All Forum Posts by: Kyle Dutson

A pic of the property. New roof and new windows. Currently getting reno's on the 3 empty units.

@Account Closed I have noticed that the majority of your posts on BP are negative, antagonistic, and abrasive. Why is that? Also, I am not a "kid", I'm a grown man with two kids of my own. I have fought wildfire most my life and want to make a change and spend more time at home. Not all situations are related or remotely the same. I am an intelligent man who does his homework and refrains from taking unnecessary risk. The fact that it is my father has nothing to do with it. It only provides more leeway on partnership terms. Other than that, he is simply an equity investor. It is my job to provide him with the best service I can. It is my mission to create a company that provides investment opportunities that produce competitive returns for the layperson. I am passionate about my mission and end goals. Failure is not an option. 

Typo edit: previous post "Dad worked his whole life and gets a 4% return" 

Dad worked his whole life and gets a 4g return on his liquid assets. He knows little about investments. And wants nothing to do with any kind of effort besides giving money and expecting a return. He mentiones partnering with a freind in the same boat as him to limit exposure. If all goes well I could count on him and his buddy for future investment. This I hope will build a base and portfolio to refer other investors to in order to raise capital.  Gotta start somewhere and learn as you go. 

Thanks for the pointers @Christopher Shawn eady two offers is a great idea.

@Basit Siddiqi Yea, I am honestly still pretty ignorant on the legal ins and outs of llc's and lp's. I am jumping on this one early because it was in my face and just started to act. I planned on having the llc all set up first but.... I will speak to a lawyer ASAP. Why may the llc scare him off? just curious. Also, I plan on making a career of this. So was mainly inquiring on how I would set up the many deals like this in the future with my investment company. I guess the lawyer will be my best source of info and fill me in.

as for @Account Closed it is a 67' multiplex with a new roof 5 years ago. I am doing a walk through on tues and will check further into the operating features. I do anticipate higher maintenance costs. But honestly, as of yet it looks to be in pretty darn good shape. 

@Karen Coffelt after reading through some of the posts it seems @Jody Broussard already beat me to the punch on "The Richest Man In Babylon". I will also suggest "The Automatic Millionaire" I forget the author, but it is a good read and will help you get you on a better financial path. 

Also, Do't let people discourage you saying your finances need to come first. It's a chicken or the egg thing. There are many sellers out there who will owner finance. And there are plenty of people out there who have funds that will go into partnerships. They pay the down payment and possibly supply the good credit. You take care of putting the deal together an management of the property. The split on equity, cash flow, and expenses is agreed upon between the partners and written into the terms in a contract.  Other options are exactly that, options. Lease options are a way for you to put a house on lease and rent it out till you have the funds to get a loan. Or sandwich it and find someone else to "rent to own" from you at a hire price, rent, and option fee. 

These examples are just a few. And don't think they will fall in your lap. But if you do your homework and put in the leg work it is entirely possibly to invest with limited funds and credit.

Again, good luck 

Hi @Karen Coffelt, welcome. I also am new but am a bit ahead of you in this process. Sounds like you are motivated. Don't give up. Ever!!!! 

I have learned a lot since I started this about 6 months ago. One thing I will say is read A LOT!! I happen to read incessantly so this was a pleasure for me. Also, Once I start something I become obsessed. In this particular case it is helping LOL. Another thing I did was reach out to other investors in your area. They are a wealth of knowledge and most likely future partners. This is a great place to find funds. Also, These people have a passion, and this passion is REI. They will be very excited that ANYONE is interested in what their passion is. All you have to do is listen.

Another word of advice is to learn a bit about money and how it works. The ins and outs of finance. This will help you build a sound business plan and at the same time help you support your personal finances. After all, if you spend what you earn, your money can't earn for you. I suggest starting with George Clason's "The Richest Man In Babylon". It is a simple and quick read, all be it odd, but it gets the point across.

To give you some hope I currently am in the searching and offering mode. I have my first deal lined up and am ready to make an offer. Once you get the ball rolling it is surprising how things start to line up. And you will also be surprised how funds start to appear. When you are broke it can seem as though there is no money anywhere (I know) but believe me, it is EVERYWHERE!! All you have to do is ask and make them an offer on terms. Maybe a little sell too. It can be difficult to get someone not familiar with investment to release part of there nest egg. So, you have to do the calculations and write up the numbers. Remember, this is an opportunity for them as much as it is for you. You must create win/wins.

I'll quit my ramble now. Sorry about that. But see, I proved my point. We get excited. Ha. Good luck to you. I wish you the best.

Thanks again @Basit Siddiqi. I will use 10% in all future calculations. I like to be conservative. Especially considering this property was built in 1967. A plus is that it got a new roof 5 yrs ago. 

Honestly never heard of the "1% threshold". 

As for terms, I had intended on a offering with a discount on the interest rate. But the balloon loan I had not thought of. That is a good way to keep both parties in the deal. As you read above, I am looking for properties that cashflow. This is the first steps for my business and want to build a reserve of cash for security. 

