All Forum Posts by: Jerry Ellis

I built my own spreadsheet to calculate cash flow and give me some additional metrics such as cash-on-cash and cap rate. Perhaps I need to calculate a 70% offer limit based on what I feel is the ARV (if any) and maybe even just 70% of what I feel is market value for rent ready properties. Then of course, start making offers.

I kind of feel like I've been expecting to see properties listed at a great price where maybe some of it is just having a seller accept an offer that makes it a good deal.

I decided a while back that I want to supplement my income and retirement with rentals. I've set some goals and have been working on the details of the landlording and am working on a business plan but I'm hazy on one aspect.

I'm aware of the BRRRR strategy for buy and holds. Buy, rehab, rent, and refinance pulling your money back out so that you can repeat. It seems simple right?

I'm on MLS and craig's list pretty much every day and have been analyzing all sorts of properties. Most pencil out to $100 to $150 per door with 10% for vac, maint, & capex, etc. If I buy any of these properties I've analyzed, I feel like they'll cash flow but then I'll have to save up for another down payment for the next one and that'll take a while.

I've been looking at single family and multifamily up to about 6 units. I've yet to come across a property I'd consider undervalued in price or rents that I could apply the BRRRR strategy to. At least, nothing obvious. As a consumer, my process is usually to educate myself on all the aspects of the thing I want to buy so I know a good deal when it pops up and I would assume it's the same when it comes to real estate.

I hear of people going from 0 to 10+ properties in a short time. So how are they going from uneducated to recognizing and securing these deals? Is it that they are putting in a crap-ton of low offers that the occasional seller accepts that leaves room for a cash out refi?

Being a new investor, not only am I looking for properties but I’m also working to fill my toolbox so I’ll be ready to go the day I close on my first property. Those tools include things like lining up vendors so when a tenant calls me at 8pm on a Sunday with a broken furnace, I’ll be able to quickly get someone on their way. My toolbox will also contain administrative tools such as an attorney approved lease and online rent pay. Today, I met with a lender that does commercial loans in my attempt to line up as many options as possible for financing. Maybe I’ve gotten lucky, but I’ve found what I think will be a great source for both conventional and commercial lending without having to talk to seventy-eleven people. I wanted to share the experiences I’ve had talking to lenders in hopes that someone might get some value. Note that these lessons are not limited to just working with lenders. Because I feel it’s important to shop local, the lenders I’ve spoken too are either regional or single small town banks and I’ve found in those situations that they are more likely to bend the rules if the argument is worthy.

Lesson 1: When I approached a credit union, who by the way doesn't really do investor loans, I asked for a referral and got the name of a guy at another neighborhood bank. It got me into contact with folks I may not have found otherwise. The referral was an loan officer that owns 10 SFH of his own. He knows the business and will be a great resource. So, ask for referrals.

Lesson 2: One of the things I've experienced in some cases is the feeling that I know more about the process than the loan officer does. Case in point was when a particular loan officer responded to my inquiry on a pre-approval application that they had to check to see if the income from the rental counted when figuring my DTI ratio. Seems like that's a question they should know the answer to unless she hadn't ever written a loan for an investor. Nice person but I think her experience is limited to owner occupied SFH's. She probably could have gotten the job done but I'd rather not be the subject of her on the job training. You'll be better served by and hit less bumps with someone with experience and this applies to all aspects and all of your vendors. And don't be afraid to ask them if there is any wisdom they can add to your plans because you don't know, what you don't know.

Lesson 3: I purchased a composition notebook and in it I make my notes. It includes definitions for real estate terms, formulas, notes from meetings, my overall investing goals, etc. Prior to an appointment with someone, I devote a page in my notebook with questions I want to get answers to in that meeting. It nearly eliminates the need to go back and ask stuff I’ve forgotten about. So organize your thoughts on paper.

Here’s the bonus: What I’ve found by being organized, focused, and asking intelligent questions as well as giving honest answers to theirs, that it goes a long way in selling myself. Why do I feel like this is important? The question I’ve gotten from the commercial lenders is, “Do you have any experience?”. Well, in real estate I don’t but it became a non-issue today when I was able to demonstrate that I’ve done the research and am putting in place the systems I’ll need to be successful. I’ve sold him on the idea without actually saying the words. As long as I have my financial house in order (which I do) and I bring him a deal that makes sense, (which I of course will) I have no doubt that if some wrinkle should come about he’ll work with me to make the deal successful. So sell yourself by having your act together and being humble.

I’m super excited even though I’ve still got a lot of work to do before I’m comfortable to start putting in offers, I know that my toolbox will be fully equipped to make things happen and I’ll be successful.

It's frustrating I know and while it may not be as fast as you'd like, you can in fact get there. Since you need the cash and the experience, maybe you can find another investor to work for. Offer to do their grunt work or whatever they need and use this as a vehicle to make extra money, make connections, and learn.

