All Forum Posts by: Luis Melendez

hey Dane the thing is I did a walk through. I seen the condemned sign but didn't go to the town to figure out why it was marked condemn that was my mistake. It won't happen again though. Lesson learned!

thanks Jacob yes I did a 30 year note. I'd rather capture as much cash flow as I can and if I decide to pay the property off quicker I'll just put more toward principle or if I decide to use the cash flow for more properties I have the option to do that. 

I calculate my cash flow based on gross income - 50%  for expenses and maintenance. So long term I should average $1000 per month. Last month I took in $1600 cash flow after expenses and mortgage, but once vacancies come and other issues come up which are inevitable I figure to average $1000 cash flow.  

thanks Michael for the response. I actually went through my broker who presented me the deal and he provided me with the Arv based on comps within a mile of the subject property. So for me it was a little easier to determine because there were properties on the market that have sold and were for sale that were priced between 170k and 199k.

Try to find an investor friendly real estate agent in your area who can provide you with leads but also help you determine the Arv of the property.

You can also use the model to determine commercial properties value as well. For example let's say you find a triplex in your area for $100000. You determine it needs about $30k in rehab work. So first find out what the market rents would be once stabilized. Let's say it's $800 per floor. That's $2400 per month and $28800 per year. Now I like to take out 50% for vacancy and expenses right off the top so that brings us to $14400 net operating income. Now from investors point of view they typically want to see an 8% or better cap rate but let's say your market likes a 10% cap so divide the NOI by .10(for 10% cap rate) which equals a value of $144,000.

Now I'm not saying use this method all the time but it gives you an idea of what you can sell the property to a buy and hold investor for if you wanted to sell the property. You may be able to see the property for more to a owner occupant but at least you know what the lowest amount your property is worth once repaired.

My first multifamily investment

I’ve read tons of books and articles about real estate. Books on wholesaling properties to land flipping. But out of the all the strategies I’ve learned about, none has ever been more appealing to me than investing in apartment buildings. Now my favorite books were anything David Lindahl wrote. He talks about buying apartment buildings and everything he wrote about made sense. What an investment to be able to purchase a property, have your tenants pay down your mortgage, pay your taxes and insurance, pay any expenses and repairs needed on the property, pay property management, and on top of all that give you extra money every month to spend on what you like. Oh and not to mention I can file for depreciation on my taxes to help offset getting taxed on the cash flow!!!!!

Now I wholesaled properties but this story is about my first true buy and hold investment.

How I learned about this property in my hometown, was through a broker that I had previously dealt with in the past. He mentioned to me one night about a 3 family property available that was near the end of a short sale for 75k. So I went to take a look at it and the building was in good shape. It had bad tenants previously so there was trash everywhere, holes in the wall and just dirty all around but it wouldn’t be a huge project. The biggest expense was the front porch that needed to be rebuilt but, the roof was still in good shape, ad separate utilities and all the boilers and water heaters were newer, and the cabinets in kitchen on all three floors were in good shape. I estimated about $30k worth of repairs. So here were my initial numbers:

