All Forum Posts by: Dion McNeeley

@connor Rice I would with the details you provided. But I do not know your area. Each local market is very different. If you have run the numbers on a lot of places to get a feel for good or bad deals then It doesn't look bad. I have purchased worse. In 5 years you will have possible appreciation, principal paydown and rents could go up. 

So this could be a good deal. As long as the opportunity cost isn't too high. Are there better deals in your area you are passing to acquire this one? 

Large banks limit people to 4 mortgages. Other lenders limit a person to 10. If there are better deals you could be utilizing one of your allowed mortgages on an inferior property. Knowing your local market is key. 

Good luck =)

Cash flow and cocroi are the starting points to figure out if a place is a good purchase. How did you find the area average rents? What does the return look like if you had to rent at 10% below the area average? 

Are there more than two economic drivers and sources of tenants? Is this sfh or small multifamily? are there tenants above or below another? Is there a garage? Washer dryer hook ups in each unit? Right next to train tracks? Under an airport runway? What grade of neighborhood? Do you know the vacancy rate for the area? Is it far away? Do you have to use a PM? I prefer to self manage when possible. 

Just some thought on things to check. 

Great question. Yes that seems normal. I have heard of many PM's taking a month (or half a month) for placing a tenant. This money is earned. Advertising, screening, showing the property etc. 

However, while I think the PM earns their money the tenant placement fee is the main reason I do not have a PM. I am okay with the monthly management fee. If you have one or two units this will often be 10%, as you have more and more nits this percentage will go down. I have a couple PM companies offering me 7% since I have 11 units. 

The problem is having different goals. A landlord wants as little turn over as is possible. (At least that is my goal) With my criteria I have had one turnover, and that is because she inherited a house. A PM company makes money on turn over, so while many say they want no turnover I am hesitant to put my properties in the hands of someone who would benefit from my expenses going up. 

So while I plan on having a PM in AZ I will be shopping around for a low fixed rate placement fee, even if that means I pay a percent or so more in monthly fees. This way our goals would be more aligned.

Good job so far.

Here is a struggle most of us investors have. We want to update units to something we would want to live in. Many times I see posts about a unit being "dated". And this is in the eye of the beholder. What are the expected style for the area? What level of upgrades are expected for the price rent will bring in? Many times someone upgrades something and it has zero effect on the rent. Tenants rent based on bedroom count, parking spots, distance to work or school more times than they rent due to the look or feel of a unit. Especially tenants who have been in a unit for a long time. 

As far as if the cash flow is good. $1000 a month is great if you spent $120k or less total to acquire and fix up. If it was more than that the return starts to look a bit small. Have you calculated your cocroi? 

If a property was more than an hour away from me I would probably go the PM route. Unless I lived there and could set up my systems first, it may be hard to self manage from a distance. A pool seems like a liability in Washington but in AZ they are a lot more common. Just make sure insurance is aware and you have signs up around the pool. (Insurance may be a good resource for knowing what you need to post)

I self manage all of my units but they are within an hours drive. I am also looking at AZ for more units and plan on having a PM for those. 

Hope this helped.

Congrats on what you've done so far. =)

You may have better luck checking with other lenders. There are some great brokers out there who answer calls or texts in minutes. Keep looking until you find one.

One of the challenges of having properties in a LLC is most lenders I have worked with will require the property in your name for a refi. But that doesn't mean there aren't lenders who will work with you. Just that I haven't met any that will refi a loan in a LLC that doesn't have years worth of history on income.

I have a lender who works at Wells Fargo who is great to work with and one at Fairway mortgage. Both are very responsive. Maybe try checking with your local branches? Maybe they have a rock star there too. 

It sounds like the 203K may be the better option. I would check with lenders and see how your situation looks to them. If you found out what kind of LOC you qualify for that may help you make a decision.

If you have the asset to use a LOC on it would be my preferred method.

One of the issues with the 203K loan is releasing funds. Finding a contractor that is okay with the loan requirements and being able to handle the possible longer time it takes to get funds released. 203K loans release funds after portions of the work are done. While a LOC is the money needed all at once to get the job done.

Both are viable options but if you can do the LOC I recommend doing that.

Have you considered house hacking? If there are no small multifamily in your area, maybe a house with an ADU would work.

This would let you use owner financing, (lower down payment, low interest rate) This way you not only get the place to live but get to test the waters as a landlord. This may also reduce your housing costs allowing you to save faster for the next deal. 

When purchasing rentals I usually get a 10% cocroi. I try for more but it isn't always possible. So If I spent 50k I would expect to profit $5,000/year (5000/12 = $416/mo) I run the numbers as if it is the following year and both units are rented out. 

With the amount you have it may be hard to find two properties, and also have the reserves a lender may require. Making a small multifamily a little easier to acquire. Especially since you are competing against a lot less first time buyers. 

Hope this helps. 

On my last purchase I was able to get it at the same price as a cash offer even though I was using financing. 

I offered 50K earnest. It is safe for me to do this with an inspection out and an appraisal clause. 

It doesn't always work but it is a tactic you may try if you have the funds.