All Forum Posts by: Justin R.

@Nancy L. Refi terms for rentals are generally (assuming we're talking 1-4 units) the same as primary residence.  You can get anywhere from 10-30 year.  You can definitely refinance with only 20% equity.  In my experience, if you're taking cash out with your refi, you'll have to maintain at least 30% equity.

YMMV with different lenders, but I know the above is true for me today.

Refinancing a rental you own isn't terribly different than refinancing your personal residence.  It varies slightly for each lender, but in my experience...

1. You'll pay a higher rate for investment property. At the moment, I'm seeing a spread of about 0.5%.

2. If it's a multi-family, you'll pay more still.  Probably another 0.25%.

Other than that, it's generally the same.  For conforming loans, it's just calculating your total debt-to-income, seeing whether your down payment / equity meets their criteria (expect to pay another ~0.375% for < 30% equity), and closing the loan.

As for amortization schedule, it's the same as refinancing your primary residence - you pick your term based on the APR. Compare the APR of each term, then decide whether you want 15/20/25/30/custom amortization.

Keep in mind that choosing a 15 year, for example, will make your DTI ratio higher, which may make it harder to get loans on future properties. You can always get a 30 year loan and simply pay more per month if you want to pay it off sooner.

My strategy has been to buy in areas with large populations of "permanent" people.  Meaning, areas where people will settle down but the demographics (and housing prices) mean a large portion of people simply won't be able to buy for a long time (or ever).

To find such places, I look at the census data for income in various sub-neighborhoods, then use median housing prices to see what percentage of residents could afford to buy housing using typical loans.  I want property with a built in permanent rental base.

Mix in everything others have mentioned - schools, population growth, redevelopment trends, proximity to public transport, and cash flow - and rank the neighborhoods to determine how valuable each neighborhood is to me.  Then, look at each property that comes up to evaluate.

@Jason Mak Yeah, I feel very fortunate that the first couple projects went well - I chalk it up to luck that I ended up with the contractor I did.  I suppose it's a good problem when you need more of the same to keep up with demand.

I read that Home Depot suggestion somewhere too ... I can't *imagine* doing that and being successful.  It feels so random.  Either the contractor doesn't have work and is hanging around trying to get it (not a good sign) or he's busy and probably wouldn't appreciate being interviewed while he's trying to get materials for his crew (also not good).

Like your suggestion about getting down to cost-per-square/linear-foot.  Could cut through some of the niceties and shows you know what you're doing.  May help get to a fair price, but not sure it'd help understand who can do efficient rehabs and who can't.

Not surprisingly, the answer is almost always, "Of course we do that" when pitching a project to a contractor.  :) 

I've been working with a contractor on my first couple projects - I got very lucky and happened to find someone who's skilled at the rehab game.  I've got a second concurrent project just about ready to go, though, so I need to find an additional contractor. 

How do you all identify an "investor friendly" contractor from your typical contractor?  By "investor friendly", I mean...

• Understands there's holding costs.  Works expeditiously.
• If it's a flip, understands current trends and can pick good value finishes that help the bottom line.
• If it's a hold, understands that, for example, a one-piece bath enclosure is far less maintenance for me than a tile bathtub surround.

I'm around for most of the big decisions, but it's the totality of small decisions that can make a big bottom line difference.

Other than networking, where do you look to find someone? And, what do you ask to figure out if they understand enough about REI to be able to work autonomously?

FWIW, these projects are in San Diego.

I suppose you could try the approach of:

"I'm one of your tenants and I just started looking for property in this area - I'm looking for a small apartment building (something in the 5-10 unit range).  I figured since you've had this building for a while, you might have some advice and, even better, may know of others who may be looking to sell...."

No real downside, and all upside.

First, awesome that you're thinking about ways to put this together. You said you're new to REI, so I'll guess this would be your first transaction. Have you run through numbers to figure out at what price you think the property makes sense? To be blunt, this a very ambitious first step.

Forget for a moment about how you'd contact the owner - think about what you'd bring to the table if you got that meeting with them.  What do you have that they either know they want, or don't yet know they want?  If it's true that you have neither capital nor experience, think about what else you have that could compensate.  Are there problematic tenants they'd do well to get rid of?  If it's owned by a family, do they seem like they're really not interested in running it well?

To be honest (coming from an owner of multis in San Diego and thinking about putting myself in the seller's position), there's absolutely no way I'd seller finance to someone without experience and at least some capital.  We're talking seven figure property here.

My suggestion would be to:

1. Learn as much about the owner as possible.  For example, do they own other properties?  How is title held?  Do they have other business interests?  Experienced and financially sophisticated business owners are very different from accidental landlords.

2. Approach the owner with as strong and credible a proposal as possible.  This means having partner(s) who have what you don't - experience and capital.  A pitch that says, "I'm one of your tenants and I'm working with partner X (who's done this before)..." is much more credible than "I'm one of your tenants and I want to buy your building, but I can't afford it, so I'm asking you to help me."  :)

This would be a high-value deal and putting something like this together is involved.  IMO, you'd really benefit from partnering up.

@Aaron Mack Same market as you, same challenges - San Diego's definitely not an easy market to start in.

That said, it's where I started and have been able to put together a profitable base.  Depending on their investment goals, I wouldn't suggest to a friend that they start out-of-state unless they have some pre-existing relationship there.  The more scars you can get from your first couple properties, the better you're setup for long-term success - in your local market or outside of it.

BTW: Always fun to talk shop about the San Diego market if you'd like to PM me.

How old is/are the buildings?  How long has the current owner held the property?

I'd second @David Clay comments about deferred maintenance.  In this price range, you have little wiggle room for capital expenses.  Think mechanicals you're supposed to depreciate - water heaters, stoves, A/C, plus roofing.  The current owner doesn't have much cash flow for these, so it's more likely to get deferred.  You'll have the same tight budget.  4 kitchens and 4 baths mean lots of stuff that wears out.  You'll often see "maintenance" and "reserves" as separate budget line items to accurately capture this distinction.

Other than that, keep in mind the opportunity cost on your $17k out of pocket.  Figure out what you could reliably make investing that elsewhere with minimal risk and give that some weight.  I do this by paying myself 8% interest on any money I put into a property as a separate budget line item.  This is your cost of capital.

That said, my experience is in a very different market, so I don't really have anything useful to say about this particular property at this price. 

Good luck!  For your first buy-and-hold, pull the trigger if you've analyzed it as best you can and you're no more than a little uncomfortable.  :)