All Forum Posts by: Justin Smith

Quote from @Jaycee Greene:

Quote from @Justin Smith:

Quote from @Jaycee Greene:

Quote from @Justin Smith:

An older gentleman from church is selling off his portfolio of SFH/MFH rentals in the Belleville, IL area and offered one to me as he knows I want to get into RE Investing.

Purchase price is $50,000  for a 3 bed 1 bath and the current tenant is renting at $800/month. Market rate is $1100 on the same street for the same style, size, and age of house.
The tenant has been there for 25 years and has also worked as a handyman for the landlord on various properties, so the current owner has asked me to keep him there for at least the next year before raising rents.

Property taxes from 2023 are just north of $2000.

Based on this Deal Calculator it should cashflow month 1.

My questions:

1. Is this a good deal? (on paper it looks so, but maybe I missed something?)
2. How should I go about financing this? (DCSR loan?)
3. What type of help is there for down payment? (I don't have $10k liquid, are there other options or do I just need to save-up for a few months?)

Hey @Justin Smith, welcome to the BP Forum! Greetings from a fellow Metro-Easter! I'm in O'Fallon. This is a pretty simple deal for a bank/credit union in the area to do a DSCR loan. Could the seller provide you with a note for the down payment and you pay him back?

Thank you, great to connect with others in the area!

If I understand correctly; the seller would receive 80% ($40,000) directly from the mortgagee at closing and would enter into a personal agreement with me for the 20% down payment ($10,000) in which he would be reimbursed separately from my mortgage payments at a separately agreed upon rate and term?

In this case, would he actually need to pay any money for the down payment, or does it basically cancel out in the debit/credit line items?

If so, I don't see this being an issue with the seller. If that's the case, is this a possibility on a portfolio of properties?

@Justin Smith With seller financing, he doesn't have to "pay" anything for the down payment since he's accepting an "IOU" from you that you'll payback in some amount of time. You guys will need to discuss whether you pay the out of pocket/closing costs or he does and it gets rolled into the seller note. Yes, it's a possibility for a portfolio, as long as the seller agrees to the amount/rate/terms.

 Understood! Thank you for clarifying!

That should not be a problem at all as he's already expressed willingness to seller finance up to at least that amount. What bank or credit union would you recommend?

Assuming I come to an agreement with the seller and the numbers make sense, what would be my next steps?

Quote from @Katherine Morgan:

I'm not sure exactly where you're located, but according to HUD, the fair market rent for a 3-bedroom in St. Clair and Madison Counties is $1,500. Your property management rate should be higher—there aren't many options in the Metro East, and the good ones tend to be expensive.

You mentioned that he’s already okay with you removing the tenant or adjusting rent if needed. If you purchase the house, though, why would the former owner have any say in those decisions? Even with owner financing, his primary concern should be receiving payments. Anything beyond that makes me wonder if he might stay too involved.

 I live in Lebanon, IL and this property is also in Saint Clair County in Belleville.
I plan on managing this at first, but want to build a proper amount into my budget.

What would you recommend for budgeting for in terms of good property management in this area?

I think that's a valid concern, but my gut reaction is that he actually won't care too much after he has his cash/payments. I will keep this front of mind going into future conversations and negotiations though incase it raises other red flags!

Quote from @Jaycee Greene:

Quote from @Justin Smith:

An older gentleman from church is selling off his portfolio of SFH/MFH rentals in the Belleville, IL area and offered one to me as he knows I want to get into RE Investing.

Purchase price is $50,000  for a 3 bed 1 bath and the current tenant is renting at $800/month. Market rate is $1100 on the same street for the same style, size, and age of house.
The tenant has been there for 25 years and has also worked as a handyman for the landlord on various properties, so the current owner has asked me to keep him there for at least the next year before raising rents.

Property taxes from 2023 are just north of $2000.

Based on this Deal Calculator it should cashflow month 1.

My questions:

1. Is this a good deal? (on paper it looks so, but maybe I missed something?)
2. How should I go about financing this? (DCSR loan?)
3. What type of help is there for down payment? (I don't have $10k liquid, are there other options or do I just need to save-up for a few months?)

Hey @Justin Smith, welcome to the BP Forum! Greetings from a fellow Metro-Easter! I'm in O'Fallon. This is a pretty simple deal for a bank/credit union in the area to do a DSCR loan. Could the seller provide you with a note for the down payment and you pay him back?

Thank you, great to connect with others in the area!

If I understand correctly; the seller would receive 80% ($40,000) directly from the mortgagee at closing and would enter into a personal agreement with me for the 20% down payment ($10,000) in which he would be reimbursed separately from my mortgage payments at a separately agreed upon rate and term?

In this case, would he actually need to pay any money for the down payment, or does it basically cancel out in the debit/credit line items?

If so, I don't see this being an issue with the seller. If that's the case, is this a possibility on a portfolio of properties?

Quote from @Drew Sygit:

@Justin Smith wouldn't do it.

Why is he willing to sell you this SPECIFIC rental and not another?

Test him and ask if he can give you 2-3 choices from his portfolio.

If he gives you a line that this is his "best" one, or that the others are spoken for already - WALK AWAY!

