All Forum Posts by: Trevis Kelley

@Mike D'Arrigo 

I would tend to agree with you there, but I know nothing of KCMO.  I don't know the good neighborhoods from the bad, I don't know which market is happening where inside the city, I don't know who my tenants would be, I don't know any agents, maintenance, or property management people there, etc.  Bottom line is, I don't know the city, and can't commute there everyday to find out (I also don't know how to find out from outside it).  I also don't really know anyone there who I could talk to about it, either.  Being that I am still trying to learn the business, that is just too many variables I would have to 1.  Figure out how to learn the answers to those questions from afar, and 2.  Then do those things so I have the people in place.  Then I would have to find the deal, come in to look at it personally, and then come back later to close.  I would then have to come in and see the place every once in a while just to make sure the PM is doing his/her job.  I guess at this stage, I am just too controlling of the details and wouldn't be comfortable just taking someone else's word for it.

I think that's what the hands-on would give me.  You are right that I am lucky to be that close to a good cashflow city.  It's just not close enough to my comfort zone yet.  Like I said above, even if this deal falls through, I will reinforce some of the things I have learned and probably even learn some new ones on the way.  Maybe then I would feel better about trying to work out the details of a new city.  I don't know.  I will have to see.

@Mike D'Arrigo 

Real estate in Manhattan is appreciating at big rate.  Everything in that town is growing, and started to really boom in the last two years as they finish up on what's called the NBAF.  That alone is scheduled to bring 10,000 federal jobs to a town that is only 50,000 people and drops in half when the college students are gone.  This town is not like most of the rest of the Midwest - but of course, you are in California, so more local trends are probably less easy to spot.  I am sure you are right about Missouri being more landlord friendly, but that market is still over three hours away from me, and I am completely unfamiliar with it.  Considering I am stepping outside my comfort zone to buy inside a market I know, going to Missouri is just not a move I can make at this point.  I may be ready to do that a couple years down the road.

@Account Closed 

The problem I have with my area is finding those comps. Most are 5+ years old. People just don't seem to sell places very often in my market, and I have not seen much in the way of bigger multi-family properties for a while. Most are either 4 or less units, or their large apartment complexes that I am not ready to handle yet. If I had to guess, though, average GRM is probably in that range. To be honest, I am less concerned about what the official price is, and more concerned with making sure the place makes enough money to pay for itself and cashflow once I get the down payment paid off.

@Roy N. 

Does it not cashflow after the down payment at $302,000? I am seeing about $500/mo after it's paid off ($950 if I am managing it myself). I also think my initial numbers for maint now are good, and CapEx could probably be about where my dad had it. This is based off of current condition of the property, as I don't see anything huge in the next 5 - 10 years. But, like you said, the operating numbers need to be tight for this to work. I would definitely manage it myself for the first 5 years, but after that, I don't know. I would be socking all of that money away for a rainy day ($440/mo) and would would do the same for at least 5 years. Hopefully I can also have the down payment paid off by that point and be able to pocket some cashflow, while using the equity to move into another deal with more confidence and financial backing (or just creative financing another one). My father isn't necessarily against cashflow, he is just saying that it's really hard to get in this market with little or no money down. I would have to move outside of this market, which would involve variables I really don't understand yet (or at least not to the point where I would be at all confident in). With this deal, I could gain experience, which would make me more confident with this market, and might allow me to explore the idea of investing in another one. I am about at the end of all the education I can handle without some hands-on doing. I am a doer, and don't really understand something until I have done it. I try to educate myself beforehand, but once I reach a limit, I really need to apply it to be able to make it work. Doing that in a market I already understand will reinforce things I have learned and allow me to work on how to understand a different market from the outside.

