed in units. We had to have a contractor out to sign off on the ceilings and do the repairs to meet our closing timeline. Had I 'edited' the report that was done between the first ceiling falling and the last ceiling falling, I could have been in some serious hot water between the lender, gc, and city... when 2 more ceilings later collapsed. 

Never compromise your integrity even if it appears it will get you farther or allow you to close the deal. You could potentially, literally, end your career. 

I picked up a SFH i n 2011 for $24,900 in NE Grand Rapids. We put around $5000 into it. It rented for $700/mo in 2011. It currently rents for $1250/mo. So that would be around a 4.2% property.

That same type of deal was EVERYWHERE in Grand Rapids in 2010-2012.