Seeing as I have your attention and you have freely advised, I have another one for you. I don't have an llc quite yet but I plan on doing so soon. How do I structure my equity deals under my llc umbrella? would I set up a limited partnership with each deal (if it is financed with an equity investor) and hold the llc as the general partner? Just curious as to how this works. I am in the process of locating a credible and suggested attorney in my area to guide me through all this. And the deal in the works.

@Account Closed I agree fully. I would not consider this a juicy deal. More of a deal worth making. Not a home run by any means. I will not go any higher that $435k at this point. I thought this very thing. Seemed like a pitch and too rehearsed. 

Thank you @Basit Siddiqi for your input. Your thoughts reflect all of my own. I, as you said, do plan on hiring management at some point. This management may very well be my own company (which I know is still a cost to me) but it is much too early to say. As for Capital expenditures, I really don't have a reference as to what % I should use to calculate this. any input on what you use for your analysis would be helpful. As for other investors, I did not anticipate a "hurdle" in terms. As for that I plan on sticking to friends/ family and anyone else looking to increase returns for now. Also, doing lease options may be a good route for me as well. The reasons being, this will provide me with a base of income before I look for more experienced investor/dealmakers. Thus, a safety net and wiggle room. Also, at this point I will look for flips on the side and SFR's for equity investments.

What are your thoughts on an offer? If you don't mind my inquiry. I obviously want as low as possible, And I believe I won't do a 15yr. Going to push for 20yr and will walk if otherwise. This said, I do not want to offend the seller and have him turn his back. I would have a better read if it was a face to face negotiation. But it is through his agent. I was thinking I would start with $400k at 15yrs. and bump to 20 anything above $410k. And throw interest rate increases at 20yr lower prices at him to protect cash flows.

Sorry for the ramble. just trying to get a feel for how all this goes. I don't want to come across as ignorant.

Hey all, and thank you for your interest in my endeavor. I am posting today to request any feed bad on a deal that I am contemplating. This would be my first deal and want to cover all the bases to ensure I am not being brash and putting myself in a bad decision. 

A little about the deal. I have located a 6 unit income property in my area. it has 4 two beds and 2 three beds. the seller wants $450,000 and is willing to carry with 20% down at 4% over 15yrs. I will be going into a partnership with my father and potentially a friend of his. I will make an offer if all checks out and negotiations will start. My questions are in regard to what bases I should cover. I plan on hiring a lawyer to help with the contract and leases if the deal goes through. A more specific question would be to the partnership. What do you think of the terms of the patnership (in e-mail below)? Are they fair? What steps should I take to make this an official deal between partners as opposed to simply a handshake I take your word type thing. I also think this will give my investors some reassurance. 

Now, onto questions about the purchase. I have his 2016 financials (from the horses mouth). I will be requesting tax documents pertaining to the property to compare and make a more informed decision. Anyway, what should I be looking at when I walk the property and do inspections? What should I ask for in the offer and contract? What considerations should be made in all aspects of the purchase and management? What should I be asking of my attorney? Any other thoughts are appreciated. I could make this list a mile long but will leave pointers/opinions to your discretion.

I have pasted an e-mail that was sent to my father pertaining to this property. It contains numbers and predictions.

Thanks for your time!

Side note: This property is in a college town and there is no lack of people looking for a place to live. Vacancy rates are generally low in the area.

________________________________________________________________________________________________________________________________

Hey Dad, these are the numbers on the proposed deal I have in the works. Let me know what you think. I look forward to making some money together. I see this one as a win/win for all of us. Below I list out numbers and projected returns on this property in 3 potential scenarios. Sorry about the lack of order, my Microsoft excel is expired.

So, his ask is $450,000 on a 6 unit 4x2 beds and 2x3 beds. Currently, there are 3 units occupied and 3 vacant pending improvements. The current lessees are in till 4/1/18, 8/1/18, and 10/1/18. These occupants are locked in to $620, $675, and $620 respectively. He has plans to up the vacant rooms to $750 for the 2 beds and $850 for the 3. I think that matches market prices, if not slightly lower

The selling agent already divulged some good info on the seller. She says he is willing to carry the loan as he has owned this property for some time, owes no one and there are no liens on the property. He would like 20% down amortized over 15 yrs at 4%. The agent also gave insight that this is all negotiable and he would consider a 20 yr. She made him seem very motivated. He apparently is retired and wants to travel. The ask has already been dropped from $490,000. She also divulged that he said he was willing to discount estimated repairs needed if any found in the inspection.

I believe his asking price and terms are fair but the numbers just don't crunch for our purposes. The cash flows are too low. I see this as unreasonable risk. Before I go into the numbers I will list what these numbers are based off of. Which are the financials the agent provide me. I will be asking for copies of his taxes pertaining to this property to compare and be more informed.

