All Forum Posts by: Joel Florek

I am reaching out to find some people who have experience or knowledge of buying apartment complexes that have gone through fires. Please respond techniques and cautions to the strategy. 

Currently, I own 31 units of class B apartments. In one of the towns where most of my portfolio is, there is one class A apartment complex of 24 units split in two buildings. One building recently caught on fire(last night with no injuries) and one of the buildings has 6 to 8 units heavily damaged and 4 to 6 units that have limited damage. I know these are often times where owners get super frustrated and may want to walk from the deal, understandably so. I have local banking relationships, a strong understanding of the local market and have been through gut to the studs renovations before. 

Would love to hear some advice on what these deals typically look like. I haven't reached out to the owner given he is going through a lot today, but I plan to reach out within the week to see how things are going and gauge his intent to rebuild and hold onto the property. 

@Lakeisha Baker In my experience I have yet to land on a "great" agent who brings deals to me that I don't get via automated alters on Realtor.com, Zillow, or other sources. 

I have never signed an exclusivity agreement. What I tell realtors is pretty simple. "I typically like to work as close to the seller as possible and with listed deals that means working with the seller's agent directly. However, if an agent brings me a deal that I haven't seen I will absolutely work with them." 

To date I have built to 31 units in 4 deals over the past 3 years. 1 deal was private without any realtors and the other 3 deals I worked directly with sellers agent. Many will tell you I was "risky" not having someone exclusively represent my interest. However, I felt that in all cases by working directly with the sellers agent I learned information that when I have tried looking at deals through a secondary realtor it takes a long time to get simple questions answered that should be known. In a hot market time is key so speeding up the ability to get answers to questions is vital. In my last two deals I made offers on the sidewalk after the first showing. I learned the full story of the properties directly from the sellers agent and understood what the best opportunities were for making my offers most appealing. 

Again, many will disagree with me, but I havent had the experience of a great agent to change my mind. 

With that said I wouldnt sign an agreement until you get that great agent experience. If they dont like it call someone else to look at properties. 

@Jason Graves Always a good debate when this conversation comes up. While I am tempted at times to sell certain properties, my goal from day one has been to build my net worth and live a great lifestyle along the way. With that said cash flow is one piece, and principal reduction on payments is another. Take a look at your financing package and understand what your total annual increase in net worth is. That gives you a much better idea of the risk/reward/hassle relationship. 

What are your net worth goals? Is this property a good long-term hold to get you tangibly in the direction you want to go or should you sell and buy into something bigger or different? 

Deals are always the restriction on peoples ability to scale their portfolios. You can't force good deals. With that said if you sell a deal, you are forcing yourself into finding another one. On the flip side, if you hold, you may be able to pull some equity to go buy something to add and build up a portfolio. 

Keep in mind, I have steered clear of doing flips and have focused only on buy and hold. I love getting a property to its sweet spot, build out systems and get a chance to sit back and spend any day I want hiking, sailing or hitting the beach with my family. I only have a need to chase a new deal when I want to add to my lifestyle. As long as I am happy with where I am today, holding will never make my life worse and only increase long-term prospects for a comfortable life. 

@Nicole Heasley Beitenman Like @Jeff Copeland has mentioned, you will be able to do this with a bank mortgage in 1st position and a seller mortgage in 2nd position. I have closed an 8 unit and a 16 unit where I went 80%bank 10% seller and 80%bank 17% seller respectively. 

A few notes. To increase the likelihood of executing this you will need to work with the commercial side of a small/medium size local bank. Call around, ask to talk to someone in the commercial lending department and quickly run them through the high-level financing pitch to ask if its a loan type they would consider. I usually through the phrase of, "I understand every bank defines the "box" differently for what type of loans they are willing to consider. Im curious if a deal I am assessing would be a loan that your bank would be willing to consider." Then explain the deal structure in a few sentences. You can call a dozen banks within an hour and you should be able to find 2 or 3 who you can bring them additional details on the deal and your personal financial statement.

On the seller side you will be more successful if you offer terms that allow them to get out of the deal sooner. My 16 unit I did 36 months balloon on a 10yr amortization. This has allowed me to rapidly pay down debt so that I can refinance. My 8 unit had only an 18/month balloon on a 20yr amortization but I know with my line of credit and reserves I could pay him back at the end of the balloon. The 16 was far too large of an amount for me to be able to pay back in cash so I had to plan for a refinance. 

To piggyback on the advice from Jeff, always be 100% honest in how you are structuring the deal. Everyone will know how things are structured whether you are upfront or it comes out when the title docs get sent out. If you wait your deal will die a terrible death and could easily put yourself in a position to be sued. If you are honest, it should be a pretty easy process. PM me if you want to talk more details on the nuts and bolts. This is how I have grown my portfolio and it has worked out great for me. 

