All Forum Posts by: Jonathan Farris

I own 16 units on the western side of the state. I think most of the areas above are devoid of really impressive B/H deals. I mean, if you are just looking for a safe place for your money with a little gravy... I am sure you can find that there. Most of the eastern side of the state saw tremendous gains over the past 5 years, and it has just priced them out of being super appetizing. What is your goal? I look for 2% Monthly Rental Yield, which is pretty aggressive. I think around Manchester/Rochester/Concord you are doing really well if you are getting 1.5%, but most are earning 1% or so. Which is nothing to sneeze at. All depends on your goals.

I was offered 4.75% 5 year fixed/5/5

So they can ARM me every 5 years to adjust.

I declined, and countered with a 10 year fixed at 5.5%.

There is only one direction interest rates will go.... up.

Lock in the lowest you can. And don't get caught in some longer term ARM, it will kill any math you did up front.

I think you missed something in your assessment. Land is not infinite. Habitable places are not infinite. I live outside of Boston. There is ZERO supply of starter homes within a 20 mile radius of the city. If you can find one, its off the market in 5 days for 120% of list. So I thought, "why don't I buy some land, build some starter homes, on the cheap side, and make a boatload of cash". This wont work, because the land is too damned expensive. So, like you said, property values/rents remain red hot, because people need a place to live, and the availability of places to live keeps getting smaller while the ability to create places to live, keeps getting more expensive (and thus less attractive). There are still plenty of deals to be had, you just cant expect to find them in the city. I am travelling often times to New Hampshire or other states around the New England area because Boston (and anywhere near it) is just a madhouse. Like anything else, there are corrections, but if you buy right and don't overextend, you should be ok (at least).

For 15% interest and 5 points?

I don't know what the market is like in MN. Have you looked at 4 plexes? could you afford 20% down on a turn key 4-plex? Does it need to be turn-key? (do you have proper resources to do the work, or can you do it yourself if required?). I would not attempt to flip off the bat, if it goes bad you could set yourself back a long ways. Buy and Hold is a safer place. The downside, is that you are not always swimming in capital, your ship comes in a lot later. Sometimes you have to trade someone Cash Flow for cash in the form of a note (this can be tricky, but thanks to BP you might find someone). 

If you have an Owner Occupied scenario (house hacking) like you referenced above, you do not need to stay in it forever. If you sold your current house, could you take the cash-out equity plus the 20k that you "have to play with", combine it, and buy a MF in a nicer neighborhood? If so, that might be the winning play. Try for a 3 or 4 if you can, the more units, the more base rents. 

I ran into this spot. I wanted to get a 3 or 4 family, but didn't want to live in it. Banks don't like this scenario nearly as much, because THEIR bet on YOUR mortgage is in the hands of YOU being able to run a business well, which many people are not capable of. 

That being said, many banks will consider lending for these types of transactions, but the standards are tougher to meet:

Typically 25% down

Typically you need like 700+ credit score

You need demonstrable experience (construction/landlording) of 2 years

Doesn't hurt to have a friend in the industry (maybe someone here on BP?)

Typically you will pay a higher interest rate (mine was 5.5% fixed over 10 years)

Based on your situation, I would look for a partner (maybe also here on BP), because I think that way you can: 1. Raise your capital base, 2. Find someone who has demonstrable experience. 

Final piece of advice:

Residential mortgages end at 4 Units. If something is listed at 5+, it becomes MUCH tougher to finance, and often times a MUCH better deal (as there is less competition due to financing restrictions). If you can find a way to qualify (scenario above with 700+ credit, 25% down, Experience), often times you can come away with a pretty good deal. 

@Matt Williams Agreed. But you also have 10 buildings to service... 10 mortgages to obtain... etc. etc. Also, the cost of one unit in a multifamily being vacant is significantly less than the cost of an entire house being vacant. 

Yeah this is the sentiment I get as well, as if they are hedging against a bad stock market with their retirement savings. If they are flipping SFR, I get it. Risky as hell IMO, but I get it. B&H just looks funny on SFR to me. I mean if the deal is right, its just right. No reason to dispute, I just don't think it is right very often.

Why would anyone B&H on a SFR? Is it like... the end result of a BRRRR?

It just doesn't make any sense to me. SFR, I think flip. MFU I think B&H.

Obviously every deal is unique, so this is not as simple as stated.

If I am B&H I want the biggest building with the most rents I can afford.

The "why?" is simple: Repairs, Maintenance, Drive Time, Synergy, Closing Costs

I am in the process of buying an 11 unit building. If I bought 11 individual units (or even a few different 3 or 4s) I would pay 3 to 11 times the closing costs. I would have 3 to 11 buildings to maintain instead of 1. I would have to drive to the various locations to fix things, and do rent collections/evictions/etc. With bigger buildings, you typically have some kind of set layout, instead of all these cut up 1/2/3/4/5 units, decreasing repair costs/time.  

Also, occupancy on SFR is 0% or 100%, where you have middle ground on MFU's.

Obviously I am not enamored with the idea of paying 8-10% of rents to a PM, so maybe these guys are just pay someone to do it? Wouldn't that eat up all (if not more) of cash flow?

I also get that buying a bigger complex is more cash intensive, but if you are going to B&H, I think starting with SFR is a mistake!

Let me know how you feel!

You are getting good advice here. Two pieces I will re-enforce:

@Thomas S. Says to consider House Hacking. I think that in your position this is a MUCH better idea then jumping headlong into trying to flip a place. Buy and Hold tends to be MUCH more forgiving when things don't go right because you have time to recover. It makes learning less painful.  

Is that a Fixed 1-5 (@4.75%) with an ARM for 25?

I think I had a similar option...