All Forum Posts by: Joel Gabelman

A CPA would be my first "go to"...

@Joray Ess welcome to Bigger Pockets!  

I can appreciate the dilemma your in as I recently moved to Cleveland, OH from San Francisco.  I wanted to get into real estate and just couldn't justify the cost, as well as the fear that Northern Cal was in a bubble that might burst at some point.

There are some good sources of information on investing OOS both on BiggerPockets, as well as through other resources.

Best of luck, and let me know if I can help with anything!

-Joel

Lots of good options - and I won't repeat what others have said.  

One point I've heard from investors regarding the difference between a 3-family and 2-family, is with a 3-family home, you feel much more like a landlord (more can go wrong, more things to fix, etc...)

On a pure ROI basis, you're usually better with a 3-family. Frankly, along this logic, a 4-family is still considered residential. Lots of ways to skin a cat.

My $0.02, is to take the option that not only has profit, but lower risk, even at the sake of ROI. Sleeping at night, and not worrying about problems (upset tenant, arguing over maintenance, vacancy on a unit and needing to make a mortgage payment, etc...) can be priceless!

Best of luck!

There ARE ways to get homes with little to no money down.  @Brandon Turner actually wrote the book.  You should get it!

It's not nearly as easy as coming up with funds though. 

If you can, buy the house to be owner-occupied, and you can go 3.5% down with FHA. If you're a veteran, you can get up to 100% financing. Say you buy a $100k house with 3.5% down, or $3,500 down. Don't forget you still have an appraisal ($300 +/-), inspection ($150+/-), lender fees, etc...

You might want to consider finding a "Rent-to-Own" property if you have NO money.  In other words, you rent a house with the agreement that a % of your rent will go toward the downpayment of the home WHEN you're ready to buy.  The nice thing about this is you don't need a PURCHASE loan (meaning you have to bring money of 3.5%+ to close), but you can treat the house as a refinance, and roll in all costs (assuming there's equity in the home) in the new loan.  

Good luck!

A deal came across my desk the other for ~$15k for 3 lots in Lorain Ohio, which is just outside of Cleveland, Ohio.  Only one lot has vertical, which is in dire need of rehabbing.  Comps in the area are around $50k +/-.  Issue is cost-to-build is more than value.  I explained this to the seller, and was told manufactured housing was the way to go, as cost psf is considerably less.  I'm not familiar with Lorain, and I'm not that familiar with modular homes.  

If anyone is interested in looking at this, maybe we can both win.  At this point, at least on my end, while it SEEMS there's some deal here, I'm having a hard time finding it due to the metrics.

Cheers,

Welcome!

Your biggest hurdle is going to be financing looking at 10+ units and your background.  I worked in commercial lending for 12+ years, and the bank is going to want see see up to a tertiary (3rd form) of repayment.

Primary: Cash flow from tenants

Secondary: Your personal income (which the Banks will likely count as secondary)

Tertiary: Sale of property

Your biggest hurdle I'm assuming will be your secondary source of repayment.  The banks are going to want to know how strong YOU are.  They want to know if the proverbial you-know-what hits the fan, can you cover things?  Do you have at least 6-mo interest reserve personally?  Do you have at least 20% (likely more) down payment?  

I'm assuming in parts of Chicago (even the burbs), as I lived there for around 8-years, you're looking at least $1.0MM.  That backs into $200k down, not counting TI/LC's (Tenant Improvements and leasing commissions).  Figure around 10% +/- leasing commission which is another $100k out of pocket.

If you have capital behind you, awesome.  If not, flipping might be the way to go to raise funds and THEN do B&H (Buy & Hold).  There are some aggressive lenders out there, and there is the possibility of crowdfunding.  Equity will cost you more than debt though...

Best of luck, and keep us posted!  

Regards,

Welcome to BP!

I personally look to buy and hold, as well as flip.  If you come across properties up in the NE Ohio area, let me know.  Anything regarding turnkey or financial, I'm happy to help.

Welcome aboard.

Best,

@Account Closed brought up an interesting addition with consideration of additional alternative investments such as crowdfunding, private lending and I would even include REIT's for some RE exposure.

the Risk/Reward model is in all different asset classes.  For what it's worth (and I could be way wrong), I think there's a big bubble in Northern Cal.  I wouldn't buy there, or invest there.  Lots of supply coming on the market, and East Bay is blowing up, not to mention the Treasure Island development.  When is that coming online???

It's hard modeling RE with depreciation, appreciation and tax benefits as each person (tax base / business model) will be different. Depending on the structure of the crowd funding platform, AND the investment option, you might or might not own an equity piece in the ASSET, as opposed to an equity interest in the holding company owning the asset. That changes the ROI in regard to depreciation ability and taxation. So much to play with, so little time. :)

@Bill Kriasis

Welcome to the community!

Lots of good books to check out on financial metrics.]

Some of my favorites:

1) http://www.amazon.com/Investing-Duplexes-Triplexes...

2) http://www.amazon.com/gp/product/0071603271/ref=pd...

I'm sure there are other books too.

I spent 10+ years in commercial and residential lending, and can tell you, there are many ways to skin a cat.  Leverage (or taking loans) CAN be a good thing.  I personally am a fan of leverage for the benefits (tax write-off of interest and ability to own more).

Say you have $100k.  You can buy ONE house with the money, have no mortgage and rent out the place for say... $1k/mo.  Revenue is $12k/year, less taxes and insurance, maintance etc... leaves you with say... $9k/year.  9% cash-on-cash return is nice!  I haven't taken the depreciation out, and you have no mortgage so no tax write-off.

Now if you can put 20% down on a home, given the above example, you can have 5 properties, each $100k value, and now you have $500k in assets with $100k in debt.

Assuming $1k/mo for each property = $5k/mo = $60k/year less PITI (Principal, Interest, Taxes and Insurance). Throw in some expenses for management, reserves, etc... If taxes are $2k/year/home = $10k/year taxes. Using the above example, if you're making $9k/home BEFORE P&I (Principal and Interest from the mortgage), assume around $450/mo for borrowing $80k/home. Annually, this is $5,400/year/home. So PER HOME, your mortgage is $5,400/year + $3,000/year for taxes + extras (from above example) = $8,400 in total expense/house/year. $12,000 revenue less $8,400 = $3,600 income PER HOME, or $18,000 in income for all 5 homes (before depreciation and tax write-off of interest). This is 3.6% ROA ($18,000 / $500,000 is your Return on Assets). Your CASH-ON-CASH return is 18%!!! ($18,000 income / $100,000 equity). NICE! AND when the property appreciates, you get a pop, and when you increase rents, your return goes up, etc... The RISKS with leverage, are when you have tenant roll-over, a bad market, have personal issues (lost job, etc...), this increases your RISK/LOSSES as well as increases your potential gains.

Over the years, different people I've worked with have different risk/reward tolerances.  There is no "cookie-cutter" answer to ALWAYS DO X.  There ARE some cookie cutter answers to NEVER TO X though!  

To repeat what @Dell Schlabach said, you're ahead of 70% of most people having pulled the trigger.

I'm in Cleveland as well, and would be happy to grab coffee as well if you're interested.

Best,

I am not an expert in Sec 8, but having a background in lending, 90-100% is highly unlikely.  That said, I wouldn't be surprised if there were funds available from the city (tax credits, non-repayment funds, etc...) to help grow/improve the city.  I would google keywords like: "Detroit Improvement money from city".  You get the idea.  If you can only get 75%-80% lending, you might find forgivable 20%+ difference from the city.

Best of luck!