All Forum Posts by: Justin K.

That feeling is normal.  I feel added 'pressure' after every purchase.  A few months go by and the mortgages get paid and the feeling goes away.  If you are investing in single family homes and you cant afford both mortgages on your income then I would HIGHLY suggest that you have a 6 to 12 month cash buffer for holding costs.  Possibly more.  If a tenant goes in and destroys the place and walks away at this time of the year and you need to pay to fix the place and it will likely stay vacant through the winter, you need to be ready for that.

Hey John, 

I live in Saxonburg and will be closing on a 4 plex next week, bring my total units to 11 in about a 2 and a half year period.  I would love to connect sometime if you would like.  Would be nice to see what you are doing and what your goals are.  Look forward to hearing from you!

Justin

@Pratik P.

You asked a hypothetical question.  And I agree that you fired up some naysayers.  Its important to remember that real estate is INCREDIBLY regional.  So without stipulating a location it is hard for anyone to say this can or cannot be done.  You are based out of California and you got answers from people in Florida, Texas, New York, etc.  I will agree that your use of the words 'Private Money Lenders' could mean several things.  If you mean hard money lenders then what others have said is correct.  You will get terms of about a year with 12% interest.  If you are talking about friends you know (Parents, Wealthy Uncles, etc), then you can structure any sort of financing that you both mutually agree on.  For anyone to say that this cannot be done, end of story, or this is done every day is hard to say.  Below I will outline some of my experience.  Take it for what its worth.

I am closing on a commercial loan for a multi-unit property next week.  Its a 'no' money down deal (I am paying only the closing costs out of pocket) in which I structured a commercial loan for about 72% of the purchase price at 5.6% (fixed) for 15 years.  The remaining portion of the purchase price (28%) I am getting seller financed at 3.5% (fixed) for 25 YEARS!! The seller is taking a second position and loves the fact that I will be sending her a check every month as she sits on the beach and enjoys her retirement.  In my discussions with my banks commercial underwriter on this deal and asking the questions you asked (is this even possible) I was told and I quote.  'As long as you have a W2 job and you can prove the deal is self supporting through the sale transition and any repositioning that I intend to do, then we (the bank) will loan you money all day!'  Now, keep in mind.

1) This is a regional bank in my area.  

2) I have done several smaller multifamily deals to show a track record, albeit short.  

3) These are their lending practices today, who knows what they will want to do tomorrow.  

Long story short, can it be done, yes.  Are you going to be able

I am actively investing in the small multifamily space on the other side of the state. I know it isnt the same market but those rents seem low if the utilities are not split. Personally I wouldnt buy a turn key place without the utilities being split properly. In the cold winters of PA the last thing you want is a tenant with control over the heat and no skin in paying the bill. You will drive by and find the front door wide open and the heat cranked up. Just my 2 cents. Also, I wont go for a deal that doesnt have infinite cash on cash returns (BRRRR strategy or Owner Carryback Mortgage at very conservative vacancy rates) OR $200/door/month cash flow and around a 16% or better cash-on-cash return. Now that is my experience of what a screaming deal in my area looks like and keep in mind that I do self manage (no property managers in my rural area). That being said I would ask if you are investing remotely have you analyzed several markets and determined the Philly market is the best fit for you? REI is a great form of wealth building, but the first deal is CRITICAL to your future growth.

@Deanna McCormick, @Douglass Benson, @Account Closed

First of all, Thank you all for your input.  I really appreciate your advice.  Below is an update, and I would of course love to hear if you see any potential issues with my intended course of action.

After reviewing the existing leases from the current owner (I already had reviewed them during my due dillegence period, but I didnt review them for my options relating to this, but more for any red flags); I think I found my desired route.  The current leases give the owner the option to assign the lease.  My thought was if the owner would assign this lease to me I would then be able to give the thirty day notice myself as the owner of the lease and thus avoid the possibility of a court throwing out the 30 day notice as invalid because of the  transfer in property ownership and the fact that I did not give the 30 day notice myself.

I called the 2nd qualified Tenant and they were acceptable to moving into this apartment (without seeing it) and are prepared to place a deposit to hold on the unit this weekend.  I explained to them that it was contingent of the current owner being willing to help.  I then called the current owner and explained the situation.  I informed her that I would 'buy' the lease from her for the portion of the rent due that she would have to prorate at closing and that I would guarantee that if we didnt close by Nov 1 that I would pay her all rents due if the tenant had moved out.  I explained the forms that we would need to get in place today and how I suggested the process work.  i.e. we sign a document assigning the lease to me in exchange for the terms I mentioned above, then she serves them a letter explaining that their lease has been assigned, and she picks up the rent at the same time.  Following that I immediately post the 30 day notice and have a discussion with the tenants about it possibly even offer cash for keys and security deposit if no damage is done.  The current owner agreed to all of this, but did inform me that they had the water shut off last week for nonpayment and that they are sometimes late on the rent.  Further making want these guys out.  

So that is how we are planning to proceed.  Any thoughts, concerns, questions, etc?  Am I missing something obvious that might trip this up?  