@Rashad Jones Jennings While I wouldn't say my properties have been as low as a D when acquired, if you are BRRRR focused find the D property in the C class or upper C class neighborhood. Getting a property to jump classes is very valuable and where a lot of money can be made. I love finding C class properties that I can transition to B class properties. These have come with healthy rental increases which means they turn into cash cows since I bought them at lower valuations. I would agree that hands on is the key to successfully doing this. Be it your own hands or a very attentive property manager.

Hey @Austin F. investor from Marquette Michigan! What I have found is that if you want to probe the question I typically phrase it as. "Do you know if the seller would be open to carrying 5% to 15% of the sale on a 2nd position mortgage for 18 to 36 months? This way they can get most of their money at closing and keep a small amount in the deal earning interest."

Obviously, tweak however you prefer. But when I asked "seller financing" it typically when "no, no ,no and absolutely NO!" Generally, the response I get is they may be open to it depending on the terms. 

@Derek Lester Ill start by saying that @John Warren is doing great things in his investing so clearly its working for him. He is a friend of mine and invests in some of the same markets as me. 

I have taken a much more hands-on approach to my real estate(not necessarily better, just a different strategy) and have taken on a lot of projects with my own hands for sweat equity to execute value add. As I have grown to 31 units there are things that I certainly hand over to contractors and I don't do much more than make a quick phone call to deal with the situation. However, I feel like I run my business out of my truck. I always have a set of tools that allow me to take care of 90% of small projects and can haul extra tools to take care of bigger projects. I have a small tool trailer that I customized to allow me to handle quick day or multi-day jobs. I use these tools for my own house so rather than have them clutter up my garage they all are stored nicely in my trailer. Every tool and box of nails has its specific place. 

I remember when I had a car for my first 4 unit and when I switched to a truck shortly after my life got so much easier. I bought an old f150 for $3500 in cash and it was a great vehicle for me until I started multi-state investing with a lot of driving. Recently upgraded to a v6 Chevy that gets great mileage compared to most trucks and can still do everything I need. 

Also worked for a house flipper that contracted out most work and tried to run out of an SUV... needless to say he quickly realized a truck would make his life way easier to take care of things throughout the flips and picked up an old truck to help him out. 

Hustle through this flip with what you have, make some money and if you want to do this seriously I cant imagine you wouldnt end up with a truck. 

Ill also follow this up by saying that I love home improvement stores. When I have an empty afternoon I often find myself taking a trip down just to walk the isles and study up on different materials, tools for more efficient working, and get design ideas. 

Step 1: Get out of NYC... Maybe you love it there and thats your choice, but get to a cheaper RE market, with lower cost of living and start setting yourself up for success. 

Step 2: Go get into the RE game. You don't need an MBA to be successful. People want to see experience and an MBA doesn't mean that you have any. 

Step 3: Find your niche and scale. Figure out the niche you want to focus on and the market that makes sense for you and scale up. Focus on growth and having RE become a big piece of your pie. It doesn't take long if you are creative, hard-working, and willing to take some risk. But the longer you wait to take the risks the less risk you should be taking since retirement is around the corner. 

Note: I went into the corporate world out of college, immediately bought my first multi-family to live in and rent out the other units and have quickly found a way to get to 31 units within just a 3 years. My corporate salary has been replaced and now I have the time where if I want to go back to get my MBA I can... But I dont have that desire any time soon. 

@Daniel Kong If you want to find these there is likely to be some issue which isn't necessarily a bad thing. All 4 of my multi-family properties are in A or B class neighborhoods and they are great cash flowing properties. The market your in plays the biggest role. Secondary markets and smaller are your best shot. The "hot" markets are going to be really tough.

Beyond that are the units outdated, exterior neglected, or some other deferred maintenance or management issues? If you can find these you are likely to stumble onto some great opportunities. To put it in perspective my 8 unit in a great neighborhood needed exterior TLC.. a lot of it. But now I am able to bump up rents $100 to $200 with very minimal interior upgrades between turns. Great tenants didn't want to live in a neglected property but when cleaned up want to live in this neighborhood. I bought it at an 8.5 cap on trailing numbers which is pretty good. But now it is operating way better! Value add is the name of the game. Worst property on the best block! 

@Brook Rieman Aug of 19 sucks. Obviously, if you just hang on until that point you can provide them with a notice in advance that you won't be renewing the lease. I typically like to do at least 60-day notice and let them know I am trying to make the process smoother and don't want to put them in a pinch. I never want to really make someone mad and have concrete poured down the drain. 

Another thing you can do is once you purchase you can let them know that you will be remodeling the unit when their lease is up and if they want to move sooner you will provide them with some cash to move quicker. The concern with that is if they don't want to leave early they may become hell tenants for the next 10 months. Generally, that's why I wait until about 60 days to limit my pain and try to play the "I am being more generous then the law requires" which helps to buy a few sympathy points.