All Forum Posts by: Ben Leybovich

Devin,

You are smart to look at newer structures. And if you are trying to rent them for a while, but ultimately flip them for cap gains then this is a good proposition. However, if you are going to hold onto them for cash flow, singles are not the best in that vacancies are much harder to handle in singles then multi. It’s not like you just loose the rent if it’s empty. You still have to pay mortgage, taxes, insurance, etc. So you get hit on both sides. Potentially, 1 month of vacancy kills your profit for a year. I have both, and from long-term perspective I'll take a multi any time.

You are wise to consider the cash on cash return as the definitive metric. Of all of the metrics we use to evaluate deals, this one hits home. I have a 10-unit under contract as we speak. The financing package I've put together, which involves both commercial and private money, has me leaving 2.5% of my cash in the deal. This will be well over 100% cash on cash. In this context, 15% COC is perhaps not so great...

I always remind myself that there are 2 profit centers in every RE deal: one is the bricks and lumber on top of a dirt pile, the other is the terms. Perhaps the latter is the much more important piece. I focus on terms. This is difficult because most deals out there don’t lend themselves to negotiating many of the terms that should be negotiated in my opinion. This is why I am happy if I only find 1 good deal per year – but it’s really good. I hope this makes sense to you. Look me up; we'll talk more if you want.

Devin,

You should be fine then, unless you don’t meet some other qualifying criteria like debt to income, credit score, etc.
Can I ask you, though, why you focus on SFR if cash flow is your primary focus?

Devin,

Fannie and Freddie count of 10 is applicable to residential, salable-type mortgages which are resold on the secondary market. The properties you have in the LLC sound like they are within commercial umbrella mortgages which are held on the books by the originating lender. Am I right? Did you finance those at a small community bank? To my understanding, they should have no impact on either Fannie or Freddie.

Kerry,

I agree with Jon Holdman. Make sure you have the proper permitting to put 4 units into the structure. The property is in the LLC, which is why a 30-year residential is not going to happen. As to 7 years, this is likely an ARM. 3,5,7 year ARMs are typical on a 20 or 15-year amortizations. What an ARM does is that the interest rate on your loan resets at the specified periods and the payment is recalibrated based on the new interest and the balance at those times. So, you do have to be careful because your payment at the adjustment could be higher than at the origination if the interest rate is much higher.

There is something you can do. Most commercial lenders will negotiate caps on their loans. For instance, in exchange for 2 points, they will guarantee that the interest will not adjust by any more than say 2%. At times of high interest rates, doing this might mean that you miss out on a lower rate. However, in 2013 the only way interest rates are going is up, which makes this a strategy that has value.

Once you know the worst case scenario % rate, you can throw a bit of cash flow at the mortgage to positively amortize it to arrive at a balance which will guarantee that your monthly payment stays even keel. And if the rates are lower at the time of the adjustment, your payments will be lower. This is a good safety play. I do this all the time on notes for properties that I will be keeping for a long time. Feel free to get back with me. Good luck!

Devin,

You should not have any trouble as far as I know. Good luck

Laura,

It all boils down to this: As you drive through the neighborhood on your way to the subject, pull up and park your car, walk into the front door and into each of the units, simply ask yourself the following question – would I enjoy living here? If you wouldn’t want to live there for whatever reason, why should anyone else…If the answer is no, and the reason is the condition of the property, then you simply need to decide whether the amount of money required to fix things up is financially feasible.
Good Luck! BTW this is one of the best places online to pick people's brains. Use it!

Laura,

I’ve been a landlord for 7 years, and I’ll tell you this: Your ability to retain your “sanity” in this business will forever be a function of the tenants that your building and units are able to attract. Some people say “any investment is good at the right price.” NO! No investment is good unless it is the right kind of investment. Therefore, the question you need to ask and answer is this: “Where and what kind of building do I buy which will be desirable and affordable to the kind of tenants with whom I will be able to build successful relationships, and which will make stable return on my investment?

The answers to this question are quite involved; certainly too much so for this post. Keep studying and feel free to look me up. Good luck!

Sean,

This may not be the most aggressive perspective relative to subject2 deals, but my conscious does not let me do one unless I have the money in the bank to cash out any and all liens if things go sideways. You don’t have to do that. If the seller signs, it is caveat emptor so long as you’ve made proper disclosures. But things do go wrong at times and as such I would not want to leave the seller hanging. In this business, your word is your bond. Something to think about…?

Ben

Andrew,

No way man. When I look at properties 100 miles away or more, I figure having 1 unit vacant for myself and plan on spending time there every week. Big projects. and that's 100 miles - you are talking 2500. No way I would look at a duplex.

As to the negative CF, that’s not good either. But it shouldn’t matter in this case!
Ben

You should be listed as Co-Insured and provided with a copy of statements showing PAID. Good Luck,
Ben