All in all, I do hear what you guys are saying.  You want me to have protection from the unknown and my inexperience probably makes this even more risky.  So, I do have more thinking to do.  I will also say that my dad is backing up what he is saying with his pocketbook.  He will help me foot the bill if something does somehow go wrong.  Talking to the banks will give me a clearer picture of what they think of the deal.  If they are turning it away, then I know that it's probably time to jump ship.  If they all say it would work, then I may have something for my area.  I know that's not the only litmus test, but it is one of them.  Another would be whether or not the seller is willing to help me with financing.  I know that is as much about me as it is the property, but if the deal is good for my cashflow and would allow me to make payments, then why wouldn't I?  I understand inexperience can turn even the best of deals rotten, but that is why I have spent hundreds of hours educating myself (and still am).  Again, he doesn't know this for sure, but after talking to me, I think he senses that I at least know something.

Again, thanks for the insight.  I have more to talk to my dad about, and more to think about.  I will continue to listen, process, and try to make the best decision possible.  It may end up with me walking away, but at least I will have grown from the experience and knowledge I have gained from everyone.  Thank you!

@Aaron Montague @Roy N. @Account Closed 

My dad said this would probably be the best deal I would get in my area. The town I am buying in is growing rapidly (Manhattan, KS), so the market here is tight. Couple that with the fact that we have a growing university in town (Kansas State) with not enough apartments and a healthy military community, it is an area where CAP rates are low. He didn't have the exact numbers.

He also said that a good reason to buy it is that it may not cashflow right away, however, the equity buildup would allow further purchases and can be done quicker than if I would do it on my own.  He is also quite confident that once I have Mortgage 2 paid, I will see some cashflow.  He states this will be done in 4 years, but I have not had a chance to question where he gets that figure from.  Everything else he has given me says 10 years.  I will let you know what he says about that.

Sent requests for insurance quotes and waiting to hear back.  Seller stated insurance is $1800/yr (he didn't have exact figure on the phone, but when I met with him, this is what he gave me).  I am also guessing that maintenance will be lower than originally thought, as the seller did a lot to maintain the place over 20 years.  Asphalt roof is just under 10 years old, Furnaces (2011), Hot water heater (2012), window A/C units (2012), appliances (2011-2014), electrical and plumbing (about 2000).  Foundation is good (solid concrete with no visible signs of wear or patching), and fire system is from 2003.  Units are kind of weird shaped and not standard on size or shape (rents actually vary from $385 - $500).  Most of the units are $425.  All units are rented (tenants and/or furniture in each), although one unit is being evicted and has until the end of the month to get out.  That unit will need some work done to it which I will probably make the seller deal with (unless other favorable terms can be met).

Seller was definitely a landlord who managed at least some of his properties himself.  He was very knowledgeable on dealing with tenants (I could tell just from the way they interacted), and was very open about pointing out issues he has had or things that are still wrong with the property.  I am not sure if that was for distraction, to build trust falsely, or those were all the things he knew about.  It definitely came off as, "Here's my property, take it or leave it".  I will definitely still do my due diligence, but I am feeling better about this property than I was before seeing it.

Seller wants to be able to fish and work in his workshop all day.  That will probably play as an advantage, as I could them sell him on the idea of cashflowing truly passively.  It will only fly if he sees me as trustworthy, but I think he's feeling more ready to deal with me after meeting.  He told me to be in touch, and maybe we can put something together.  That tells me he might be more willing to work with me than originally stated.

Now the issue is whether or not it is really a good deal.  I am trying to get into something fairly soon before I lose my nerve and never get started.  I am being told it's not by the people here.  I am being told it is by the my dad, who has had experience in this market.  I am definitely not comfortable investing outside of this market (the only one I know with decent potential).  So, do I take a so-so deal so that I can get into the real estate game and use the experience and equity to move on to a better market, or do I skip on this and hope for something better to come along (and risk losing my nerve)?  My current feeling is that I should probably at least work to put the deal together.  That way I can learn a lot about putting a deal together, even if it doesn't turn into a sale.

@Account Closed @Aaron Montague @Roy N. 

That's what I was sensing as well.  The deal is probably not going to work unless I can get a lower price, raise rents, or both.  I sent my dad a link to this post so he can see what I am looking at (hopefully).  Maybe he will have other advice after reading this.  I am hoping I can get some insight into what he is thinking about.  I think he is trying to buy for equity (appreciation and pay-down).  I am worried about cashflow because that is what is going to pay the bills.  I consider anything else to be icing on the cake.

