All Forum Posts by: Justin Dominguez

@Anthony Wick

I appreciate the concern about making sure my numbers will be accurate. Luckily I own other duplexes on the street that are the same so I can pull from my experience running those to determine what it will take to run them. (But to answer some of your questions, I use PM, tenants do all utilities, nearly 100% occupancy for the last 5 years, 10% held for repair and cap ex - roofs all installed within last 5 years, foundations good, HVAC good.)

The financing is the big hang-up. They aren’t offering anything yet - I just have a relationship with them and think they could be open to offers. I know they want to sell in the next 1-3 years, and I know they appreciated the reduced workload of me purchasing their other units. So combining the two, I figured I could offer seller financing so they could still receive monthly payment in the units, but not have to take care of them, all while spreading out the tax hit they might take from the sale.

Thanks for your idea of including certain clauses regarding the market. And I’ll see what parameters I need to enable a higher cash flow.

@Caleb Heimsoth

The only comp right now is one of the three duplexes on the street that they don’t own. It sold for $245k.

I’m purchasing for $165k.

What type of lender would work with you despite the lack of comps?

@Joe Villeneuve But that’s my problem - the sellers won’t agree to hold it for long. And if they say “3 years max” and we see a contraction during that time, I’m screwed.

You guys are great. I think I knew my answer before I asked, just wanted to see if there was a way to make it a little more secure.

@Joe Villeneuve I agree $50/door isn’t great. But I can clear $100/door with some time (on average the units are rented for $72 under market, I’m only factoring in raising them $50). And adding $120k in equity. All for closing costs? It’s got to be considered - I just don’t want to get caught not being able to refinance.

@Ryan Webster Yes, I can clear $100/door with room to spare. I include all taxes, insurance, property management fees (I don’t self manage), repairs/maintenance, capital expenditures will need to be saved along the way (all roofs 5 years old or less, all ac/heating works fine, foundations are good). Right on the edge of DFW, growth is absolutely guaranteed, rents are rising, jobs are aplenty, property taxes just went DOWN this year. Great school district, nearly 100% occupancy over the last 5 years. It’s a solid situation.

But like you said, securing long-term financing is critical - and that's precisely what my concern is. I don't want things to contract and leave me at 80%+ LTV and needing to refinance without enough time to build enough cash.

I am considering putting in an offer to purchase 4 duplexes with seller financing. I have a relationship with the sellers already as I have recently purchased other duplexes from their portfolio. Great school district, growing area, all built since 2002.

Having recently purchased their other units, I don’t have much cash. So my offer would, out of necessity, be with them providing 100% seller financing. They have expressed an interest in selling the rest within the next couple of years anyway, I’m just trying to find a way to secure them now.

If they accepted, it would seem like a win because I was able to get into them for no cash. And based on my opinion of value, they are being sold at (conservatively) 80% of market value. But here are my concerns:

1. Cash flow would be positive, but tight - each unit would only net me about $50 a door ($400 total). (I can raise rents to market and get up to around $100/door but it will take time).

2. Valuing these duplexes is difficult for lenders, as there isn’t enough recently sold inventory to produce solid comps. At least one lender has refused to lend on these units, others have said their values will be conservative in the face of no comps. It’s a matter of finding the right people, but still, refinancing may not be simple.

3. I’m worried about a downturn in the market in the next couple of years, which would make refinancing even more difficult. Which would be a problem since the sellers won’t want to hold the note for long (1-3 years is my guess).

4. Buying at 80% of their value would mean having to put in cash in at some point in order to secure long term financing that usually comes at a max of 75% LTV. (See number 3, a downturn, which would put me further in the hole.) (And I wouldn't be able to hold the note long enough to pay down principle much.)

Is this a gamble? Or should I wait and build up cash to secure stable, long-term financing and hope I’m prepared when they are ready to sell?

@Michael Kieffer

The duplexes produce $15,600 in the rental income each month, and could be increased to more than $18,000 if brought up to market rents.

The net operating income is $7k.

@Anthony Wick

That’s what I need to be looking for then, because no - the terms aren’t all that great and they definitely don’t work for my situation.

@Robby Hogle

Monthly

Hello!

DFW investor here with an off-market opportunity to purchase a portfolio of 9 duplexes from the estate of an investor who passed away. They are all in good condition and are in a well-established neighborhood with a good school district close to the metroplex. All on the same street. All less than 20 years old. All currently 100% rented. Mix of 2 and 3 bedroom units - all with 2 bath, most with 2 car garage.

They are trying to sell each each building individually off-market, but are willing to accept offers for the whole group. Buying all at asking price is around $1.6MM, they would likely accept less if purchasing all but I don’t know how much. Market value on all is a little over $2 million.

NOI using the current rental income is $7,870. Rents are below market, so increasing them over the next couple of years would increase the NOI to $9,800. (This is using last year‘s insurance premiums, last year‘s property taxes + 10%, 10% property management fee, 6% vacancy and collection loss, and 7% repairs and maintenance cost.)

I have three rental properties. Combined, their tax value is $617,000. Market is more but I don't have comps so that's my base. There is approximately $50,000 worth of loans against them - so I have quite a bit of equity. Two of them are single family homes in one LLC, the other is a commercial building that is in its own LLC.

I have around $20,000 in cash (I would have more but I just used $28,000 to purchase a 4th sfh rental).

Local bank was willing to explore using existing rentals as collateral with no down payment- but all properties would be tied up into a single loan and the debt service (20 years, 6.25%, $1.5MM) would be way too high (despite a LTV of 55% when including my existing rentals in the group).

Any advice on how to move forward?

@John Teachout

The owner of the portfolio passed away and they are attempting to sell off his assets to settle the estate. So they are not willing to entertain holding the properties or owner finance options.