All Forum Posts by: John Daniels

Investment Info:

Large multi-family (5+ units) buy & hold investment.

Purchase price: $150,000
Cash invested: $9,000

My second investment property is a 7 unit in West Terre Haute. The property consists of 2 newly renovated empty units, 3 currently occupied units, and 2 trashed units.

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

I was excited about the value play opportunity as well as the challenge of buying a larger multifamily property.

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

My realtor brought me the property as a pocket deal that had not yet hit the MLS.

They were asking $155K, and I offered ~$140K. We settled on $150, but most importantly, they agreed to complete the renovation of two of the units.

How did you finance this deal?

I refinanced my first property for $30K, found a partner for $100K, and used cash for the final amount.

How did you add value to the deal?

The value play is getting the right tenants in the newly refurbished units, managing the current rents up to market value, and cashflow the rehab to create some forced appreciation through renovating the final two units.

What was the outcome?

We closed on 3/15/2021. I am currently in the process of getting the refurbished units rented. Also I am finalizing estimates on the smaller of the two rehabs.

Lessons learned? Challenges?

This was a fantastic learning experience! It was my first commercial deal so there were some unexpected challenges like not having a sellers disclosure available. Also it felt like there was more due diligence needed on the purchasing side.

A week before the closing the property had a water pipe burst, so that made the closing interesting. We had to go back to the negotiating table to determine if they were going to give a credit or complete the work.

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

Andrew Southard with Berkshire Hathaway was my agent. He did a great job with all the details.
Jared Coley with Complete Landlord Solutions is my property manager and will act as my rehab professional.
Amber with Integrity Title handled the challenges of the closing.
Jonathan with First Financial Bank was super helpful with funding options.

@Bjorn Ahlblad welcome to BP! There may be some options like ShinePay or PayRange that use phone based apps instead of needing WiFi. I am not an expert, still doing research myself for my 7 unit. Let me know how it turns out!

@Jared Coley What do the rent rolls look like? Is there any room to bump them up.

Also I would still add 1-2% just to cover some labor even though it will be from one of your other businesses, in effect treating it like blue money.

I would also try to offer less. The worst they can say is no👍

Good luck!

@Jason Ma-I currently use CLS for my triplex. They have been able to replace two of my tenants so far this year. They use the Buildium portal so I can manage around my schedule.

Both teams are on BP so feel free to reach out to the either here on the forums or give either a call. They are both great guys!

@Tyler Corbett

I started by working with a local lender. They were able to help give me some options and suggestions that I did not have initially. They will also be able to help you with their inhouse selection criteria like your DTI, Debt to Income ratio. They will also have some other criteria like 2W income, credit score, etc. Make sure they are within the lender's threshold.

Also after the initial property has been owned for a while, they may let you show it as income as well.

If you feel like you are not making any progress, always remember there are thousands of lenders out there! Just go look for a better match.

Good luck!

@Kathi Spencer

Congratulations! Looks like you did a fantastic job!

More importantly, it looks like you learned some great lessons.

What was one thing you would do differently next time? Any additional takeaways?

@Wanda Austin-Wingood

Go to the bigger pockets calculators! They are fantastic and you get to use them 5 times for free. Also use the print out when you are talking to others about your possible investment.

@Account Closed

Always double check with a CPA/Tax person who is familiar with real estate in your area! In general think of it this way, normal pay (2W) wages pays the govt first then expenses, investment income pays expenses first then the govt gets their share.

So if you think of the rental as a business (LLC not required), all the expenses are taken out before the govt base is calculated.

If the rental has a note, or if there are any repairs, or any other expenses are taken out first, then the remaining amount (the profit) is taxed at a lower rate.

One huge benefit of having rental properties is the long term appreciation is only taxed at the sale of the property, or can be put off via 1031 exchange, possibly definitely.

I would encourage you to talk to a tax person. Definitely worth the few dollars for the information!

@Aaron Schwab

That's a tough one. Definitely check with your local landlord laws to make sure there is no discrimination happening.

Also are they the only applicant for the property? I have had to turn two properties in the last two months, and I have been getting multiple applicants for both properties. Double check your marketing to verify the property is well suited to a good cross section of the marketplace. 

@Mke Furst

I just bought my first triplex, and it was an older unit (1900). There are a couple of mechanical/electrical/plumbing items to be aware of in older houses.

1. Knob and tube wiring - this can be an expensive fix and an insurance challenge.

2. Polarized outlets (no third hole - also known as the ground) - renters may be frustrated with this limitation.

3. Water heaters and older piping (cast iron) - this can cause expensive damage if it fails.

4. Older HVAC system - can go out unexpectedly so keep some cash reserves on hand.

If you do put in an offer, make it contingent on a home inspection, and if this is your first property, try to coordinate to walk with the home inspector. Pick their brain during the inspection walk. I find most of them are more than willing to share their knowledge!

Also re-run your numbers to make sure the property cash flows, even if there are some vacancies. Also be careful because the taxes may go up based on the higher sales price.

Best of luck!