All Forum Posts by: Elliot Saks

Investment Info:

Single-family residence buy & hold investment in Indianapolis.

Purchase price: $55,000
Cash invested: $92,000

Appraisal just came back on this home for $137k. All in for $92k and refinance for $102k.

Neighborhood is a solid B and this property was the worst house (probably a C minus/D condition).

How did you find this deal and how did you negotiate it?

I was receiving a daily hot sheet with new MLS deals. I saw this home being offered for $67k in a neighborhood where comps ranged from $90-150k. The seller was in financial distress and needed to sell it as quickly as possible. I got my contractor to go out that morning and put together a scope of work. I offered over asking all cash at $70k and close within one week to get the seller to accept my offer, then had an inspection that revealed some more capx issues. I changed my offer to $55k.

How did you finance this deal?

Financed both purchase and rehab with my HELOC and paid the higher interest for 8 months while waiting to re-fi.

How did you add value to the deal?

Full scope rehab included new kitchen, 2 new bathrooms, new flooring throughout, all new windows, new exterior paint, and significant mold remediation as well as several serious deferred maintenance items. Full scope rehab cost $37k and took a little over a month.

What was the outcome?

Appraised at $137k, pulled out $102k with a result of $0 invested and $7k pocketed after loan closing costs. Property rented for $1350+ and cash flow is around $250 after (expenses + PITI).

Lessons learned? Challenges?

Do not be afraid of a significant rehab challenge.
Do not be afraid to ask for significant price reductions even when you think there is no way the seller will go lower. You never know what others will consider a good deal or the right deal for them.
Learn great negotiation techniques. I highly recommend "Never Split the Difference" by Chris Voss.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

If I told you, you wouldn't believe me.

Hi all, I've been doing a couple BRRRs this year but I ran out of capital so started reaching out to friends.  I have a friend who wants to join my current deal and will be contributing about 50% of the capital for the purchase and rehab portion of the deal.

So I'll be providing:

Half the capital, finding the deal, taking title, managing the rehab, getting it rented, managing the PM, eventually carrying the mortgage note, and handling the long-term management/distribution of funds.

My friend is basically a passive investor and this will be his first out of state deal.  For anyone wondering he is 100% trustworthy.  We are lifelong friends.

I understand most people would recommend just paying him a % on his money and then him getting out of the deal once we refinance, but I want to give him equity in the property as well.  I also want to treat myself fairly since I'm doing the majority of the work.

After the refinance I was thinking of returning his capital and giving him an ownership position proportionate to the dollar amount he initially gave me. So if we both put in $50k for purchase and rehab, and the house is worth $150k after, he retains a $50k ownership position while getting back all of his capital, and I get a $100k ownership position. Basically I get all the equity created by the BRRR strategy even though we both got our capital back. Does this seem fair?

Next is the question of the cash flow split.  50/50?  60/40? His stays fixed while mine increases over time?  How would you structure this?

I want to be perfectly clear here that it is not in any way my intention to be unfair to my friend in the least. I want him to feel like he's getting a win but I also want to be fairly compensated for my much higher level of involvement, expertise, and risk. I've just never done a JV before and could use some guidance. Thank you!

In addition to being an investor himself, Zach is also a realtor and has helped me get started in Indy real estate.  He's young, energetic, cares about what you care about, and above all has proven his personal honesty and integrity far beyond what I ever expected.  If you want more details on the way he has helped me or some instances where I can vouch for his integrity, please PM me.

I can't say enough good about Zach.

.

@Account Closed I can get a low interest rate through my credit union.  Not super concerned about that though, I can go up to 6%.  The loan is going to be so small the impact to the monthly won't be much.

The building itself looks to be in great shape so I've got expenses fairly low. Doesn't need updates any time soon. I'll put $10k cash aside and access to much more through my HELOC if necessary. Part of the reason I have maintenance and CapEx so low is because the current tenants are low maintenance. Sure, this could change when they leave, but as soon as they leave the rent will increase drastically and give me alot more cushion.

