All Forum Posts by: Kristin McPherson

I appreciate all of this feedback so much! My husband and I met with our agent this afternoon and got more information. We love the opportunity for the learning curve, but we don't think this is the right deal for us at this time. This is a wonderful community for weighing out these important decisions. 

This are all on one parcel with one address. Almost 3.5 acres of land (nearly half of that still wooded/undeveloped). 

Hi! My husband and I have a couple of flips under our belt and own one LTR, but we have the opportunity to purchase a big block of duplexes, and I'm not sure where to even begin getting financing for such a large deal. I'm speaking with my agent this afternoon and have an inquiry in to my lender, but I thought I would check here for advice, too. 

There are 9 duplexes/18 doors total.  14 of them are 2/2, 100% occupied, bringing in $1200 monthly each. 4 are 2/1 getting $1000, also completely occupied.  They are 1-4 years old so in great condition. My agent did get the financials from the seller's agent, but I'm running all the numbers I can but feel like a novice when it comes to a transaction this big. Cap rate is 6.5%. 

Current owner uses a PM @ 10%. We wouldn't mind managing them ourselves but don't want to make expensive rookie errors, so I may leave PM in place unless seller is having trouble with them. That's something on my radar to get agent to check on. We live locally though so could manage them whereas if seller is elsewhere, they wouldn't have been able to. 

I don't have the funds for the down payment, so I'm thinking I'll have to find a hard money lender for that. I do have a bit of it from a flip we closed on last month, and I'm not sure whether that money needs more time to cure before I can utilize it for this type of transaction. 

What are your favorite lenders?

All advice is welcome! What do I need to think about? 

That's correct that it's a shared vacation home (to offset our costs) more than an investment.  I just thought I might be able to still get some good advice here.  I've also posted the same inquiry in a couple of Facebook groups.

Yeah, my friend's parents are an older couple, and their shared arrangement is with siblings and other folks their age, so perhaps the model doesn't appeal as much to people in my generation.  But I've found their place to be extremely comfortable and homey, and there is a huge appeal to me to have families with similar values staying in my home.  We are a large Christian homeschooling pastor's family, so our parties look a little different.  LOL

I have a list going in a Google doc of all the ideas I've thought of so far to include in the lease agreement, but you can take it to the bank that I FOR SURE would have a detailed contract drawn up by a RE attorney.  I'm trying to dot all my i's and cross my t's, so hopefully there's someone around here who has some first-hand experience with this type of arrangement. 

A friend of mine told me about her parents' vacation rental arrangement, and this setup really appeals to me. 

It's basically a time share arrangement among close friends & family. As I understand it, one person owns this house in Mexico Beach, FL, but the eight couples split the time evenly. They have a rotation so that every eight weeks, each family gets a turn staying Monday through Monday. They can either do the cleaning themselves before 4pm on their check-out Monday or make arrangements to book and pay their shared cleaning lady. Each family has a tote of personal belongings that stays on site so they're each using their own linens, laundry detergent, toiletries, etc. without hauling everything back and forth. Within reason they leave some items in the pantry and fridge because they all know each other and are comfortable doing so (as a matter of fact, at least three of the "owners" are siblings). They also seem to all be pretty invested in keeping the place up and pitching in time and effort toward maintenance, repairs, furniture replacement, etc. 

I suppose those details are probably covered in their lease agreement, but my friend's dad is forever finishing a piece of furniture, replacing a TV, or something of the like. They've allowed us to use their remaining days three or four times because they typically only stay until Thursday and then let their daughter handle the cleaning, changing linens, etc. and I've gone with her. It's a very cozy, comfortable house -- nothing really fancy, but it's across the street from the beach and is really well equipped for a comfortable stay.

I find this model much more appealing than allowing total strangers to stay in my vacation rental. Does anyone have experience or advice for this model? Our family would like to purchase a riverfront property in North Georgia as a second (vacation) home but can't afford to do so without making it into a rental property. However, I've seen a lot of AirBnB horror stories lately and really don't want to go that route. I'd love to set up an arrangement of rotating time with the same trusted families constantly to help cover the operating expenses. If anyone does this, I'd love to hear your tips about the contract, logistics, finding other families to go in with, etc.

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $40,000
Cash invested: $60,000
Sale price: $186,000

https://www.zillow.com/homedetails/29-23rd-St-SE-Moultrie-GA-31788/105198084_zpid/?view=public

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

We needed an affordable home for our young family of 8 (kids were ages 3, 5, 6, 8, 10, 12 at the time). House was unfinanceable because of its condition, so my dad helped us pay cash, and my husband spent the summer getting it habitable for us to move into six months after purchase. We then completed a large project annually.

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

It was an REO foreclosure. Price had already dropped several times and sat at $69K when we offered $42K. We negotiated to $52K but then went back down after inspection showed so. much. work. to. be. done. They pitched in closing costs and we ended up $40K out of pocket.

How did you finance this deal?

Cash borrowed from family member

How did you add value to the deal?

Complete remodel of every room while inhabiting the home. Took 7 years.

What was the outcome?

We basically lived there for free for seven years. I don't have exact cost of rehab, but we estimate that we were all in at no more than $100,000 (probably including our furnishings, so I suspect we ended up with 100% profit).

Lessons learned? Challenges?

SO MANY! We want to do it again... but definitely not while living there (with six young children, no less!).

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Norris Bishop Realty of Moultrie, GA

Thanks, Guy.  Fun fact:  my aunt is from Corpus Christi!  I was able to square everything up with them over the weekend on a FaceTime call.  My uncle is a CPA, and he is drawing up paperwork to loan me a set sum with interest for a year.  He doesn't even want to be tied to the piece of property; he trusts me to use the money however I need to and return it in that timeframe.  It was a super encouraging conversation!  They were impressed with my pitch and urged me to go for it and pursue a successful real estate investment business.  I'm excited about getting started! 