Also, all tenants have given up their right to notice (PA law is 8 days for late rent before you can file with the court).  That is based on an addendum to their lease with the previous owner.  They also all signed a non-smoking addendum.  Could I argue that they are smoking weed in their apartment and thus violating that clause and therefore file for eviction on day 1 of ownership?

Thanks for the replies guys!  I think Option 3 is the most enforceable in court for sure.  Although based on the timeline it would be nice to try option 2 and hope it doesnt end up in court. The current seller has been very willing to help me with whatever I need (i.e. access to unit 4 to list and show prior to closing).

Hey BP! Got a question for ya.  Will try to be as detailed as I can be which may make this post long, but I dont like when you are asked a question but dont have all the information to give your most educated response.  Thanks in advance for your advice.

My company is closing on a 4 unit building on Oct. 12th.  3 of the 4 units are currently rented.  The owner graciously gave me keys to the 4th unit and has allowed me to list and show the apartment.  I have had several people apply and have 2 qualified tenants.  The most qualified applicant (based on my screening standards) is ready to move in 3 days after we close on the property (Oct. 15th) and the second (marginally less qualified) applicant needs to provide their current landlord 45 days written notice and would like to move in at the end of November.

The 1st and 2nd Units in this building are under lease until the spring.  The 3rd unit is currently on a month-to-month lease.  I have one of the two phone numbers of the guys listed on the lease.  I believe that since the lease has started they have moved in 2 other friends.  Every time I step into their apartment or the door is open it WREAKS of marijuana (still ILLEGAL in PA).  Also when I inspected their unit prior to placing an offer a few holes were in the walls and the new bathroom sink had a corner broken off of it.  The number that I have for them I am not getting a response via call OR text.  Last time I was at the property I even saw the tenant and stopped him to verify his number was correct and told him that I would be calling him this week to set up a time to get them on a new 6 month lease (get me to the spring).  I have called and text him several times this week and have not heard back.  I am getting frustrated.  

Here are the options I am thinking about and would love to know what you would do and have your input on any issues you may see with any of these options.

Option 1:

Do nothing and hope they pay the rent and don't drive away the qualified tenant that I just found.  

Option 2:

Have the current owner post a 30 day notice on their door before Oct. 1.  Hopefully they have moved out before Nov. 1 (so I wouldnt have to evict) and I have 30 days to fix the damage and remove the carpets (smell) and do my standard finishes (paint, flooring, etc.) on this unit.   Not sure how enforceable a 30 day notice is with the transfer of the ownership, but its a thought.  Then I could move in the second applicant at the end of Nov.  (assuming they are ok with the rent being slightly higher for this apartment).  

Option 3: 

Post my own 30 day notice after we close and start the process.  Compressing my rehab time frame considerably.  Not sure if I could do everything that I want to do in that time frame.

Option 4:

Knock on their door and threaten Option 2 and/or 3 and explain the importance of returning my calls and texts within 24 hours (a courtesy I give ALL my applicants and tenants).

Interested in your thoughts and comments on the matter?  The property is in PA.

Welcome Stephen!

I am investing North of Pittsburgh and I think I have a similar story to yours.  I wanted to do real estate and I bought a 5 unit building for $19,500 when I had just turned 24.  It needed COMPLETELY gutted.  New electrical, plumbing, HVAC, insulation, drywall, floors, kitchens, baths, the list could go on forever!  I broke it down into 2 phases.  Phase 1 was the back 3 apartments (all in one building).  I did all the work myself to save money and completed those units this past May.  At that point I started on the main house which is an up and down duplex.  I hope to have all of the demolition done by the end of September.  Its a lot of work!  I had 2 - 30 yard dumpsters brought in to hall out the plaster and the old roof (which was like 8 layers of shingles).  I will be taking a little pause (about 3 months off) around Christmas or New Years for the birth of my first child and for some stuff I need to do professionally, but I plan on getting back at it next summer and having those 2 units completely up and running by the beginning of May 2018.  Its a LONG process but it will be TOTALLY worth it!  

On top of that I am purchasing a 4 unit in about a month and I bought a duplex about 2 years ago that I house hacked with my wife after we got married.  So once that project is done I will have 11 units total.  

If real estate is your goal dont give it up because it is taking longer then you thought it would to get the ball rolling.  Think of it as a flywheel.  You have to push it hard and continuously in the same direction to get it moving, but once it is moving if you keep applying the same force in the same direction it will move faster and faster and faster!  Eventually you wont have to push it very hard at all and it will just keep on spinning.  :) 

With the info you provided above it is hard to recommend what you should do with the vacant property.  As a buy and hold investor myself, I find it hard to sell something that I know will produce income.  

If you want I would be happy to dig into the specifics with you and provide you some advice.  Just let me know and we can possibly chat sometime.

I have always included mine in the rent.  I would also add a little extra to the average because often if someone isnt paying for it then they use more of it.  Not much extra, but $10 or $15 a month.  You may also consider a clause in your lease saying that you pay the water bill up to XX gallons per month and the tenant is responsible for reimbursing you for any costs above and beyond that usage.