Purchase $75k

Repairs: $30k

Holding costs and misc. expenses: $10k

ARV: $180k

My strategy was to Buy, rehab, refinance and repeat aka BRRR strategy. So I used a hard money lender who charged 13% OUCH. It was interest only loan and I had to refinance within 6 months or I would get charged an extra 2% of the loan amount. But they covered 100% of construction cost and 80% of purchase price. I had no choice and the deal was good enough so I closed on April 14 2015. Now the day of closing I did a walk through and noticed a condemned notice on the door of the property but everything looked the same and my contractor said he will find out what this is about tomorrow, boy was that a big mistake. I should've dug deeper and found out why it was condemned. Come to find out, the day after closing, there was a pipe that burst in the basement and the basement flooded with water. So guess what happened to those newer boilers and water heaters!!!! TOAST!!!!!! So before I can have my contractors work in there I needed to have electrical panels inspected and electricity turned on, I needed to have gas company come out and pressure test gas lines and make sure that's ok and I needed to have town turn water on. Mind you I need to have this project done in 6 months!! SO I finally got through those hurdles thanks in part to the assistance of my contractor and his connections. So once I got the contractors working on the units I had a plumber go in the basement and fix all the copper pipes that burst. As he started to go upstairs he noticed the pipes behind the walls were leaking too. AT that time I had a plumbing company doing the work and they weren't cheap. LUCKILY I started looking at property managers and found a great one. I told him about my plumbing issues and he recommended me to a guy who literally lived 30 seconds away from me. BUT THANK GOD I found him because this guy was awesome and reasonable rates. At the end of the day he replaced all the piping with new pex piping on all three floors. With materials and labor it cost about $3k. The contractors had to rip the walls down which they weren't too happy about but it all worked out and I payed them extra for the labor. I replaced the water heaters as well and replaced 2 boilers because luckily 1 boiler still worked fine. As my contractors continued working, I started marketing the units for renters. I didn't want to pay the property manager a full month's rent, especially with the added expenses I occurred, so I did the leasing up but I had the property manager screen them and get all the paperwork situated. It took a lot of screening and showings but by august I had 1 tenant in first floor and 3rd floor section 8 tenant moving in on September 1st along with second floor tenant.

Now I started getting my refinance paperwork ready and handed over to a mortgage broker I had worked with in the past in mid-august. I wanted to cash out refinance the property and try to pull out about $40k. He got back to me and said he can only fund what’s owed NO CASH OUT REFINANCE. SO I did what any hungry real estate investor would do and find another broker and I’m glad I did because this guy I found had the connections and was able to get me my refinance and close it within 45 days. I needed to close by October 14th and actually closed on October 19th. And since I had such a great relationship with my hard money lender and they loved me, they waived any fees associated with closing after the 14th. So at the end of the day here are the numbers:

Purchase: $75k

Repairs $40k

Holding costs: $5k

My investment $20k (includes closing cost on purchase and any extra repairs)

Appraisal: $205k

Cash out refinance: 143,500

Check at closing $35k

Cash flow monthly (after all expenses including property manager and 10% vacancy factor): $1,000

So not only did I get all my money back plus $10k at closing, but I have a great cash flowing property with over $60k equity still in the property!!!!! Not bad for my first true buy and hold.

And that’s why I love investing in apartments!! Many lessons learned on this deal but ill be better prepared on my next purchase.

If you can find a lender that will fund your deal u see an LLC that would be a good idea. I tried to do that but unless it's a commercial property no lender would loan to me. I then started to get a million dollar umbrella policy but the insurance companies said I need a certified lead inspector give an abatement before I could get the policy so that's what I'm working on now. If you have luck finding a lender who would lend under an LLC for a residential property please let me know. Good luck

Anything from a full rehab all units to repairing units once tenants vacate. I had a contractor who does great work but is very unreliable

hello BP im a multi family investor in new britain ct and looking for a more reliable contractor with reasonable rates who works close to new britain. Any members have recommendations for contractors?

thanks for all the help guys. I will keep searching for a lender that doesnt have all theses extra overlays as mentioned by shaun. I will also be looking more for a portfolio lender as well. 

hey guys I need help with the refinance of a three family I purchased back in April 2015. So I purchased a 3 family property in april 14 2015. I used a hard money lender to finance a portion of the property and they financed construction costs as well. The total i owe the lender is 103k. currently the property is fixed up and fully leased out and managed by a professional property managment company. What i would like to do is a cash out refinance. I estimate the building to be worth between 210k-220k. i was hoping to refinance for 150k and pull out around 40k after paying off lender and closing costs. I know the seasoning period is 6 months and i was looking to close by October 14th. The banks I've been in contact with tell me I have to wait 1 year to pull cash out. They said I can refinance after the 6 months but only to cover the hard money lender and closing costs. I have to wait for 1 year to pull out cash. I can't wait a year cause the hard money lender only gave me 6 months. Anyone had a similar experience and any advice would help a lot. Thanks