All Forum Posts by: Lance Johnson

Ticket to Ride is one of my absolute favorites.

Finding ARV on multi-family can be very hard. Even if you had other four-unit building sales to compare to, they might not be high quality comps. When buying and selling MFH (in particular anything 5+ units), you are really buying and selling a business. Yes, there is value in the land and the structure, but the primary value is in the business.

I, personally, like to use discounted cash flow models to help me determine these values. You can use a few rules of thumb, though, to get a quick estimate. Let's say you can get this 4-plex for $100k today and it is generating gross rents of $1,200 per month. Let's take that 1.2% as fixed for simplicity. After rehab, you can generate gross rents of $1,700. This means that the ARV would be around $142k. Again, this is just a quick and dirty, but it should at least start pointing you in the right direction.

Your best bet would be to check the property tax or zoning maps. Most cities make those available online.

It will probably be hard to get conventional funding for this not only because of the unique income situation, but also because you are first-time rehab and sell investors. This isn't to say that it would be impossible, but you might find that you get an unfavorable interest rate or are required to make a much larger down payment than you like.

I'm certainly no expert in this area, but what experience I do have myself is that, even with earned income combined with other sources, qualifying for investment loans can be difficult if that earned income alone isn't sufficient to meet the lender's guidelines.

Also, to find properties when you are new to an area, certainly see if you can find an agent who is investor friendly. You aren't going to get the best deals when buying MLS, but as someone who is just starting out and who doesn't know the area well, it is certainly the easiest way to get moving quickly.

As an investor, you would evaluate a duplex/triplex exactly the same as you would a single family, but you would want to split some things out on a per-unit basis. For instance, make sure you are calculating repairs and utilities on a per-unit basis. (Utilities are likely just water, and then it depends on how the water is metered as to how much you can really know.)

One advantage you have when buying multi-family is that, almost without exception, the previous owner was renting out part (if not all) of the building. This means that you are buying not just a property, but an existing business, and as such, you should make sure you get copies of the accounting records for the business. This will include actual rents received, actual maintenance done, taxes paid, utilities, etc. It can be hard to get these same data points for SFH because they simply may not exist.

Build out a spreadsheet and forecast what will actually happen on a going forward basis. Of course you can't predict things perfectly, but you should be able to at least figure out how close you are to a good deal. If you couldn't tolerate a 20% increase in predicted expenses or a higher vacancy rate, you probably don't have a good deal.

I definitely haven't thought much about it, but living in San Francisco where it seems everyone is crazy (just kidding!), maybe I should.

I suppose it hasn't really crossed my mind because the situation has never crossed my path.

@Chris Dawson - I'm definitely interested in higher quality rentals, which will inevitably result in higher price points. Since I'm looking more at long-term strategies with higher quality properties, I know that annual cash flow as a percentage of purchase price might be lower than some other opportunities. I'd be interested in learning more about your strategies and what you see happening in the markets there.

@Rob Scarborough - I'd also be interested talking to you and learning more about what you're doing and some of the opportunities you're seeing. I haven't spent a great deal of time north of the river, but I have heard similar things about the deals there.

There are many reasons that someone might want owner financing. You'll find many investors here on BP who ask sellers for owner financing when they are buying because they can't (or won't) make a large down payment, or perhaps its the cheapest financing option available because they've already used up their 4-10 mortgages and hard money is too expensive. New buyers might be looking for for owner financing because traditional lenders won't finance them right now, even though they have ability to pay.

Offering owner financing would certainly allow you to charge a higher rate than the bank. If you are going to consider this, you should evaluate their ability to pay just like any bank would do, and you need to be ready and willing to foreclose on the property if they stop paying.

@Stacey Olson - I've had no experience with this personally, but my sister is a mental health professional, as well, and based on some of the stories I've heard, if you have real reasons to believe that a seller may be compromised on their ability to make good decisions, I would recommend caution. Your life could be made very difficult if the person's assets end up being taken over by a conservator or if a deal ends up being reviewed somewhere down the road and the seller is deemed unfit to have entered into a contract at all. This isn't to say that you should just stop looking at the deal - just be very sure that you can get it done and that the deal would be upheld in court.