All Forum Posts by: Jason Reynolds

Hey everyone! Just wanted to post a recap of my most recent deal since we closed the refinance this week. For those who haven't seen it, I posted probably a year or so ago about my first deal (a 2-unit in Allentown I purchased with 25% down), and in that post I said moving forward I was looking to BRRRR and recycle capital rather than saving up 25% down each time I bought a property.

Anyways, I found this deal through cold calling. This was actually one of the very first sellers I talked to from cold calling! I remember thinking I had struck gold with this cold calling stuff but it turns out I just got EXTREMELY lucky. I locked this one up in August, and have made tens of thousands of calls since then and have yet to find another deal like this one (although I have a few more in the works). 

Rather than explain the numbers, I thought I would just post my spreadsheet I use to analyze deals with all of the finalized numbers. Long story short, I ended up with $5,000 out of pocket for a property that cash flows $650/month and added $50k to my net worth! I'm really proud of how this deal turned out and I wish I could repeat it 100 times this year. 

Moving forward, I'm doubling down on direct-to-seller marketing and trying to get as many of these deals in the Lehigh Valley as possible! Marketing and sales definitely isn't where my natural ability is, but I'm working on improving my sales skills & tracking the money I spend, KPIs, etc to optimize what I spend on marketing. I also just started posting on IG (follow me @thejasonreyn) and am under contract on a 3-unit property that someone sent to me in my DMs! Say what you want about it, but social media is literally free marketing and it's the direction the world is going. If you're not posting on social media you're losing deals!

Let me know if you guys have any questions about how I'm running my numbers, marketing/sales stuff, or anything else! Feel free to send me a PM here or on Instagram

@James Zhang I know someone who can likely do that for you. I'll send you a PM

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Allentown,PA.

2 units

3 bd/1ba & 1 bd/1 ba

Purchase price: $136,000 with 2% seller assist
Cash invested: roughly $40,000 to close, then about $8,000 in initial repairs

What made you interested in investing in this type of deal?

Since this was my first investment property, I was looking for something which would provide good cash flow and give me a good foundation in rental property investing that I can learn from and use the experience to build to bigger and better deals in the future. Although this deal certainly wasn't a home run since I had to leave almost 50k in the deal, I now have the confidence, systems, and ability to pursue deals which will allow me to recycle capital in the future.

How did you find this deal and how did you negotiate it?

Found on the MLS. Saw it the morning after it was listed and made an offer immediately that was slightly over list price. I had been searching in Allentown for a while, and all of the 2 unit properties at this price where either in a not-great location, needed significant work done, had problematic tenants, etc. My realtor and I felt this property was listed slightly below what it was currently worth. Especially since it was listed as having a 2 bd apartment upstairs, not a 3bd.

How did you finance this deal?

25% down conventional 30 yr fixed at 3.625%

How did you add value to the deal?

The upstairs unit (3 bd) did not have hookups for in-unit laundry, so I added necessary plumbing/electrical for washer/dryer. Also for both units replaced flooring in kitchen/bathrooms/etc., refinished dated cabinets, replaced countertops. The first unit kitchen layout wasn't functional so I moved a couple things around which created way more countertop space. In hindsight, I may have slightly over-rehabbed since it likely wasn't significant enough to be able to appraise for a high enough value to where I could pull that back out through refinance. But I don't regret it since I was able to get incredible tenants in at market rent. In the condition it was when we closed, it likely wouldn't have attracted such great tenants. I attached some before and after photos at the bottom of this post.

What was the outcome?

The 3 bd unit is rented at $1200, & the 1 bd unit at $885, both to great tenants who pay early each month. Since I am initially managing myself, I am netting around $600/month after budgeting for vacancy, maint/capex, etc. About a 13% CoC return. As I scale and add property management this number will be slightly lower.

Lessons learned? Challenges?

Far too many to list in this post, but I'll give it my best shot.

Most important realization I've had is that I don't want to have to save up $50k+ each time I buy, so moving forward I'm going to be looking for ways to create equity and be able to pull out the capital I put in. Those in Allentown know it's an incredibly competitive market right now, especially in the 2-4 unit space, so this is going to be my biggest challenge for my next purchase. Purchasing property at retail value on-market isn't going to allow for the acceleration in net worth and cash flow I'm looking for.

