All Forum Posts by: Ed Matson

Generally, a portfolio lender will require five units minimum, while you will be at four.  However, the commercial loan you will get from the portfolio lender will most likely not have as good terms as the two individual residential loans for the duplexes.

@Victor Ramos - I basically agree with Eric C. The simplest way to "take over" the property is to purchase it. Sounds like the owner would be willing to do owner financing. That way he gets a monthly payment of the same amount with some certainty and you get a property. You would have to negotiate a sales price low enough so that you could get a HELOC to fund renovations.

Without comps I would use the income method, like you would on a larger building. After all, that's what investors care about. NOI is about $12K. Neighborhood is C or D. My guess is that would mean an 8 Cap would be relatively reasonable. Based on that, the building is worth around $150K. That's what you were thinking. The other thing you could do is compare it to SFH's of a similar class in the same area based on NOI. What would it cost to buy 4 SFH's that would net a total of $12k/year? Not exactly apples to apples, but it has meaning to an investor, especially since you are the only 4plex in town.

@Ryan Francis - Try Frank Gallinelli's What Every Real Estate Investor Needs to Know About Cash Flow.

Hi @Bibiana Kurta - Don't know anything about Shelbyville IN, but I know I won't buy another 100 year old triplex. Despite having a newer roof, siding, windows, water heaters, and good heating systems, we were always fixing something. Time and expense  substantially higher than planned.Plumbing, electrical, bathroom floor replacement, safety code updates, repair/replace rotten wood, etc.  Seemed like we were doing something there nearly every month.  We sold the property and bought early 1980's vintage townhouses with the proceeds.  Much smoother sailing and better actual returns.

Whether or not you hold in an LLC or not, you will need the same insurance coverage. This is your primary line of defense. The totally risk averse might choose one LLC per property. For four small properties, I think the costs of doing this outweigh the benefits. For example each LLC needs to file its taxes separately. You can also set up a series lLLC where there is a master LLC and four other LLC's (one per property) inside it. Plus the costs of establishing and maintaining each LLC.

Would love to see your calculations. A property whose gross income is 0.9% of purchase price generating 12% ROI and $400/month free cash? If it is indeed a deal, you might want to partner with a more experienced investor who can help with the downpayment. I am successfully involved in such a partnership now.

@Bob M. - To answer your original question, there is no reason not to get as big of a credit line as possible.  You are correct, you will only pay interest on what you have drawn from the line.

Here's another option to consider: You can sell the MA property and invest in a more LL friendly state.  You will inherit the property at its current value, so when you sell it you won't have a substantial Cap Gain to pay taxes on. Not a recommendation, just trying to give you another option so you can make the best decision.

@Nicholas Davis - At the refinance closing you receive $120K cash.  You pay off the $80K first mortgage, and this leaves you with $40K of cash.  Indeed a sack of money for you to do anything you like.  And its tax free.  Just did this on an apartment complex.  You are trading equity for cash that you can put to work.