All Forum Posts by: Eric Bowlin

 You're right, but in my opinion this has not been standardized very well. What is considered substantial can very across towns and cities. 

The state supreme Court ruled on it, but try getting your local building official to understand case law....

I saw one city not long ago defined "substantial" renovations with a variety of things, including just converting from electric to hot water baseboard heat.

Could a building department interpret a conversion from 2 to 3 bedrooms per unit (adding 3 total bedrooms and increasing occupancy by 50%) as substantial? 

Perhaps... I'd go ask the building department before buying.

@David K. I own more than 30 doors in Massachusets.

It sounds like you're buying a three decker. What city? Based on the price and rents it sounds like somewhere in central ma but not Worcester or maybe on the south coast.

Anyhow, converting the 2nd parlor to an extra bedroom is a risky proposition. If the city building or health department is ever called to your house, they may realize you've made some conversions. The problem in MA is the laws requiring sprinklers in any 3+ unit building. I'd make sure to stay far away from anything that changes the use of the building in any way.

The other issue is your rehab budget. I'm very familiar with this style building and if you have 3 units all around 1,100 square feet, which is typical in a three decker, then you're probably talking $5k/unit just in basic remodeling including paint, carpet, cleaning, etc. You also need to check the wiring make sure it has no knob and tube which can run 3-6k per unit to remove. Adding in the roof, I'd say your rehab budget should be closer to $30k not 10k.

Lastly, I'd check for delead certificates. I've found it nearly impossible to rent anything that has 3 beds or more without them. The problem is you have to delead if a child under 6 lives there, and average cost in the state for that is well in excess of $10k/unit. It's really hard to find renters without a young child, and rejecting a tenant for that reason is discrimination anyhow.

I love these sorts of buildings in the state, but you have a bit more digging to do before knowing if it's good or bad!

Hey @Jim Cran . I started in residential real estate as well, buying mostly 2, 3, and 4 unit buildings. Last year I made the jump to apartment buildings when my team bought our first 200 unit deal and now we have more under contract.

The biggest thing you understand is that residential and commercial real estate are completely different the way the deals are evaluated are different. Though there are many similarities with duplexes and apartment buildings, they are also dramatically different.

I'd start by getting a good commercial real estate calculator (you can contact me for recommendations if you'd like). Then I'd get some books about multifamily.

The biggest difference is that commercial property will have different types of financing and it's also priced based on NOI and cap rates, not on comps.

FInancing will either be recourse loans via small local banks or will be non-recourse from fannie or freddie. Since you are just starting, you'll probably have recourse financing from a local bank.

For cap rates, you'll have to look at the net operating income and your local cap rates. The biggest thing about cap rates is that most people really don't understand them. Often, people think high cap rate is good and low cap is bad, but often the properties with the most value to add is sold at a low cap rate and properties sold at very high caps have major problems. The point is, neither is good or bad, it just depends on the deal and it's potential.

Grant does mostly syndication. It's tough to get into a deal for under 50k. If you want to syndicate a deal, he's probably right.

On the other, I started with about 60k in debt, a couple part-time jobs and a few thousand in the bank. A few years later I quit working at the age of 30 and live off a 6-figure passive income with my family, about 1500 miles away from all my investments.

So, it really depends what niche you're getting into.

@Kyle Kreider honestly don't be nervous.

You don't owe any of those people anything. Who cares if you offend the seller with a low offer. You can find 20 other deals somewhere else. Plus, it's a bank. They generally use a computer to determine the lowest price they will accept.

Remember, asking price is NOT in any way connected with market value. The best thing you can do is put in an offer for the price you think it's worth.

Quick story.

A house was on the market for $100k, I offered $55.

The bank refused and accepted another offer. That deal fell through.

Back on the market for $85k. I offered $55k again. They took a different offer. Fell through again.

Back on the market again. I offered $55k again. They countered me at $60k which I accepted.

I make about $12k/year profit from it now.

Stick to what you think it's worth. If someone else wants to pay more, let them.

If it's been listed for 6 months, there is a lot of opportunity for play. In a healthy market, it should receive an offer (and get accepted) if the asking price is within roughly 10% of true market value.

So, I'd imagine the property is well above 10% overpriced. I probably wouldn't move on the property unless I got 20%+ discount. Depends on the condition and market of course, which I don't know the specifics of.

There are a ton of large families that need houses like this. I have 2 units that are 5 bedrooms, and people are practically fighting over them.

Think about it...There are tons of people with 3-4 kids and it's practically impossible for them to find housing.

I'd just move on and find a new applicant.

I'd say do a 60 day notice requirement and raise the rent. A lot of apartment complexes raise the rent a good 30%+ for a month-to-month.

If he says no and moves out, do you really lose anything? He is moving anyhow.

This is a great thread. 

You should have your team in place before you go searching for properties. If you don't know the numbers then you need someone you can trust to give you accurate numbers. You also need them to be available to do the work.

Getting a price from some random contractor doesn't matter. If he can't do the work, the price is meaningless because virtually no other contractor can offer the exact same price.

So, find a great contractor and offer to pay for his time. At least 90% of the houses you look at won't be good deals. Are you going to drag this guy around to 10 houses before you finally close on one? At least pay for his time.

There is a great article on the BP Blog about all the things reasons you won't find a good contractor.  https://www.biggerpockets.com/renewsblog/how-to-find-a-good-contractor/. You can get a little insight into how contractors operate.

I don't know about anyone else, but I either can't find an insurance company that covers wood burning appliances, or the ones that do charge a crazy premium.

Not sure if that's really an answer to your question, but it's a major consideration.