All Forum Posts by: Frank Maratta

@Christopher Davis

I buy in C and D areas. About 50% of my tenants are section 8. It comes down to screening, as someone else said. The majority of my tenants are very good. Few pay late. I actually do very well renting in these areas. After they leave, expect to change out the cabinets, counters, carpets, appliances, and paint. I don't really care about these as the majority of my tenants stay a while. The best piece of advice I can give you would be to buy multis (I don't own any SIngle family houses) that have 3+ bedrooms as they tend to stay longer. I have 2 duplexes with huge four bedroom units in each. I BRRRed them, ended up with 80-100% cash on cash ROIs, and they rent for an average of $1500-$1800 per Mo. Section 8 subsidized. I am making an absolute killing off these. I also put granite in my rentals when doing a rehab. Formica Counter's get water logged and destroyed, but with granite I can simply replace the cabinets if need be and reuse the granite. Also, things like granite and stainless appliances I've found attract better and cleaner tenants. They appreciate a nicer place, and since nicer places in C and D areas are tough to find, they are grateful and take slightly better care of it. My biggest focus is always reducing vacancies and getting the best quality tenant possible for these low income areas. Yes, you can get stuck with a bad tenant in these areas so I pay first months rent to have my agent list my rentals on the MLS, do the showings, and we both work together to screen the final tenant that ends up taking the unit. Also some of the government subsidy programs I work with offer 2 months rent security deposit (not section 8). So if and when they do move out, I can do quite a bit with $3500+.

@Alex Hoang

I don’t like option #2 at all. Do it once and do it right. Open up the walls to continue the duct work up to the third floor. If you have an attic, even easier, just open one or two bays and continue the supply and return to the attic and then feed the rooms as necessary from the attic through the ceiling.

@Benjamin Kaufman

Most often times than not the cap rates will not in reality as advertised; you need to have some experience in what true expenses/rents will be as well as a good understanding of commercial loan products. Value add small to mid sized apartment buildings are what I am in the market for.

Apartments that are in service, close to fully occupied and managed well you will see a low cap rate usually.

@Christopher Hunter

Chris, where would you suggest Ben start to try to locate these types of deals? Any thoughts on strategies to find a commercial broker that will give investors ready to take the next step into bigger multis the time of day?

@Nicholas Morgan

My opinion is not to do the deal. As everyone else said the 78$ a month in cash flow is too tight. But most importantly - this is your first rehab! I PROMISE you will go over budget. My first BRRR I did when I first started I expected it to be a $50k project. Turned out to cost me $110k. It still ended up being a good deal as I was able to buy right before home prices started skyrocketing, and mid way through the rehab I found a way to add an additional bedroom and bath to each unit so my rent numbers went up considerably, market was on its way up and it appraised for a good number. But right now we're at the height of the market, your cash flow numbers are low and you don't have any experience doing a rehab. I think it is too much of a risk.

@Robert Diaz

I believe I once heard that the "technical" reason why banks don't give mortgages to LLCs is because of credit - you spend your life building your personal credit score - the lender plugs in your social security number and is able to see your credit score. Well with an LLC if the lender plugs in the FEIN, they are not going to see a justifiable credit score to lend to. Again, getting specific, I think this is the "technical" reason banks don't loan to LLC. But i would like to see that argument in play with a sole member LLC pass thru entity like I have that uses my social security # as the FEIN of the LLC.

The way around this is to purchase the property in your personal name and, at closing, quitclaim it into your LLC. Banks technically do not like this because they have a due on sale clause, I have never heard of them enforcing this, but with an FHA loan it may be a possibility I do not know about. If you can't put it into an LLC, keep it in your personal name and carry good primary insurance with an umbrella. Hope this helps.

@Ryan Denman

The yield curve just inverted yesterday as we all know, and stock market had its worst day all year dropping 800 points on the Dow. Economists say in every recession we have had in the past, they were all marked by this inversion of the yield curve. I made the decision to hold off on buying anything unless it is an excellent deal (which I have not seen for many months now in my market). As someone else said - hoard cash. I have a 2 family I just renovated I need to BRRRR and refinance, I am waiting a few more months as the fed is expected to cut rates one or two more times before the end of the year

@Clint G.

Just dealt with this in one of my apartments that has been vacant for 6 months. Tenant moved in and Said there were roaches. I didn’t even believe her at first, but I called the exterminator and had him bomb. He said it was a high probability the tenant actually brought the roaches with her. She has 2 stoves and a deep freezer and loves to cook. She’s also a total nut job and unfortunately presented herself well to my leasing agents and got a great landlord recommendation (probably just wanted to get rid of her). From this point forward I am putting language in my lease that specifically says cockroach infestations are the responsibility of the tenant to exterminate. This was clearly her fault and not mine. Other pest infestations like mice are going to be difficult to prove who is at fault, so just plan on paying for that yourself.

@Brandon Williams

From my understanding it would be the $25k plus depreciation recapture - something I understand in theory but always have a hard time calculating. In any case you have only held the property for a year so there is probably very little depreciation recapture anyways

@Antonio Salgado

I would take the loan out as someone else mentioned. I did this.

If you can’t afford the monthly payments then building a two family is probably not the best option here. You are going to have months of no rental income until the property is built and then finally leased out. Sounds like you need something already ready to be put in service so you can start collecting passive income.

Why are you building from the ground up? It’s usually cheaper to buy then build. And if you were to build, there are economies of scale here- in other words let’s make up some numbers and say a two family house costs $250k to build- that’s $125k a unit. A three family might not cost that extra $125k to put a third unit on, you could build it for less, and a six family might get you to $110k/unit.....Doesn’t sound like going bigger is an option for you if you don’t have the money, but this is what I would do if I built.