Thank you!   I will continue to try to balance the everything, and make decisions based on numbers, not emotions.  I would love to see this deal work, but it probably won't as it stands now - I will know more about it after tomorrow.

@Chris Simmons 

My dad would want 50% of cashflow.  He considers cashflow weird and it would have to be based on his very low estimate of cashflow.  I come out just a little ahead initially this way, but over the long term, I lose a lot.  Plus, I would prefer to do the deal on my own.

I spoke to the owner on the phone, and even though he is 75 years old, he still seems quite rational.  No one is asking him to give his property away, but he has to know his pricing is high.  You don't do the real estate business for 40 years and acquire several properties (I have found 30 or so under one company and I know he has at least one other company) without knowing how to price them.  So, the only thing I can figure is that he has done it intentionally.  He expressed to me several times over the phone that he is trying to get out of the real estate business and a carry-back on his part would only keep him tied to the business.  I think that he is worried that I won't be able to make the payments to him.  I just did another quick search of his properties under that one company and there are now only 10 left.  I saw a property he owned for sale about 6 months ago, but it didn't fit well for me (which is how I found the 30 originally).  This tells me that he is liquidating, but it doesn't tell me exactly what he is looking for.  That is what I am going to try to find out tomorrow.  If he seems unwilling to budge, then I will move on.

I have yet to find other properties that will make me more money in my area.  They seem to be hard to find and some of the deals that others talk about don't seem to be available in my area.  I will continue to search, but this deal could actually make money if the rents are as low as I suspect they are (but won't know until I see the place).

I forgot to mention that unlike my first deal, this one is in a small town that is thriving and growing at a rapid pace.  It has both college students and military, both of which would be great for this property - as I understand the property right now.  Also, there are some high-tech and science jobs coming into town from a Federal project that has almost completed being built in town.  So, a lot of job growth, business, college students, military, etc.  I have a ton of exit strategies with this property, so I have no concerns from that at this moment.  Just figured I would throw that in there, as that could make a difference on accepting this deal as well.

@Giovanni Isaksen @Jeff Greenberg @Roy N. @Michael Seeker 

I would like to take a moment to invite you over to my deal analysis post, since you all were so wonderfully helpful here without much analysis info.  If you would like to see the numbers from the full deal, check them out here:

http://www.biggerpockets.com/forums/88-real-estate...

Thanks again for all of your help!

Since my first property I was seriously looking at fell through, I thought I would try this again.  Hopefully it is a winner this time.

@Bram Spiero 

 I just wanted to let you know that I am evaluating another deal again to give you a chance to jump in.

It is really too bad that I cannot attach files to the post.  I guess I need more training on how to actually use BP.  I have been so focused on everything else, that I haven't worked on that.

Here's the info, though:

$320,000 asking price, although my highest and best offer would be $302,000.  This property has 10 1br 1ba units.  It brings in $4400/mo in rent and laundry, making the rent $425/unit.  This could be upped to $495/unit and still be below market rent, which would make the income potential to be $5100/mo.  I am basing my numbers on the lower rent number as I am not able to see the place until Friday.

I must also say that my father has dabbled in investing in this area, and either owns or has owned (and rented) about 10 properties in the area.  He is the one giving me these numbers, although I am concerned they are a little low.  This could just be analysis paralysis kicking in as well.  So, I am here presenting his numbers to see what you guys think and go from there.  The rent numbers above I completely agree with, as the higher of the two numbers is still lower than what I was originally thinking they should rent at (based on my initial analysis so far from comps at $550/mo and beyond).

The initial mortgage would be for $240,000 @ 4.25% 20 years for a monthly payment of $1486.  We would ask the seller to carry back $52,000 @ 5% 10 years for a monthly payment of $552.