Read some books like Rich Dad Poor Dad, Dave Ramsey's Total Money Makeover, and The Millionaire Next Door.

I thought I'd send letters to see if I could find someone interested in selling their multi-unit properties and when I went to the Champaign County's website to lookup the owner addresses for some properties I've identified, I ran across this one. I can post a screen shot from one that's paid on time if someone wants.

I see the reference to the county clerk's office but I'm wondering what this might mean if I were to put together a deal to purchase the property. Is it simply an indication that the owner might be in distress? If I buy the property, I assume that I'll have to bring the taxes current, but is there something else I need to look into?

It sounds like folks have responded with both sides of the coin in regards to working with multiple agents. I'd like to add another side so maybe it's not a coin anymore but a tirangle. ha ha

I haven't found a realtor that is doing much more than just showing me the property that I've identified and getting a few questions answered from the seller. I always explain to them a little about what I'm doing and what I'm looking for. None have been proactive. I would not want to sign a buyer's agreement with any of these folks. 

My first reaction would be not to sign one under any circumstance but I guess I would consider it if I knew I would get some value out of it. Yesterday, I found a loan officer that does conventional SFH loans but also works with investors as well as owning 10 properties of his own. Super knowledgeable guy. I'm going to ask him to suggest a realtor. I'm also getting involved in the local REI groups and hope to come away with some recommendations.

I'll continue using multiple agents until I find a good one. I should note that I've only had one agent even mention a buyer's agreement and that was only to make sure that I've not signed one with someone else.

I like to ask for a P&L (income statement). It will often reveal important information about the seller and the deal. For example, I looked at a triplex and was told that all utilities are paid by the tenants but there was an monthly $11 expense for electricity. Turns out there is a meter somewhere for a pole light or something that the owner paid.

An agent for another property told me that only water was paid for by the landlord but then his P&L, which by the way was just a MS Word doc with some stuff scribbled on it indicated otherwise. That same seller told the agent and all the units in all his properties were rented. One of the units of the building I was interested in was "rented" by the owner's son who obviously didn't occupy the unit as it had no stove or refrigerator and lacked furniture except for a bed. I do't think the seller was purposely lying but clearly his books are in shambles. 

So look for things to verify what you know about the property. i.e. count the gas and electric meters, etc. And asking the owner to confirm what you know doesn't hurt. I'm always polite and suggest that I might have confused my notes and just want to confirm.

I was just at my county's assessor's office yesterday asking about how the taxes work after a sale. I hope this helps. 

When I bought my residence, the taxes tripled. I was shocked and not prepared. I want to make sure that this doesn't happen again so I'm trying to get a better understanding of how it works. What I was told was that there were exemptions on my house in place that kept the taxes low on the property. Since I wasn't eligible the taxes went up. I was assured that the sale price had nothing to do with it. It's all about the assessed value and the tax multiplier which could increase depending on things like new tax referendums or tax hikes. 

What I took from the conversation was to check to see if there are any exemptions on the properties. If there are none, then there shouldn't be a big concern other then the normal small increases a person normally sees. 

For Champaign county property tax lookup, one can see the taxes from the previous four years. I suppose if you could get that same data, you could average out the increase and work that into your projections. 

As a matter of fact @Jeff Ihnen, I had trouble with the guy in the deal I mentioned. First it was "landlord pays for water". Then it was "landlord pays all utilities". I requested an income statement and got a MS Word doc. In these cases, I always budget for the worse. In other cases, I received an income statement that looks like it was printed out of Quickbooks or something. It's amazing to me that people don't keep better records.

I sent the invite to connect by the way.

A response like that from the agent seems like a ploy to embarrass you into offering a higher number. Or maybe the agent is just bad at their job. Reading through the thread, I didn't see if there was a counter from the seller. I would press the agent to make sure that your offer was presented and invite a counter. 

I've been trying to put together a deal on a property that the seller purchased near the top of the bubble (2006) and it looks like no maintenance has been done since. The place is a dump but the seller has it listed for what he paid for it. Certainly not anywhere close to move-in ready. It's been on the market for almost a year along with other very similar properties from other sellers. The other properties are in much better shape, very close in price, and again these properties have also been sitting for almost a year. No price reductions by the way. I pointed this out the the agent and explained my math for why I feel like it's only worth half of asking. I pointed out that the seller maximized his profits by deferring maintenance and by doing so reduced the value of the property. I'm not sure I'm going to make an offer. I'm trying not to hijack your thread if you want to talk more. I'm not far away.

The next two sentences are the most important thing I'm trying to convey: The one thing I know about business is that injecting emotion into decision making clouds your judgement. Decide what number makes sense and stick to it.

As for my situation, I'm moving on from the deal I described above but will watch the property. Perhaps I'll put in an offer later.  Good luck to you!