I absolutely went against everyone's wishes on this post and I did end up pulling the trigger. I'm less concerned now. Even though the original owner request was adamant about not having any inspection, we snuck it in. Their realtor wasn't paying attention and said yes to allowing it. The inspector waited for the day before the scheduled inspection to send over the forms for the owner to sign and when the owner saw that they tried saying no, but their realtor had to inform them that he had said yes to us (must not have realized what property he was dealing with when he agreed to it). So we did get the inspection, and the inspection made me less nervous about the property. It showed no real concerns for foundation, or roof. It cleared up any wiring concerns throughout the building and gave me a really nice punch list of work that needed to be done against the property. We did sign something saying that we wouldn't use defects against the owner to drop the price, and ultimately that's what we were offering from the beginning.
I would still have been able to forfeit my 1% down earnest payment of 1650, and walk away. That's not to say there isn't a lot of work to be done on the property. I haven't done a lot of work in the search for a management company, but i have started reaching out to contractors to get bids for various projects.
Just for the 2 units that in my mind were rent ready (have needed plumbing work in both). 1 water heater wasn't working (not producing any hot water, eneded up replacing 2 thermostats and a lower element). the other one required a new dub drainage connection (it was completely rusted / corrosive damage and was leaking into the basement. luckily this was on the first floor.
I've gone through and replaced all the locks with coded deadbolts, this allows me to allow contractors in to do work without me having to be there to let them in or out (this is a trust situation, and a convenience situation). This allows me to change the codes when i come on site to make sure i'm never giving out the code to more then 1 person at a time. Of the 5 renters i have now one of them loves this feature.
Another automation implementation i've done - I've gone through and made it so my renters can direct deposit rent into my business banking account. This was well received by 3 of my renters, and only actively questioned by one of them who still wants to write checks. I refuse to accept checks, and will only accept money orders or this direct deposit. most of course love the fact that they dont have to write checks anymore.
I built a simple website to handle showings and maintenance requests. - quarksestate.com It still is in progress, but i've been using this to fully keep track of all of my maintenance requests i'm doing on the building and 2 of the tenants have used it and really liked it's simplicity and how easy it is to track maintenance requests. I have it send the property manager (me) an sms and a email and send the person submitting the request the email.
Within the site I have built a convenient way to manage requests, update them when they are closed and satisfied and be able to track per building / per unit what requests exist and still need to be worked. Along with emergency status.
Pain points thusfar. This unit is kind of far from where I live so i can't just drop by, this is really making me flex my mind to figure out how to manage this property remotely which is good, but I'd have a better resolution time to solving problems for tenants if it was right around the corner. So Making a list of reliable workers / contractors will be difficult, but ever so critical.
The city has a super weird ordinance where they wont deliver mail to buildings on main st. There is a usps, and they ask that every place gets a PO box. (i have tenants that haven't done this. Dont have cell phones or email addresses. (really not sure how i'm suppose to work with luddites?) Not all ideal renters. I would prefer to just create a common mailbox location in front or back of the property for tenants to pick up mail. (maybe this is too inconvenient for the usps???
Dealing with property line issues. There is this massive tree (which is directly behind my building, and is cored out at the bottom and someone put a trash bag in there,) I want to get this taken care of, but looking on the property records, the tree isn't on my land. it's my neighbors land. Getting them or the city to pay to have this tree removed (which is exactly what needs to be done) is going to be nearly impossible. Also if looking at the property line records i have a stairway that is exiting my building and exits right next to that tree, (so this back deck stairway might also not be on my land). Because of hte lack of land directly behind the building, i can't have a trash bin location for my 8 units. (small town solution, they are suggesting i place it in a public parking lot one property over for my tenants.
This property cash flows nicely at 5/8 units even though I have to pay flood insurance on it at 2300 and reg insur of 2k so 4300 per year for insurance, and it has a lot of room for even better cashflow if i can fully rent it out. Because of the flood insurance cost increases based on the increased value of the loan it's almost inhibitive to refinance the property to get my initial cash invested of 45k back after i've increased the potential value of the property. Something i didnt' fully understand until it was in my hands. I do still have some cash to help fix the units and do some forced equity on the property. the 3 commercial appraisal numbers they pulled back basically said this property should be worth 270-299 but the actual rents, and condition of the property made it come in right at my asking price of 170. and i paid 165. So there is some serious room for property value to be increased with improvements.