Mortgage 1: $1486

Mortgage 2: $552

Taxes:  $333

Insurance: $250

Repairs: $400

Pest Control: $20

Water: $100

Electric: $350

Trash: $100

Replacement: $200

Vacancy: $220

This gives him a total of $3911 for all expenses (including mortgages) leaving $489 available for cashflow.  He thinks a great deal and I should pursue it.  I am not as sure.  A couple of things I think he is leaving out:

Management: $440/mo.  This is something that I will not necessarily need at first, but I will want it at some point (possibly before I get Mortgage 2 paid off).  This would pretty much leave me with no cashflow once I add this in.

Other Capital Expenditures: $300 per month on top of what he has for replacement (which I think may be low anyway - he tends to only want to replace stuff when it breaks, but I want to be able to rent my place, so remodels need to happen every once in a while).

As it stands now, I don't think I would be cashflowing for 10 years, and even then, it would be just a bit.  Maybe he knows something I don't.  It's hard to have a good conversation with him about it, as he is in Afghanistan and we are communicating by e-mail.  Every time I send him something saying that I think his numbers are low or that I think he is missing things, he just writes back telling me to use this spreadsheet he made to go to the bank and see what they will give me on a loan.  So, I don't know exactly what he is thinking.

That's why I am on here with this awesome BP community.  Is my dad right?  Is this a good deal from your eyes (clearly, I don't expect you to know the market).

One more important detail. This property is being sold FSBO by an investor who has been doing it for 40 years. He told me over the phone that he is liquidating to be able to retire. He doesn't want to be tied down to the property, so the idea of seller financing does not make him happy. He would rather someone come to the table with the down payment. I told him that if he would work with me, he might be able to get away from the property faster, and give him cashflow in retirement that would require no work on his part. He doesn't know that my dad has already done some investing in properties (and could back me up financially if needed). That's another dilemma for me. I don't want my dad backing me up financially. I would love to do this on my own, but my dad being a somewhat successful investor could play in my favor with earning this guy's trust. That and showing him that I have at least had a good education and just need some experience under my belt to make it work.

I will update on Friday as to what my conversation with the seller was, but I would like to get some feedback before Friday so that I have a good general idea of how good a deal this is.  If it's something I should be interested in at current rental rates, then I will be more willing to work with the guy.  If not, then it may not be worth pursuing.  If rates were really at $5100 now, then this would be something I would be much more comfortable with as my cashflow before Mortgage 2 is paid off would be about $450.  Right now if you include my concerns, cashflow would be about -$250 for 10 years.

So, what do you think?  Should I pursue this or move on?  Are my dad's estimates good, or do I need to rework them?  Any and all advice is appreciated.

Thank you!

@Brandon Turner 

 I just finished reading the book (pdf - the hard copy hasn't arrived yet), and I can say it is wonderful having all of that info in one place!  It will definitely be a go-to resource for me, as I am trying to jump in with little cash of my own.  Thank you so much for compiling all of these techniques in one place!

And congrats to BP for 10 years!

@Giovanni Isaksen 

 This is close to what I was thinking.  It's hard to imagine him saying that price with a straight face, but this guy's been playing poker longer than I've been alive, so he's got a little bit on me (a lot, actually).

I don't know about the rest of the board, but if I'm going to put effort into doing the due diligence and putting together the deal, I want to see some cashflow.  I saw equity vanish basically overnight on properties, so I want some money in my pocket.  I am attracted to the idea of cashflow because I can multiply it over time to something I would be quite comfortable with and then put minimal effort in.  Flips and wholesaling can make a good chunk of change for the moment, but to make more, you have to do more work.  I am not opposed to work, but I like the idea of my work paying dividends over the long term.

Now, that being said, I might accept minimal to no cashflow now for good cashflow later.  What I mean is, if I got no cashflow for 5 years because I'm paying off a seller-financed down payment, then I would probably do that deal because in 5 years, I should have cashflow.  30 years is too long for me, but some may take that as well.  Of course, I am just starting in this business, and things may change based on what I encounter.

I believe you are probably right about this guy needing cashflow more than a chunk of money upfront, and the price may reflect what he expects to get per month based on a loan for that upfront.  I certainly hope so, because that may make it easier to figure a deal that works for both of us.