All Forum Posts by: Jake Kellerhals

When you look at a property your realtor should be able to tell you what the SELLER claims is the current income. Lets say you're looking at a duplex that rents for $600 per unit. You should see that the gross income is $1,200.

Now lets say that you make an offer based on the assumption that the units are indeed rented out for $1,200 and you make an offer, which is accepted. In that offer you need to have a "due diligence period" and request a copy of the current leases that the people who are occupying the units signed when they moved in. If they both show an agreement to rent for $600, then you were told the truth. However, you might find that they are actually renting for some amount less ($575, $550) and the $1,200 in fact represents what the seller thinks they COULD rent for.

The reason you have a due diligence period after agreeing to a price is that so many factors of your deal need to have the variable of the sales price solved before making an accurate decision. For example, the duplex with $1,200 per month income might be a steal at $70k, but not a good deal at $100k. You never know what the price will be until you make an offer. So you agree on a price with the seller, then you have some time to decide if it is actually something you want to go through with.

My company was formed in early 2012 (LLC) and we currently have 28 units in 11 different buildings in the company name. We were able to finance most of these through a private individual, so our personal names are no where on the properties. The loans are fixed at 5% interest over 12-15 years and only required us to put 10% down. As we have always made our payments early over the last year and half, he has even mortgaged a few properties 100% for us lately. Our private financier is almost tapped out, and obviously his greatest value to us is in the acquisition of property since he funds 90-100% with virtually no approval process.

In particular we would be interested in refinancing 16 units in 6 duplexes and one quad all on the same street. We owe our mortgage holder roughly $430k for these properties. The gross income on these units is $9,125 month, they were built in 2003, so I think their value is conservatively $600k. We wouldn't want to pull out any cash, just refinance into terms that are as good or better (longer payback schedule) and free up his funds for more acquisitions. All properties cash flow pretty well considering their short payback schedule.

Our goals are to build a cash-flow machine through long term buy and hold. We are flipping as well, with the proceeds all going towards the next long term rental.

Two questions for the BP community:

1) do you know of any lenders that would refi such a property with our company being less than 2 years old?

2) Do you think our strategy is sound, or should we be thankful for the fixed term loans and move to more conventional financing?

In my experience they are going to inflate the rents (sometimes) and deflate the expenses. You can usually get a copy of the lease during your due diligence period (once you have an accepted contract, but can still back out). If you get a real lease, 95% of the time that's going to be an accurate number.

For expenses, ask for their tax returns on that property. They are obviously going to INFLATE expenses for the IRS so they can deduct as much as possible.

But in the end, it's impossible to expect to get a 100% accurate picture of the property until you own it. Expenses vary from year to year, a unit that has been occupied by the same person for 10 years might suddenly be vacant for 6 months.... you won't ever be 100% certain. The biggest variable of all is your management! Will you be a better manager of the property and lower expenses while increasing revenue? Will you perform at the same level? Or worse?

I agree with @Jeff Arndt , why are you putting so much cash in? That's why your returns are so low. With interest rates being as low as they are, you're much better off financing as much as you can from a pure numbers standpoint. The flip side is the security of a smaller payment and less risk, but you should be able to find a happy medium. Run your numbers at 20, 25 and 30% down and see what that does for your return. Also factor in what you can do with the additional cash, perhaps buy another investment property somewhere else and REALLY increase your profit.

I've never wholesaled, so take this with a grain of salt.... but I would suggest you wait to hire that stuff out until you see a need for it. You'll learn so much more by doing the most you can yourself, plus you'll save money. One problem many startup businesses have is that they commit too much capital to things they think they need too soon. Stay small and nimble and in control of your business until you just can't handle the workload anymore.

Without going too deep here, if I had that money there is no way I'd pay cash for anything! Use the power of leverage to turn your $100k into $300-$400k worth of real estate that your tenants will pay for! The absolute hardest thing about growing in real estate is getting the cash for your acquisition cost. Once you acquire a property (the hardest part), you can wait 6 months and refinance it to get your cash out or use your cash flow to make extra payments and get it paid off quickly. Put the least amount of cash down that you possibly can and still have decent margins with your cash flow.

You said you wanted to as much cash flow as possible, so to get that you need as many units as possible. I'd stick to multi-unit buildings (typically more income than a single family home will rent for) and get as many as you can. How you manage your cash flow from that point on will ultimatly determine how successful you are.

Hey @Lucas Kok

First of all, good job on saving that cash flow and not spending it! I am operating under the same premise with my two partners, we don't take any of our cash flow out of the bank account and look to just keep reinvesting it to grow our "snowball".

We are in the same boat as you, we got some really awesome deals a few years ago but can't find the same returns now. Our philosophy is that we will buy the best deals that we can find, regardless of where they stack up against previous deals. We have a few properties that are generating a cash-on-cash return of 50%+ per year, which is awesome, but nothing available right now comes close to that. However, we have found many that will realize ROI's in the 20-30% range, and while not as good, these returns are still fabulous, especially when you consider the principal payments that are also being made.

My point to you would be to put your money to WORK for you, even if it doesn't get you the same results you once realized. As long as you are getting a decent return on your investment, go buy it!

Welcome, I'm fairly new myself. I'm right up the road from you in Chattanooga, looking to possibly make some aquisitions in the Atlanta area. Best of luck to you!

Welcome from Chattanooga! I'm fairly new here as well, been great so far. Learning alot!