I still dont know what my options are or how to determine what the best strategy is moving forward.
Should i dump 40k worth of improvements into this property to get it to ARV at 250 -270k so i can re-appraise it and get my 70% out to pay off the initial loan and recoup costs of the property and start the process over? That will increase the monthly cost of the property (through insurance, taxes, mortgage)
Or should i do the improvements not try to get my cash out, and just enjoy the increased rents, and the low mortgage costs? with the knowledge that i'll be able to capitalize on the high equity when or if we ever decide to sell it?
I have already got a new renter for one of the 4 vacant units making my renters 5/8 and making the property cashflow without any advertising.
I plan on beginning to advertise the other rent-ready unit within the next 2 weeks. any suggestions on where it's worth paying to advertise? Renter.com? any other places? Is renter.com crap? could use advice on what property management places are spending their money.
cheers,
I'll keep you all posted when i can.
current income
4unit income as is. 5700+3600+5100+1800 = 16,200
taxes = 2800
insurance cost previous owner 4200
all units have their own electric heat and AC units
water bill cost previous owner 5700 (I have plans on reducing this cost)
mortgage = 600
expenses 2800+4200+5700+600=13,300
then there is 10% management fee, 2% maintenance cost (maybe 5% since it's so old) and 10% vacancy cost)
The margin as is could be losing me money. Especially if one more unit went vacant.
Cash out of pocket 42,000
could cost anywhere from 40-80k to get this property really producing.
If I did take out a 80k loan I would want the final appraisal to hit 275k (this is possible for the area) and my loan after 25% would be like 206k
my mortgage at that point would be more, maybe my insurance would be less?
my income could increase from16,200 to 41,400 approximately. (very hypothetical I know).
If the foundation is terrible ( could be 2000-50,000) , new roof 20,000, Electrical (who knows), flood damage (I would hope insurance would cover this)
Still I'm aware all of those things could ruin this opportunity. If I do complete my work, I'll have a property valued at 250-275k with 25% equity that cashflows nicely. I will have significantly restored and improved a aging property in a nice small community (that according to the census is growing) adding value to the community through higher taxes, and a higher standard of living.
So yeah I'm fully aware that there are a lot of unforeseen risks here. And I'm certain I will learn a lot from this endeavor. And I'm hoping I can take it in strides and learn from it all without bankrupting my fledgling business.
Cheers Bigger Pockets,
-Lee
Just a general update. I am considering my options in regards to rehab commercial loan vs just a standard commercial loan. I hadn't realized, and my mortgage lender hadn't informed me that they don't do any commercial loans. So I'm learning that side of things. Thanks to a bigger pockets member for taking the time to call me and help me understand the differences, concerns, and expectations of a rehab loan.
My realtor is out of town for a week, so I'm delayed a week to view the rest of the apartments, to get a better idea of the property needs. My wife gave birth 17 days early on last Friday so I'm a new father figuring both of these ventures out at the same time.
Can someone explain to me the power/importance of estoppel letters? Why / whynot they should be drafted by a real estate lawyer? I didn't clearly understand it after a couple of google searches, and haven't found any examples of what one would look like.
My clear goal is to make the remaining units rentable, an Influx of cash from a rehab loan could help do that quicker, so I could get the building re-appraised faster after it's fully rented / rehabbed.
I use the BRRR report maker spreadsheet, but want to make sure my numbers look good there, and I probably need to play around with a couple more reports to find out what numbers make the most sense for rehab loan.
Thank you everyone for your thoughtful replies to this unique situation ive found myself in.
My daughter came 3 weeks early today(yesterday), everything always happens at the same time. :)
I will assemble all of the responses and order them, triage them/consider them fully. A lot of great responses and things to consider. Hopefully this will prevent me putting the cart before the four legged quadroped.
We have enough cash that we could have had 70% equity from the start. Obviously not going that route. My main reason for making this post was to figure out how to best use the excess cash to reno the property.
sounds like,
0. Have an exit strategy
1. Dont buy it, run, run far away.(validate the work that was done on the property was even above board with permits, plans ect)
2. Get a llc, make sure you can secure the loan through financing. There are 3 banks outside of the pre approval Letter that showed interest in the type of property and have said they would offer some kind of financing. Heard from them today, Was going to reach out to them tomorrow.
3. 4. 5. 6. 7. Get a lawyer to review previous leases, personal comercial inspector, contractor, Insurance Agent, exorsist/priest!
