All Forum Posts by: Frank Maratta

@Frank Zondlo

I own many old multifamilies built in the early 1900s even late 1800s and I have floors like roller coasters. None of my tenants mind, and if I were to sell the place, it’s just a given with the age of the buildings. So to me 2” is nothing. I would leave it and mortar the cracks and be done with it. Not sure how your house is built but if it’s really bothering you why not throw in a header under the floor joists with some Lally columns and pads? Me an my guys do it all the time, one section gets jacked up at once and they build a temporary wall and then throw in the Lally columns and take the wall down. Or simply jack sections of the house up little by little and just shim out the sill plate.

@Filipe Pereira

Yes I agree. The CT economy lags behind the rest of the country, so in 2016 when prices were extremely high in other parts of the country I was able to get in and buy 4 properties in that one year. Once 2018 hit, CT caught up with the rest of the country and made it tough for investors to find a deal with strong cash flow. They’re still out there, but it takes a while to find them. I’ve only been purchasing about one property per year since 2018.

I agree with all your statements - stay away from hartford. Crime rate is too high for most decent tenants to be comfortable with.

And yes, my crew is everything to me. I GC my own jobs and it took me years to get a solid team of subs in place. Once you have them, treat them right. What I do would not be possible without them. A lot of people think they can go and do these rehabs and they're in for a world of surprises when they actually try it and they see guys walking off the job or not even showing up in the first place. In addition, they grossly underestimate rehab costs. I see deals every day from wholesalers on Facebook that make me laugh with their "only needs $25k in rehab" scams. Everyone with a pick up truck and a tool box is a "flipper" nowadays. I don't flip, I BRRR, because I would rather have an asset at the end of the day that pays me passive income than a job. That's what flipping is, a job. And to be successful in flipping, people don't understand you really have to have a great handle on what rehab costs are going to be. It makes sense for the people that have experience and can have 3 or 4 flips going on at one time, but for anyone just getting started and wants to do just one, I would highly, highly reccomend that they rethink that decision. It would make more sense to BRRRR the property for their first one, because when they mess up and under estimate the rehab costs, at least they can hold on to the asset and sooner or later the rent will make them whole again. With that, they have the learning experience, which in my opinion - is worth more than the money they would have made had their flip actually netted them a profit.

It’s a tough market to get started in, but it’s always better sooner than later to get going.

@Beth Rosenblum

Beth, the one that appraised for $278k is from New Britain. Most of my properties are in New Britain. It’s an excellent area and it has really come up in the last five years.

The current BRRR I have going on right now is in Middletown. It's really a special type of property. It's the biggest 3 family I have ever come across in my life - almost 5000 sq feet. It's a nice brick building that I am converting to three 4 bedroom units. Gross income before I purchased the building was $54k annual. After my rehab, I expect to bring it up to $65k annual. I paid a lot- $176k. I expect to have another $125k into it. So in order to get over a 100% return I need it to appraise at $400k. Yes, $400k. It's truly a unicorn and time will tell what the appraisal ends up coming back at. At a 10 cap it should technically appraise at around $450k, but it's three units so I am still limited to comps. Hopefully the appraiser will consider comps from other towns in this special situation, because there is nothing close to that sold in Middletown.

@John Collins

My cash on cash return doesn’t include equity because I do not consider it cash flow. My formula is (gross rents - mortgage payments - expenses) / total invested; all on an annual basis.

For example, my last BRRRR I acquired the property for $100k, put another $100k in repairs into it and it just appraised at $278k.

NOI after debt service is $19,000

Coc = $19,000 divided by total invested: ($200k minus ( $278,000 x 70% LTV = $194,600) = $5,400 ) = 351%

I actually waited 6 months before putting a mortgage on the property and during that time accumulated $15,000 in NOI. So, if you want to include the extra $15,000 I am actually at an infinite return. However I don't account for that in my formula, it's just an added bonus. The goal is to get as much of my initial cash back as possible after the refinance and keep rolling.

@Arthur P.

