All Forum Posts by: Max Drizin

Just remember that the cheapest isn't always the best. There's something to be said for the more expensive property managers. They are usually better at reducing vacancy and keeping repair costs to a minimum.

I've talked to enough management companies around my area to question how some of them don't forget to breathe! They don't pick up the phone when you call, or respond to e-mails, or generally do anything to help you out.

If someone is unable to respond to you when you want to pay them money, just think how bad they'll be when they already have your money!

Well, you can really structure the deals however you want.

Financially, if you are still going for the banks, they will want a lot of the same information as you had for previous residential deals. Good credit, previous income statements and tax information, the whole nine yards.

Also, I've made it a habit of having a five-year pro forma with me, along with my business plan and a property overview. These are things I prepare for investors, mostly, but they are also nice for the bank. Things like capitalization rates become more important for an apartment complex, because cashflow becomes more important with it.

Another good figure is the debt service coverage ratio, which basically shows how many times over you can pay your yearly mortgage. It varies between banks and the amount you are getting, your down payment, and everything else, but generally they'll want a ratio of 1.2 or higher.

As for the seller financing, that's where deals can get kind of creative. I've personally never used any sort of seller financing or land contract for a down payment, simply because I haven't really had sellers that like that idea. The idea of them getting the sale money, paying off the rest of their loans, and then loaning you the down payment isn't always what they want, since they could otherwise take that money and 1031 it into another property or invest it elsewhere.

When you get into even bigger deals, where prices run well over seven figures, there's always things like mezzanine financing and all this other wacky stuff that works, but that's a horse of a different color. If you can't finance the down payment through a land contract, and hard money lending isn't available, you usually have to raise it yourself.

Of course, this is just my experience. Take it with a grain of salt. You might find a seller who would be willing to finance your down payment, and that's between you and the seller. I've just never been able to find someone like that.

Whenever someone calls you a vulture, just ask them when they've seen the vulture being the one dying in the desert. That should be enough to quiet the skeptics.

I'd say its a great time to get into investment, especially if you are looking for turnkey properties.

There are a lot of people that I've seen, good friends and competitors alike, who got in over their heads while the market was good, and are now struggling when it's south. For instance, I know a guy who has several quality, cashflowing multi-unit and mixed-use properties (including a high-end bar, which is kind of cool), which are keeping him afloat right now.

The problem is that he is burning through this cash to pay the mortgages on six or seven other properties he was trying to flip, and he doesn't have the money to finish the job. So, he's got mortgages for $60,000+ on properties that are maybe worth $10,000, if he finds tenants and puts in the work to make them livable, and that's a large if.

These are the places that package deals come in. Maybe I buy one of his good properties, listed at $500,000, for $400,000, and then buy two of the distressed properties for their mortgage values, something around $80,000 for both. That way, I'm getting a price that I want, he's getting two bad properties out of his portfolio.

I'd turn around and sell the properties at a loss if they are bad enough, or maybe rehab them a little to get them up to where they should be. Either way, I've already gotten my discount on the property that I really wanted, so it no longer matters what I get out of the other two bad ones.

I end up $20,000 under the purchase price he had for the one property I wanted, and I ended up with three properties.

With the double-dip, it's going to be harder for people like this, who have had multiple deals go bad, to get out of their rut. With some creative deal structuring and a little bit of patience and persistence, you can usually get them to see the bright side of what you are doing and you can make a win-win situation out of it all.

I've been involved in all-utilities-paid multi-families before, and one of the issues is things like AC and heat. The simplest thing to do is tell tenants that they can't have an AC unit, or that the heat can't go above 70.

Yes, it's kind of harsh, but it is what it is. Though, what I say has a grain of salt with it, since it's also rooming house-style properties. Tenants seem to shower and bathe less when the bathrooms are shared, unsurprisingly.

Financing is definitely the best for larger buildings, it's easier to get a hold of.

Especially when you get into even larger deals, when you can work with smaller private equity firms (million-dollar minimums and whatnot) for your financing, getting into mezz loans and walking into these with very little or even no money down.

It seems somewhat counter-intuitive, but banks would rather do the big deals than the small ones.

A lot of it is in finding the right agent, if you are going for that. Many of the deals are not the ones listed on the MLS. It's when you know someone who has to get out of the business, or you know someone who just wants to (e.g. retirement).

I'm closing on a property today that I found on Craigslist, a 22% capitalization rate, bought it for half of what it's appraised at.

You also have to realize that a lot of agents are just bad. It's moms who think they can make a little extra money closing on one or two properties every so often, and they won't deliver what you want. I've dealt with so many incompetent agents that I wish I could just give them a sheet of my criteria and tell them to get in touch when they find one, but it is hard to explain sometimes.

Personally, as an investor, I think that location is everything. As someone who works in Milwaukee, I think I'll describe it like that.

I only do investment in a couple of areas. Personally, I describe them to people as "up-and-coming" areas. Now, some people use that term to describe low-income, high-crime areas, but that isn't the case. Most of my properties are in areas with young professionals, college students (commuters to UWM or Marquette students), and "hipsters."

Given a choice, I wouldn't live in these places. But I promise every investor that I work with that I would never buy a property if I didn't feel comfortable being in the area for a showing, leasing, or management issue. I've started expanding, as well. One duplex that I'm flipping isn't in the best area, but the street it's on can almost be described as block-by-block. There are places less than a quarter mile away that I would never purchase, and places a quarter mile the other direction that are well out of my price range.

On the other hand, another property that I'm closing on later today is a much nicer property. It's in a historic area, and all of the properties, including the one I'm buying, are kept up extremely well. It's pretty quiet, but it's also a block away from a major street, which gives it an extraordinary location for renters.

Depending on the areas, I'm willing to budge on the cap rates that I try to maintain, or the financing I try to obtain. A property in a better area can have a lower cap rate, since it is going to be more stable. On the other hand, a rooming house might need a higher cap rate, so it can absorb a higher potential vacancy.

On another note, one thing that I've noticed about more blue-collar neighborhoods is that people are more willing to do work themselves, and less likely to complain about issues with the property. More than once, I've had tenants call me up, asking if they can repaint this or replace the cabinet handles and whatnot, and I end up just reimbursing part of the materials on their rent.

If you do the management yourself, it can be less of an issue, but lower-income areas generally end up costing you more in management. But that's just what I've seen from my experience as well as people I've talked to in the area.

One thing you could look into is trying to sit down with the owner and the lien holders together. It depends on the holders to see how much they can get for everything.

In a lot of cases, they could be agreeable to getting paid something rather than nothing. At the same time, there are people that will say they want to get paid everything, or one holder wants to get paid this percent and the other wants this, so they end up wanting the highest amount possible.

It's a phone call and a face-to-face meeting, really. The seller should be looking to really do something with the property in order to get the expenses paid. At the very least, the home equity line should be negotiated down, if possible.

Not having dealt with funerals myself, thankfully, I would have to guess that you aren't going to get away with shaving much off of that. I'd just try to convince the executor that you need to sit down with the lenders, all together, and try and figure something out.

It isn't really a creative idea, but it's something that I've gotten to work, in order to keep people from going into short sale or foreclosure. Sometimes you just need to sit down with the executor when they call the bank and say "I've got someone interested in buying this property at this price, can we work something out and all come out even?"