Make a detailed list of projects with a focus on making the non rentible units rentable > existing units to keep current renters happy.
Avoid fancy things like laundry machines, internet, unless there is a real demand for it.
im sure i missed some initial steps trust that i will review them all again when i make my plan.
Is it worth/possible once the property is owned to secure a construction loan to cover expediate the rags to riches story of this building, if the numbers make sense?
BTW If taxes mortgage and insurance stay the same, and the current rent is accurate this property is yielding positive cash flow already without the 4 units being rented out atm.
btw 3 current leases are MTM except one of the businesses that is a year lease.
Someone asked about menards nearbye there is a do it best across the street, and a hardware store right next door. I have not researched if there are any big companies in this small town keeping it a float, i think because its just outside of Verona/Madison 35 minutes is its lifeblood.
There are 3 schools, a functioning small town government, a city park, library, resturaunts gas stations, 2 bars, 2 churches, and a partridge in a pear tree. My initial drive through this town. I was really impressed. Very clean.
Im from Wisconsin, I live in Madison 45 min away, but still want to get situated where i could be 2000 miles away and the operations wouldnt be effected. That is the goal.
Ive started researching property management companies near by, there doesnt appear to be any / many that are closer then 30 minutes. Can that be expected, is that an ok situation? Should I manage it first, then pass it onto a vompany, or do property Management companies have systems in place that will help me streamline my processes, and increase my chances for success?
I will keep people posted on this adventure.
Blanchardville Wisconsin on the primary street of a town of 800-900 people.
Mls - 1926539
Not sure about "contract". Unless i was referring to the owners refusal to have it inspected in the contract.
Sorry for any confusion.
You might be right about the lack of upkeep in relationship to the rural area and lack of rentors. But there is clear evidence that the previous owner has spent a lot of time and money performing upkeep on this property. Some pretty big projects have been done in the past 5 years, but the overall property is still in pretty rough shape, and my guess is the owner out grew this property, or it no longer was a good use of his time / investment dollars.
The way i see it though even though 4 units arent rented out at present moment, 2 of those 4 had renters in them as recent as 1 month ago. 2 of the units out of the 4 vacancies are unlivable at present moment which means he had 100% occupancy. Sounded like one renter had lived there for 20 years and passed away. Another tenant has been there for 10 years. A hair salon business I assume has been upkept. And a massage business (both units i havent seen) Both were paying extremely low rent amounts around 300 a month each.
3 units for sure need to be brought up to higher standards.
im convinced this is a shiny piece of coal needing to be worked, but still im concerned for the previous owner refusing a inspection.
I still need a solid checklist of where to begin.
Just bought david greens book long distance investing. Have already read 2 of brandons books. Sometime this past year.
Because it still hasnt closed im going to ensure the loan gets secured.
Questions i have:
1. Because i applied for loan, how hard is it to get a LLC started afterwards and get it transferred to the new LLC.
2. Are there any examples of letters people send to the current occupants?
3. What is recommended by the community in regards to keeping track of expenses , and having easy books come end of year taxes?
4. What does the community use to collect rent? Digital apps?
5. I am thinking about putting laundry equipment for the renters in the basement which has flooded in the years past. Some kind ofraised platform. Sounds stupid I know. Just trying to provide value to my tenants. I wont be able to collect change routinely because of distance away from property, so are their debit card reader laundry machines people would highly recommend?
6. Im am IT guy by trade, interested in networking private secure internet to each unit. ( I will need internet to remotely monitor property through my smart devices) and services like the laundry machines. Figured i could make it available to the renters, or try to get faster business speeds and share it to the users. Does anyone have experience doing this? General thoughts?
7. I want to be a proactive landlord and be extremely accessible and responsive. What systems are you guys using to maintain trackable communication with renters. I dont want to make a website if it already exists out there. (I suppose a private facebook group would work), that of course sounds like a terrible idea as well. Looking forward peoples suggestions.
@Brenden Mitchum
Im positive i have a lot to learn here Brenden, and I'm hoping im going to not fall on my face too many times.
I have requested a P&L statement on your suggestion.
I was given a rent analysis, this property unfortunately doesnt have competitors to compare rents too, the nearest town is 15 miles away, and they are charging way more for 650sqft unit properties then this owner was. I have also ran brrrr report on this property, and visited the property, there were 4 units i did not see.
