All Forum Posts by: Justin Mathews

@Matthew Jones

I really appreciate your comments. Here are the details. I acquired a warehouse for $200,000 that appraised the day I bought it for $450, 000. It was a really cool deal that took a year to put together but I got it done.

Now I have a $558,000 bridge loan at 3.5% for 5-years with IO For 18 months that started October 2021 and because I put one of my properties up as collateral, I brought nothing to the table. That loan includes the purchase, fees and construction costs. The bank is in the process of releasing that second property as collateral as we speak because the ARV value is high enough on the warehouse to no longer need it. This was our arrangement in advance. The warehouse now appraises for $800,000. I'm told that with a new roof on it, it would sell for between $900,000 to $1.1 million based on the desirability of the location. My desire is to hold it long-term and refinance it with a long-term fixed solution once I get a tenant in place.

Because of unexpected window supply issues and the roof needing to be replaced on the warehouse (I couldn't tell that it was as bad as it is until I got into construction and could see the decking from below) I need to borrow an additional $175,000 to pay off the last of the contractors and have enough money to make the first year of payments and insurance (70k) in case it doesn't get leased soon, and to put the new roof on the building (105k). I have gotten three bids on the roof and had an experienced GC inspected as well.

To get the cash I need to finish the project I have found a bank who will do a 20-year fixed on one of my rental houses at 6.25% which is sounding much better to me than a HELOC or another 5-year arm commercial product given rates. The house currently cash flows $2100 /month and is paid off so I should have more than enough to cover the payments on the cash out refi on the house and still have some cash flow left for operating cost on that unit.

Since I posted this originally it has rained hard four times and the roof on the warehouse has not leaked! I can probably do without a new roof for a few years, but I'm taking a risk of always chasing leaks or damaging a tenants property. This is my new dilemma... Do I do the roof now with the cash from the refi or do I wait. My gut says I need to do the roof now so that the building is in completely white boxed condition ready to go.

However, I think one of the things that I've learned from this thread is that the best case scenario would be for me to be ready to do the roof with cash in hand, but wait to do the roof until I have a tenant loi or lease. That gives me maximum safety financially and the ability to move quickly. I know that it means the money will be sitting in the bank and not working for a short period of time, but it's worth it to me to have the financial security and options.

If I don't need to do the roof because the patches hold or if I don't need cash to do the roof because I have enough cash flow on the warehouse to cover it, then I could redeploy the money that I pulled out of the rental house to other priorities or another property. Either way, I need about $70,000 of the $175000 now in order to pay off the contractors who are finishing their work.

I think that's the full scenario...

 I appreciate the response. I of course don't want to be in over my head but I've got a lot of lease interest. It is currently dry in its patched state and is showing well. But the metal decking that you can see from the inside is pretty rusted and torn up, so I think it detracts. It will depend on the kind of lease that we get. If it's industrial, logistics, packaging, etc, I don't know that they will care about the way the roof looks underneath. However, if we get something else like open office with an industrial look, they probably would care. Trouble would come for me if I don't have it leased by October 2022 and I have to start making PI payments without cash flow to support it. Having a lease in place is the safest bet but the roof is going to take a while to get done because of materials back order. I feel like I'm in a dilemma where I could get a tenant that wants to move in right away but they wouldn't be able to for 30 to 60 days because of waiting for the roof. Any suggestions?

@John Mckee thanks!

@Justin Mathews correction, I'm leaning towards option two, 30-year product, so that I continue to cash flow a little bit.

I have a choice to make on a cash out refinance. I have a house that rents for $2,100 right now and is stable. The house is paid off and I love getting the cash flow. However, I have a commercial property that needs a new roof and repairs right away. My plan is to do a cash out refi to unlock 75% of the $300,000 of equity that's in the house. This will cover my repairs and leave me about $55,000 to invest in another deal.

Here's the question...

1.

I can take out a 15-year loan at 5.5% with a payment of $2143 with taxes and insurance included which would put me at about break even but pay off sooner and have the least amount of interest.

2.

Or I can do a 30-year loan at 6.6% and have a payment of $1783 with taxes and insurance and cash flow positively by $317 a month.

I have a W-2 job and do not plan on changing that in the near future so I just reinvest the cash flow each year and am building equity. Also I will be 60 years old in 15 years so having all my property is paid off at about that time would be a benefit from a cash flow standpoint when I may need it more. All that being said, something in me is leaning towards option one so that I continue to cash flow a little bit. I would like to be able to live on my real estate cash flow before I turn 60 if I can put together enough properties.

Which loan would you take?

Thank you!

@Ronald Rohde Thank you for your response and the pushback. I definitely don't want to be in over my head. It has not leased yet because it has been under construction and until recently had leaks. I think I have chased down all the leaks but I'm still concerned about the old roof leaking once somebody is in there. Also, the under decking in some sections is very ugly and could detract from leasing. I like the idea of the roof as a tenant improvement but not sure how I could sell that. How have you done that? I always assumed structural issues like roofs are owner issues not tenant issues. One thing I could take away from your post though is to wait to do the roof until I have someone under contract. I could take out a HELOC on the rental instead of a loan so that I'm ready to go when the time comes if I don't get the tenant improvements approach to work.

@Katie Neason unfortunately some of the contractors need to get paid so I need to take the equity out now to cover the over budget invoices. The roof might as well be done at the same time. I think I am going to max out the loan and I appreciate the suggestion about paying it off. If I decide not to deploy the capital for some reason. I'm definitely going to wait until the warehouses leased to deploy any excess capital just to be conservative.

@Abhishesh Acharya I really appreciate the suggestion. I think if I didn't have the asset to draw on to get it done and retain the equity I would look for a partner to help finish it out. This is a possibility but one that I'd like to avoid. I totally agree with you about the TI packages. It's a pretty unique property in Kansas City.

@Jade S. Thank you for your reply. I can't say how old the roof is because the building is probably 60 to 70 years old and it's been patched and layered so many times I can't tell. I spent a good amount of time and money patching everything that is there and while it is much better I'm concerned about chasing leaks and the liability it could cause if a tenants goods were damaged. Also, the under decking looks horrendous and I plan on replacing much of the metal under deck. I don't think it's excessive if you saw it. It's a bad eyesore and attracts from potential rent. The new roof itself is going to be $105,000 which isn't that bad capitalized over the life of the asset.

@Paul Smythe Thank you so much for the good response. I have three quotes and have chosen the most advantageous and a roofing company that I have experience with. It is listed with a commercial broker and there is interest, although there is more interest in buying it than there is in leasing it so far. It's an interesting size because it's too big for small warehousing but too small for big warehousing needs. However, in Kansas City where I'm located, there is almost no inventory in my category. I think that's why we're getting interest. I totally agree with you that a tenant in place would make things so much easier! I feel like I have to do the roof because the potential liability of destroying someone else's property with a leak could be six figures also and entangle me in legal wrangling... I've just got to get it done I think.