If anyone wants to offer further suggestions or (or you're just curious about the rest of this story ~ maybe it can help someone in the future), my aunt asked me to email the details to my uncle, so I sent the following along with the BP rental estimates PDFs as well as the PDF from the tax assessor's website.

"Thanks so much for allowing me the opportunity to pitch this project! I have immersed myself in education regarding real estate investing for the past six months in anticipation of our (***primary residence***) property going onto the market, and Chris & I have realized that there is great opportunity for our family to achieve financial independence sooner than we'd originally planned by adding these types of investments to our portfolio. We would love to spend more of our time in family and ministry, and this is a wonderful side hustle to get our teen sons started on an additional stream of education and income as well as add to our own bottom line.

The property we are considering right now is a duplex in ****** with a damaged garage apartment in the backyard. It is in a desirable location near the beautiful historic downtown, the hospital, and a nice residential area. It is truly the "worst house on the block," which is a gem from an investor's perspective.

The property is owned by the ******* brothers, and one of them occupies the left unit while the right unit is currently unoccupied. They listed it last June for $80,000, and it was under contract for a couple of months before falling out of escrow in November. The asking price has since dropped to $65,000.

Hurricane ******* damaged the detached garage apartment, and while that unit does sport a new roof as a result of that catastrophe, no repairs were made to the interior. It is therefore badly damaged with broken windows, mold, ruined floors, etc.

Chris and I have discussed three possible strategies for this investment:

1. Our first choice involves ****** (our son), who is very excited about this prospect... We'd like to acquire the property by making a cash offer of $50,000 (willing to negotiate up to asking price, if after inspection Chris agrees with my rehab estimate), make quick improvements to the duplex, list both sides of duplex as short-term rentals, and rehab the garage apartment for ******'s eventual habitation. Similar properties in the area rent to travel nurses as well as AirBnb guests for an average of $80/night, and assuming we could achieve at least a conservative 30% occupancy rate through the first summer (continuing to market and build toward greater occupancy), we would go that route. Then after holding it for one year, ****** would like to purchase it as his primary residence and first investment property. He would live in the garage apartment, manage and maintain the duplex, and continue his job and computer courses. By that time, he will have two years' worth of tax returns showing consistent W2 income as well as a healthy credit score and would possibly qualify for an FHA loan with a low down payment. (That being said, ****** is such a healthy saver that he actually will have accumulated enough cash to close a conventional loan as well.) At that point we would use the income from the transaction to pay off our investors and have seed equity for our next project.
2. If ****** changes his course for some reason, it would obviously be profitable for Chris and me to hold the property and either continue with that short-term rental model or transition to a rental with traditional tenants on a one-year lease, if we aren't experiencing the occupancy rate that we're hoping for in the short-term model. At that one year mark, we could cash-out refinance the property against an anticipated ARV of $150K-$180K, repay our investors, and have seed equity for the next project.
3. If for any reason we determine that it is not profitable to hold the property or if the market is more favorable for a flip, we could simply sell it in its improved condition, pay our investors, and move along to the next project.

I'm not entirely knowledgeable about how to structure a real estate deal that involves a capital partner, but Chris and I would be amenable to either borrowing the purchase price from y'all, funding the rehab ourselves, and repaying the loan at an agreed-upon interest rate after our sale/refi in 12-18 months, OR we could negotiate a profit-sharing agreement that benefits you similarly to your other investments. Of course we would be willing to hold a proper closing with our real estate attorney (or yours) with all monies properly escrowed or exchanged, a deed of trust recorded, and a promissory note executed. We would also be willing to allow y'all to have the first deed of trust on the property. Let me know your thoughts if you want to continue the conversation!

I'm going to attach a rental analysis report containing details I'll outline below. This is of course a rough estimate, but for now I'll plug in the figures I have. Chris doesn't have the margin in his schedule to view the property until February 27, but I plugged the repairs I saw into a rehab calculator and added plenty of cushion to make up for my lack of expertise there. Chris will complete a detailed bid for the renovation when he goes next weekend.

I ran the rental analysis report based upon the following figures (which can be amended and rerun after our negotiations and a more accurate rehab estimate):

• purchase price of $50,000
• rehab estimate of $30,000
• occupancy estimate of $1600/month
• no vacancy rate accounted for, as I projected a 30% occupancy rate based upon our first model
• no variable expenses accounted for in first year, as I included those in the rehab budget

I'm going to go ahead and run/attach a second report with a scenario based upon a $65,000 purchase price in case our initial offer is not accepted. I've really never used this calculator with anything besides a traditional mortgage, so I'm not confident this is an accurate analysis, but we'll just start there.

We're open to discussion about the amount y'all are comfortable putting up as well as a fair interest rate for this type of short-term, "hard money" loan. I plugged in these figures because we have to start somewhere! ... personal details...

Thank you for considering our partnership. We are most definitely open to *any* suggestions you have about the entire process. We expect this to be the first (well, second counting our primary residence/flip property in ******) of many real estate investments, and we'd love to make as few errors as possible!!

Many blessings to you both,

Kristin and Chris

Experts ~ what am I missing?  Any more suggestions?  My husband and I will be FaceTiming them tomorrow afternoon to discuss further.  (They live in Texas and have had their power/water knocked out all week, so we're just now able to connect with them.)  Do you have an questions I should add to my list?  

If anyone is reading this in the future with a similar question, I found this resource recently:

https://buildertrend.com/blog/construction-industry-podcasts/

If anyone is perusing this thread in the future with a similar question, this article has helpful info about the structure of private money deals:

https://www.biggerpockets.com/...