Haven't read thru this entire thread, but I just purchased a giant (4700 sq ft) three family brick building that I am BRRRRing. It took me an entire year to find a deal in this market. My COC Returns on my BRRRRs usually range between 80-350%. In this market, however you have to accept lower returns if you want to keep going. This current BRRR will only be around a 50-60% COC depending on the appraisal. There are no comps in this area for a 3 family this size. I am converting each unit to 4 bedroom units. With a two car garage on site that I plan to rent out as well, expected NOI should be around $45k a year.

With the multis, I have found that my biggest competition is amongst owner occupants who are just looking for help with the mortgage from the other units, and can afford to get a mortgage and go way over asking price. I’ve lost out on about 10-15 deals this year because of this. However, with this current building, I got lucky because the seller was smart and knew this building would not qualify for a mortgage (some fire Damage) and did not want to waste his time with an owner occupant bid. I offered cash and got the property $25k under asking price, even though there were a ton of other bids with a financing contingency that were much higher than mine.

I’ve also found that winter is the best time to purchase. Every single one of my 7 properties have been purchased in November/December.

@Eric Teran

That’s very informative, thanks for the explanation. So it seems lot occupancy and FAR are two ways of measuring the same thing - how much building can actually be built given a specific lot?

Generally speaking, for you personally - what is the minimum # of units you would need to build on a specific lot in order for you to do the deal? Obviously, the bigger we go the more the economies of scale will help us out, and I understand this is a very open ended question dependent on many factors. But speaking in absolute minimums, and as broadly as possible, I’m curious as to how small of a new construction apartment building is worth it to be profitable. For instance, this 7 unit building I am looking at seems like it wouldn’t make sense to incur the expense of the building and lot for $100k another $80k for demolition/debris removal and then the cost to build from the ground up. Have you ever built something as small as 6 units and still been profitable? If so, what kind of cash on cash returns did you see?

What type of cash on cash returns are you seeing with your portion of your portfolio that were new construction?

@Eric Teran

Thanks for the response. I am planning on going to zoning, but as I’m totally new to this realm I didn’t want to walk in as a total newbie, which is why I posted here first to get some general info first and see if the deal even makes sense - could you explain what the terms you present in questions 1,2 and 3 mean? I want to understand the questions before I ask them.

The building is currently 3 stories, and here in CT we have to have two egresses for 3 stories, and even two families.

One thing I did find out today through a contact of mine was that in this particular town, if I go to 4 stories, the needs to be built with a steel skeleton. So in my opinion thus far it is looking like it would not be cost effective to add another story and build additional units.

@Charley C.

Street frontage is about 70 linear feet maybe more. It’s a 7 unit burned apartment building 6300 sq feet with parking for about 8 - 10 cars in the back. There is also a tiny barber shop on the streetfront that was not affected by the fire, but included in the deal and on the same parcel of land. Total of 0.21 acres

@Charley C.

Charley, those are amazing returns. I’m in shock as to how much you are making off new construction. Incredibly impressive.

It seems like the advice you are steering me to is to take the 7 unit burnt up building downtown. I would have to knock it down and build ground up again. Is this what you are suggesting when you say you “can’t think of a better way to spend the $250k” ?

I could acquire the building for $100k and then I would have to incur the costs to knock it down and build ground up. I personally didn’t think this would even be worth it to do for something as small as a 7 unit, but I am new to this game and don’t know any better.

How would you work this type of deal in terms of closing and financing? Would I have to pay $100k cash to tie up the deal and then go for financing and approval from the town to rebuild? Or will the banks construction loan include the costs of demolition as well?

@Charley C.

Charley, just to clarify, you are obtain a 30% cash on cash return from building from the ground up? I did not expect that number to be that high, that’s amazing. Are you counting principal payment towards it?

In regards to your comment of tearing down a building and rebuilding: its funny you say that, i just got offered a burned up 7 unit downtown for about $100k. What is the benefit of rebuilding on already developed land? Is it just the fact that the zoning approval is already there? What if I wanted to rebuild the 7 unit bigger: into a 16 unit?

What is your opinion on the lowest amount of units to build, generally speaking, to make it profitable for new construction? I know grant cArdone had mentioned nothing less than a 32 unit building, not sure if there is any reasoning behind that.

That’s a bummer to hear you don’t think $250k will get me far. I still don’t know much about the financing and how it works, but I figured $250k would equal about 25% down of an 8 to 12 unit building.