All Forum Posts by: John Fabros

Cap rate, 2% rule,  whatever. The returns across the board seem to be very solid so I'm curious what factors in the Baltimore market are worthy of extra attention. For example, investing in DC requires good knowledge of how Certificates of Occupancy and rent control work here while Florida tends to have very high closing costs making refinancing less appealing.

Looking at markets within driving distance of DC for buy and hold cash flow. From the high level data and also the limited research I've done so far, Baltimore seems to have an abundance of affordable high cap rate properties. Saw that some tax assessments might be high, but overall, investing in the area seems almost a no brainer. Looks like a good number of relatively affordable (to DC) places with over 10% cap rate in what appear to be stable/gentrifying neighborhoods. What am I missing? What are the local quirks that will sink me?

The markets I'm currently looking at most closely are Baltimore, Philadelphia and Richmond. However, I got my start in NE Florida (Jacksonville area) and have been very happy with my returns and ease of doing business there. 

Been shopping for a personal purchase and getting a little frustrated trying to get my VA financed offers accepted.

Last loss was a nearly immaculate three-unit (basement needed a fridge) listed at 1.1 mil. Offered 1.1 with escalation up to 1.4, incremented at 26.5k, as-is, no inspection contingency, VA financing contingency, 21 day close, seller preferred settlement agent. Lender had gotten us through automated underwriting and compliance review so really the only last piece needed was VA appraisal.

Had the lender give LA a call and explain our financing and why not to be worried about the appraisal given that the property was safe and functional (throw in a fridge the day before inspection). I should've called LA right after just to reassure that we would take care of any surprises, or included that in writing (cover up to x in VA-required repairs), but didn't.

Ended up beating all 13 other offers on price, but seller still took a lower but clean offer (not sure if cash or conventional without appraisal contingency). Any advice on what I could have done differently or do better next time?

I have already used part of my entitlement and given that the property is already well over the max zero down loan limit I do not have enough cash to cover the necessary 25% of the difference (sale price - remaining loan limit) on my own. Bringing in a second veteran addresses both those issues. 

Additionally, considering renting out the third unit as a short-term rental which is something I wouldn't be able to accomplish on my own without hiring a management company.

A buddy and I are looking at making an offer on a three-unit in DC as owner-occupants (occupy two, rent out one). We'd been mulling the possibility of some kind of arrangement like this but this property coming onto the market has accelerated our plans. Was curious if anyone had a draft agreement they'd be willing to share that might cover similar territory? (i.e. expense/revenue sharing, basis and changes of ownership percentage including buy-out, one party's inability to pay, what happens when one of us moves) Obviously we'll be consulting a lawyer for a final agreement, but we'd like to do some upfront brainstorming.

I think I could do some small improvements and significantly improve the gross rent.

@JoshuaSmith I started investing in Jacksonville FL when I lived there, where multifamily (2-4) cap rates above 10% were quite easy to find. That's certainly not the case here in DC, but every so often I see something interesting come on to the market. Certainly in SE there are lots of properties that actually look quite good on paper, but my willingness to live on that side of the river was just too low. Currently under contract for a four-unit I'll owner occupy near Trinidad with a current cap of 10.2% (think I can get it up to 12) but stuck in the TOPA process. They certainly don't make it easy to buy multifamily here and I'm considering just buying a nice condo or house for appreciation if the deal falls through.

These are great opportunities but particularly in high-cost areas, those seeking cash-flow may have difficulty finding properties with sufficient rents to cover costs.

Some VA questions I've had answered:

1) The max zero-down loan limit is the same as the *one-unit* conforming loan limit. However, the limit can be exceeded by paying 25% of the difference.

2) Those who have bought in a normal area may have sufficient remaining entitlement once moving to a high-cost area to take out a second VA loan without liquidating the first property.

3) According to the VA handbook, page 4:

http://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter7.pdf

"If a property is to be owned by two or more eligible veterans, it may consist of four family units and one business unit, plus one additional unit for each veteran participating in the ownership.

Thus, two veterans may purchase or construct residential property consisting of up to six family units (the basic four units plus one unit for each of the two veterans), and one business unit."

Haven't found a property to test that with but I'm curious if anyone else has pushed the loan to the limit like that.

SFH + duplex on one property. Non-jumbo, estimate 86% LTV, seeking to refi into conventional to free up VA entitlement. Is this possible to do at zero down by simply adding PMI?