Yes i waived the inspection, the seller wasnt budging there were at least 3 offers on the property. I had already visually inspected it, and i tried multiple times to get the inspection clause in seller wasnt budging. Foundation work had been done within the last 5 years, and i saw that in the basement of the building. My biggest concerns were the electrical building was built in 1920, plumbing, and roof (it had been updated in the past 5 years as well, but it has 2 skylights that as we all lnow are subject to leaking that they left in place.
I have received a few previous tenant contracts, and a condition report of the property which was submitted before i ever even saw it. I walked through 4 / 8 units, namely the 4 units that were not rented out. 1/4 open units is rent ready, the last 3 need a lot of work.
So 5/8 units are rentable presumably.
Taxes are 2800 a year, insurance is 4200 a year (because of fema flood zone). The building was listed at 165k.
Hope that answers some of your questions.
What should i so next?
Ive reached out to a CPA to get this rolled into a LLC, and understand that process, reached out to my insurance guy, getting a second mortgage loan quote, i already have 1 approval letter from a mortgage lender.
Just received an accepted offer 10 minutes ago on an 8 unit property. They were refusing to allow an inspection so I ended up waving it after talking to an experienced real estate investor based on his suggestion. Four units are currently rented out the other four are in various States from completely gutted to needing to be gutted to very long time since it's been renovated.
I have 5 days to pay the ernest my realtor juat told me, which is no problem. What are the big questions I should be asking and getting set up and aligned for when this property becomes officially ours?
Can someone give me a checklist of most important improvements to a unit to make it rentable?
I also imagine I'm going to need to reach out to the current tenants and inform them where to send their money and how excited I am to take over the property and give them new lease agreements? Or am I going to have to accept them as my current renters until their current lease expires?
Just need to get focused here and I kind of want to checklist to go off of for my situation so I can better focus my time and create systems.
Any and all advice welcome references that you could link me to would be much appreciated.
Don't let me down bigger pockets!
Lee
That's exactly the type of information I was looking for something I was completely oblivious to and didn't know existed as an option. What platform are you investing in crypto and what company is offering the life insurance policy that you can borrow against that's asset protected? If you don't feel comfortable saying that's perfectly fine you gave me enough information that I'm sure a good Google could assist me with however you've probably already done the research and that's why I was hoping to get your responses.
thank you so much for your time and thoughtful answers.
Lee
Hi everyone,
Where do you all keep your money while it's in limbo. Trying to consider if i should keep my money in a investment account so i can have it sit on the stock market and accrue larger returns while i wait to put a deposit down on a property? It's not quite liquid i get that, but seeing as how you only pay taxes on money you've earned (short term) under a year when you withdraw money out of the stock market after recently having put it in there is that not a good idea? Is this what everyone is doing already and I only think i'm smart for having thought of it? Curious where people are housing their large downpayment pools of money?
I think i found out the answer to my main question.
You shouldnt offer more than 70% then what you can get the property to apraise for - extra expenses.
so for that 725 property that is starting at 315, and the highest apraisal value for this neighborhood with similiar building types are going for 400k. I shouldnt offer more than 270k for that property.
Are there exceptions to the 70% (75% LTV) rule?
Thank you for that 75% LTV number.
I went and looked at both properties on Saturday. The vernon property like you said was pretty much move in ready. the 4 bdr side had good looking appliances, updated modern kitchen and recently redone laminate flooring that looked nice.
The bones of the property were pretty they had 2 bedrooms in the basement so the foundation is good, and no leaks anywhere. The roof was less then 10 years old. The only way I could add value to that place is to finish the basement to add more sqft to the property.
the 727 place, had the updated floors, but the kitchen hadn't been touched appliances were pretty old (this side didn't have washer/dryer appliances, could use new fridge / dishwasher.) The basement was virtually untouched and I could see doing on that side what they did on the other side. Add some bedrooms. The yard was fenced in secluded. There was a detached garage that would have been worth renting out to one of the tenants. But I don't know with those improvements if we could have gotten it up to 425. the as is CMA my realtor did on the property came up to 339,000. and it was listed at 315, I'm interested to see what the bids were on the property. I didn't want to dump all of my cash into it as a down payment of 25% when I didn't think I could refinance it in 6 months and get that back out of it.
I appreciate you looking at my question for what they were, a new person just trying to learn the ropes with a real life example.