Besides the washer/dryer hookups I mentioned above, I did all of the work myself (with some help from my Dad as well). This took way longer than expected, was harder than expected, cost more than expected, and was bloody at times (P.S.A - utility blades are very sharp). I was mainly doing this so I could learn exactly how everything was done and how much common repairs cost, so I will be more educated on this in the future when hiring it out. I also definitely had the time for it and thought it would be fun. I don't regret this, but I know in order to scale it doesn't make sense to take a month or longer of 16 hr days to do the rehab myself. 

I would not recommend self-managing to anyone who's not willing to take the time to learn how to do it right. I spent countless hours educating myself, creating screening-criteria, etc. and I still made a few mistakes along the way. If you are short on time it's far better to hire a professional to do this rather than try to do it yourself, since a bad tenant could do a lot of damage. Similar to doing the work myself, I'm self-managing to learn how to do it right so I can be well-equipped to hire the right person when the time comes.

Also, claw-foot tubs are the worst. I should have just had them replaced with a surround tub and will do this in the future when it makes sense. I kept them mainly because I didn't want to take on that large of a plumbing project myself on my first property, and I thought they were pretty cool and a nice way to leave historic Allentown character in the unit, but they were a headache throughout the entire rehab process. Lesson learned.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

The realtor I used was David Ribardo, who was an invaluable asset from start to finish and connected me with many of the professionals I used throughout the entire process. I connected with him on BP initially, so I recommend any investor looking to buy in the Lehigh Valley sends him a PM!

The lender I used was Michelle Wahlmark with Movement mortgage. I also was really happy with the inspector/insurance agents/etc. that I used. Feel free to PM me and I'd gladly connect you with them.

Before:

After:

@Account Closed I have a few points of advice: First, if you're willing to back out of a deal because someone on the forum said it's a bad deal without really any evidence to support it, then you probably need to gain more confidence in how you run numbers and decide what you are willing to pay for a property. In my opinion it's incredibly important to be able to accurately run numbers for your area before you begin making offers. If you PM me I'd be glad to set up a time to chat and we can go over how I determine what I can pay for a property. 

Maybe a more seasoned Allentown investor will be able to chime in on this, but I think $1500 plus $100 for garage in that area would be a bit high. Unless you made significant upgrades to the kitchen/bathrooms, maybe finished what appears to be the 3rd floor attic in the pictures, etc. Something that really helped me when starting out is working with an agent that really knows the area well and specializes in working with investors.

Also it's generally not good practice to depend on holding the property for a few years and assuming the value/rents will appreciate. If this is a buy-and-hold, I recommend making sure the property will be giving you a solid CoC return as soon as you rent it out.

@Account Closed, I agree with what Nick said above as far as who you are going up against and what the bank is looking for.

It seems like your 24 hour window for highest and best is over, but I'll add my 2 cents anyways. I pulled up the listing for the house you're talking about, love the location and seems like it was taken care of well. At the price you were thinking about offering though, I don't think it would be a very good cash flow play after you move out. Not sure what your intentions were with this property, but even if it were a live-in flip instead I think 155k would be too high of an offer to profit on. 

However, you mention that you and your wife would really like to move out of your 2 unit into a single family home. So if that's very important to you and it's ok that maybe this house isn't a cash cow but you're able to just get the money you put in out at the end and technically live for free, then maybe this could be a good deal for you guys. I don't think there is always a straightforward answer to that kind of question. It depends on what takes higher priority for you. But after doing a quick analysis on this one, I definitely don't think it would be a great deal looking at it from an investment only perspective. Feel free to shoot me a PM if you'd like to chat about anything, I'm a new investor in the Allentown area too!

Also @Nick M., I went to Lehigh as well! Lived not too far from Montclair on Taylor St. Did you use that house at 828 Montclair as a student rental?

Hi @Ray T., my plan has changed a bit since this post. The specific house this post was about fell through during the inspection period with some foundation issues. There were a few other houses in the area that I attempted to purchase, but we ran into an issue using an FHA loan. The prices on the couple of streets that students are interested in living in are extremely inflated compared to the rest of south bethlehem, and ultimately sellers were afraid the appraisal wouldn't come in at the price we agreed upon. Looking back on it now there are definitely a couple other financing options I could have tried to make work, but I liked the idea of not having to put 50k down on my first investment at the time.