If I can bump rent to $700 after their current lease is up my COCR is 12%.

View report

*This link comes directly from our calculators, based on information input by the member who posted.

Would you buy this deal?   This will be my first out of state deal and I want to get it right.  

The good - solid, low-maintenance tenants currently occupy the property.  I won't have to do any turnover for a little while.  

The bad - they're paying way below market rent, probably $150.  Rent here should be $800+ for a 3 bed in this neighborhood.

I believe I can raise the rent to market over the next couple years.  If the tenants leave, I'll do cosmetic updates for < $10k to get the rent to $800+.

Has anyone here successfully kept good tenants while bringing up the rents to market?

I've got an agent in WI upset with me for "tanking" a deal under contract for a six unit commercial building.  I never laid eyes on the property and made an offer based on what the agent told me would be needed to get the building up and running ($10-15k, his words).  Low and behold inspection finds $40k+ worth of work, $30k worth absolutely necessary and the rest cosmetics.

After inspection I asked for a $27k price reduction because the numbers didn't work, and he said "they'll never go for it." I told him to put it through anyway. Unfortunately it does indeed seem to have killed the deal. I'm out my inspection $ and they're stalling on sending back my EMD, probably want to use my offer as leverage to get another offer. I'm planning to instruct them to send a formal rejection and hopefully get my EMD back asap so I can move on with my life.

My agent keeps telling me "no investor would do it this way, you're not seeing the potential here, it's in good shape, blah blah blah" and I think he's mad that he's not making an easy $6k on this deal.  He's treating me like a rookie (which is true, I am a rookie) but I don't think he's seeing the actual math.

@Dan Barli I'll tax estimators for the area indicate I'm on the right track for taxes.

@Dan Barli To your questions, I'm not anticipating a lot of capex because I plan to update the property right away. Right now it's vacant so this is the ideal time to do the majority. The other major expenditures like Windows, boiler, and roof have all been taken care of in the last few years. I've already hired a property manager that takes 8%. He also promises very low vacancy, two to three weeks between renters, and they eat the costs if they get a bad one. They thoroughly screen, and are very well reviewed for their area. The long-term strategy for this property maybe only to hold for 5 or 10 years until the market tops out and then sell. Thanks for the feedback!

I believe this building is a solid base hit, but may turn into a homerun if appreciation and rents increase in the area. I'd love some feedback.

View report

*This link comes directly from our calculators, based on information input by the member who posted.

This is my first deal (other than the duplex I owner occupy in Southern California). I've got a counter offer out that should be accepted at 220k and I believe they will take it. I feel like I'm getting a good price on this building as the ARV should be somewhere around $290-300k, but it really only needs cosmetic work. A valuation using market rents should put it around $300k+ as well, but this is in a city where the RVR is fairly high. This neighborhood is a solid B, maybe a B+.

A bit of back story about the building.  The seller is a nonprofit that was using it as a transitional living facility for mentally underdeveloped adults.  They bought at the height of the market (2006 for $290k) and poured a ton of money into updating it.  New vinyl windows, new roof, new gas boiler for heat, etc.  I'm not sure how they can take such a haircut after having probably $350k into the place, but maybe they just want it off their books as they just changed CEO.  Who knows.

Market rents in this area are $550-600 for a 1br, $700-800 for a 2br.  I believe I can currently get median market rents and with cosmetic updates over the next couple years, higher end rents.  The city this building is in expects major economic growth in the next decade due to a major factory opening, which should drive up appreciation and rents as well.  I'm banking on one or the other happening, if both happen it's just a bonus.

I'm funding the deal/rehab with a cash offer using my HELOC and a 0% loan from a family member who will get 50% of the cash flow and 50% of the equity. After we refi they will leave about $30k and I'll leave about $15k in the property.