Here's BIG concerns:

1) Tenant has been there for 25 years - that's a crazy amount of time
2) Rent is 27% below market - why is he giving this tenant such a big break?
3) Tenants is his handyman!
- The current low rent is probably to offset maintenance issues at the property.
- Try to raise the rent and the tenant will give you a list of all the maintenance issues they want you to fix. 
--- They will offer to fix them in exchange for lower rent, but ask yourself, if the tenant has been living there for 25 years, why isn't everything fixed already?

Of course, I could just be overly concerned and this is just a kind ol' investor trying to pay it forward.

 Great questions! I trust him because he's already sold three properties and owner financed them to another guy at my church. He's the guy who shared my interested and connected us, he wouldn't recommend him as a seller if he had bad experiences with his other properties.

I did ask about other properties and he shared about a duplex for $200k, but I wouldn't be able to afford the down payment needed.

He acknowledged the rent is low compared to the market and never mentioned that it's his "best" property.

1) Agree, but if he's been a good tenant is that necessarily a problem?
2) He's owned this outright for a long time and bought it for only $33k. So he's cash flowing well on it, he's acknowledged that my situation will be different so I might need to raise rent.
3) I think these are all valid questions, but the owner raised these himself too. He said there shouldn't be any repairs and whenever there were repairs, he paid for the materials and had them be installed. I think you're right, it has always been a beneficial trade for both parties.

I have not seen the inside yet, but the owner said he is more than welcome to show me once I have a pre-approval. So if there are any issues, I'll see those upfront and can adjust my plan as needed.

He has already mentioned he's ok with me removing the tenant or raising prices if necessary.

See my other comment regarding Deal Calculator change and maybe presenting an schedule rent increase option for the current tenant. If all your concerns are covered, do the numbers still make sense or should I see something else?

Quote from @Carini Rochester:

@Obed Calixte is right on! Will you hire a property manager? This seems like a very easy property, management-wise. Manage it yourself. Has owner financing come up in your conversations with your friend from church? This seems like a perfect owner financing opportunity. He may accept a lower than 20% down payment. He may accept a lower rate than bank financing. See if there is any compromise on not raising the rent at all. $300/mo. is a lot to give away. A three bedroom house for 800/mo is crazy low! See if he and the tenant will agree to 900/mo. Then 1000/mo. in the next year. You need some way to jack up this rent.

No! I plan on managing these myself until I get to a threshold that makes sense to pay someone on my Realty Team to take over property management.

Yes, he is willing to do 6% for 10 years with 50% down. He's in an age and stage of life where he needs cash, not investments.

He is fine with me replacing the tenant at market rate if that's what I need to do. I would like to at least offer the tenant an option with scheduled increases since he has been there for 25 years and has been a good tenant for this man.

He's owned it out right for years, so he's raking in money at $800/month. He bought it for $33k forever ago. He understands that the situation would be differently for me.

Quote from @Obed Calixte:

It's always nice to have an opportunity come your way. 

Few things in your analysis.

-Interest rate of 5% is much lower than market interest rates. 7-8%+

-There are no capex reserve considerations included. 5% is a starting point.

-Is 5% property management rate the market rate? 

- Look into if property taxes are reassessed after purchase. That may impact the amount you have listed

Your most advantageous route for financing will be seller carry or finding a private lender. It will be an uphill battle to find a lender willing to lend on a low loan amount. They exist but are far and few between.

After bumping the rate to 7.5%, adding 5% to Maintenance, and increasing taxes to $2500, I would need to increase rent to $950 to cash flow. If the current tenant doesn't want to stay at that rate, the current owner has no problem with me replacing him with a new tenant.

8-12% is the property management rate according to Google in my area, but I plan on managing these myself until I have an amount of units that makes sense to have my Realty Team manage it.

Owner needs cash, which is why he is starting to sell off his assets. Wife is going into hospice and he wants to move with her, so they're selling their primary residence and some of their portfolio. He said he could do owner financing at 6% for 10 years, but he would need $25k down in order to do that.

An older gentleman from church is selling off his portfolio of SFH/MFH rentals in the Belleville, IL area and offered one to me as he knows I want to get into RE Investing.

Purchase price is $50,000  for a 3 bed 1 bath and the current tenant is renting at $800/month. Market rate is $1100 on the same street for the same style, size, and age of house.
The tenant has been there for 25 years and has also worked as a handyman for the landlord on various properties, so the current owner has asked me to keep him there for at least the next year before raising rents.

Property taxes from 2023 are just north of $2000.

Based on this Deal Calculator it should cashflow month 1.

My questions:

1. Is this a good deal? (on paper it looks so, but maybe I missed something?)
2. How should I go about financing this? (DCSR loan?)
3. What type of help is there for down payment? (I don't have $10k liquid, are there other options or do I just need to save-up for a few months?)

Investment Info:

Single-family residence other investment.

Purchase price: $55,000
Cash invested: $1,500
Sale price: $69,900

First house that I bought knowing it was a good deal going into it that needed no work. Did minor updates like paint before selling it to 1031 into my current househack / flip / buy and hold Commercial Property.

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

I crunched the numbers and this was a better deal for me to buy instead of renting. I put a little bit of work into it and made a decent profit.

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

I found it through word of mouth at work and ended up buying it from a coworker who initially wanted to rent it for me. We found a price that was a win-win for us both.

How did you finance this deal?

Conventional loan with a down payment from my individual income.

What was the outcome?

I was able to do little work, save money compared to renting, build equity in the house, and sell for a good profit that allowed me to 1031-Exchange into a Commercial Property.