With that said, I then expanded to also looking at Allentown after talking to my agent and a couple other investors. I am now under contract on a 2 unit in Allentown, going conventional financing with 25% down. I was thinking about doing FHA, but Lehigh actually just announced that they are recommending students go fully online, and severely limiting on-campus interaction for those who still choose to come to campus. So I decided I would do online for my last semester, go conventional with this one, and utilize FHA with my next property.

Feel free to shoot me a PM if you want to talk more details!

Hard to know for sure without more context, but here's a couple of my thoughts since I'm in a similar situation of debating whether to use FHA or conventional for my first property:

You said you are thinking about taking advantage of FHA low down payment and refinancing after a year. Unless you can create 25% equity through the rehab, you will likely have to bring cash to the table to refinance to conventional after a year.

One good reason it might be a good idea to use conventional instead of FHA are that it gives you the flexibility to use FHA on a future property, since you can only have one FHA loan at a time. There are also FHA restrictions to make sure people don't take advantage of the program to acquire a ton of investment properties. So you probably wouldn't be able to just buy a property, house-hack it for a while, then refi, move into another one, and repeat the process (although this would be great). However, if you are moving across the country, or have other legitimate reasons for moving and can prove this, I believe you would be able to repeat. Also no PMI.

However, FHA gives you the option of dipping your feet in the water as far as being a landlord, and will allow you to create some systems, probably make some mistakes, and then have cash on hand to take these lessons learned and invest into a better deal.

I'm also from SJ so feel free to give me a shout if you want to chat!

@Hope Louisse Montenegro Does that monthly mortgage payment include taxes and insurance? If not, then I doubt this property would cash flow at all, and would likely be negative. Even if it does include them at first glance it still doesn't look like it would cash flow after budgeting for expenses. Did you use the BP rental property calculator or something similar to run the numbers before you purchased the house? 

It's hard to recommend whether you should sell or hold from just a description on a forum post, but regardless I would view this as a valuable learning experience. Just from your post it seems like you've learned what a bad property manager looks like, and that you definitely need to be more conservative when budgeting for vacancy, maintenance, etc.. 

If it truly is just going to keep sucking money from you, then maybe it is best to cut your losses and instead save up for the next property. But again it's hard to tell without all the details.

Hope this helps,

@Patrick Liska I'm soon closing on my first student rental and I've been spending a lot of time thinking about plan B scenarios if August (or whenever turnover is going to happen that year) comes around and the property is still vacant. Would love to hear some of your experiences with these options. My specific property would about break-even if I had to rent to a local family long term, but cash flows really well when rented to students. I think I would struggle to find a family big enough to rent a 5 bedroom house that is only interested in staying for 1 year, so I can get back to renting to students the following year.

On a side note, what forms of marketing your rentals have you found to be most effective when targeting students?

Thanks

Hey @Account Closed,

I'm very much new to real estate, but I'm actually in the process of closing on my first SFR which is in a college town. So I may be able to provide a small amount of insight. I'm interested in hearing others responses to this thread as well.

1. I began my search for a property to house-hack while going to school right when everything started to shut down. My school is in a county in PA in which all in-person real estate activities were shut down until just a few days ago. This made the search more complicated but because I knew the area well enough to offer on a property without physically going in it, I was able to get the seller to come down off their listing price by 10k in a market that has been really hot. Then the next day the market opened back up again so I have the inspection tomorrow. Got a bit lucky there.

2. College students (at least at my school) are VERY picky about where they will live. If you go in without knowledge of the market and pick a house in the wrong area you will have a tough time renting to students. Then obviously I'm sure many people will bring up the differences in managing a student rental (high turnover, potentially higher risk for damage, etc.)

3. Like I said earlier, just getting started and buying in a college town. In the future I am planning on either purchasing more SFR as student rentals in the area if I can get good deals, or moving into multifamily. Time will tell.

4. In my market, most off-campus housing is either SFR or duplex. Just the way the town is. The school has recently built a huge apartment complex right on campus, so most students who go off campus are doing so for the freedom/independence they get from living in a house with just their friends.