As for last yr (2016) his expenses were:

Insurance (full coverage) $1,668.00

Water $3,060.00

Trash $792.00

RE Taxes $1,650

Repairs/Maint $2,400.00

________________________________

Total $9,570.00

Vacancy Rate was 6.8% for 2016

Here is income for this property over 12 mo. I have current and expected. Current is based off all current rents and 2016 expenses and vacancies. The expected is based on a 10% increase on expenses and a bump up to 10% vacancy rate. Also, expected accounts for rents AFTER current leases expire. I believe the 3 beds could also be rented at $900 but this is not in this calculation.

                                         Current          Expected

Gross                              $51,180           $56,400

Net                                  $38,130           $40,233

Now here are the cash flow and cap rate numbers. I am basing these off of 4 different offers from his ask to best price. The numbers, again, will be represented in current and projected incomes. Note that the offers are subject to change. This is simply to give you an idea of what I am seeing and what my thoughts are.

Price$450,000 [20% down 4% int 15yr]

                                         Current           Expected

Mortgage: $2,662.88

Cash flow                         $6,175                $8,278

Cash on Cash rtn:             6.8%                    9.2%

Capitalization Rate            8.4%                   8.9%

---------------------------------------------------------------------------------

Price $440,000 [20% dn 4%int 20yr]

Mortgage: $2,133.05

Cash flow                          $12,534              $14,637

CoC 14.2% 16.6%

Cap rt                                    8.6%                     9.1%

------------------------------------------------------------------------------------

Price $430,000 [20% dn 4%int 20yr]

Mortgage $2,084.57

CF                                       $13,115               $15,218

CoC 15% 17.7%

Cap rt                                    8.8%                     9.4%

-------------------------------------------------------------------------------------

Price $420,000 [20%dn 4%int 15yr]

Martgage $2,435.85

CF                                       $8,900                  $11,003

CoC 10.5% 13.1%

Cap rt                                   9.1%                        9.6%

-------------------------------------------------------------------------------------

As you may have noticed I am basing this deal mostly on the cash flow of the property. This is because this is not a buy and sell for equity investment. It is a cash flow (income) investment. And considering you are looking to retire soon, higher cash flows would be more beneficial to you. As for me, I am starting this venture and plan on acquiring 3 multi-unit rentals by the end of 2018. The cash is security for mishaps and for future deals/investments. That said, I understand that equity is important and you may be interested to see what influence it has on returns. So I will list other numbers related to the investment.

Before I go into these I will propose the deal and terms in regards to us. The numbers will be based off of that. I offer to you a 50% ownership of the property and lock in period of 5 yrs. All expenses, cash flows, and equity, will be split 50/50. On my end, I will construct this deal and be sure that it is sound and fair both financially, & legally. I will ensure that the proper measures are taken as it pertains to the structural integrity and condition of the property for this deal. I will manage this property myself, ensure the repairs/maintenance, rents, tenants and leases to the best of my abilities are adequate and maximizing profits. I will also pay any legal and or professional fees involved in putting this deal together. On your end I ask that you put up the money for the down payment to buy 50% cash flow, 50% equity, and my services involved with the property.

Here are better measures to the return on your money as it pertains to this investment. The numbers for 5 yrs will be based on proposed rents and expenses for the yrs 2018/19. Equity on ten years is based on a 15% increase on rent but is not represented in the cash flows. The 15% is added to the gross income then I used a net income multiplier based on current market value to forecast appreciation. This is a conservative view. Note that this representation does not account for any capital expenses and major repairs. All investments are variable and subject to risk. They may fluctuate up or down. Also, note that all cash flow numbers previously listed will be divided by two, and the following numbers are representative of YOUR returns on this investment.

Price $440,000 [20%dn 4%int 20yr]

                                                            5yrs                                                10yrs

Return on investment              $81,757 / 92.9%                        $203,594 / 231.4%

Annual ROI 18.58% 23.1%

ROI Compounded Yr/Yr                 14.04%                                             12.73%

-------------------------------------------------------------------------------------------------------------

Price $430,000 [20%dn 4%int 20yr]

ROI $87,486 / 95.9% $209,893 / 244%

Ann                                                     20.35%                                          24.4%

Yr/Yr                                                   15.07%                                          13.15%

-------------------------------------------------------------------------------------------------------------

Price $420,000 [20%dn 4%int 15yr]

ROI $96,110 / 114.4% $225,271 / 268.2%

Ann                                                        22.9%                                             26.8%

Yr/Yr                                                       16.5%                                            13.92%

There they are. Good sound calculations to analyze an investment property. And this property so happens to get a passing grade. As far as the condition, all looks good so far. It is spacious and clean. The total sq.ft is 5,200 and each unit has washer/dryer, dishwashers, and appliances. Only issue is it is pink. But that can be changed. ha.

So, as you can see. This is a good deal with very productive returns. I hope you don't pass it up. Investments like this will ensure you retire without worry of finances. At this price, I believe it won't sit on the market long so we need to act fast and decisively.

On a side note, I would be proud to guide you into your retirement while at the same time building my company and providing for our family. I have big plans for this and this is just the beginning. I will have a business plan written up shortly for myself and our investors. I will be sure you get a copy.

Thanks,

Kyle