All Forum Posts by: Luke Grogan

Looks pretty good. Did you get an accurate quote on the insurance? I generally assume 10% for maintenance and CapEx reserves. There will be something associated with turning units when people move out, which you should have as you raise rents. I'd move away from the live in manager with free rent, but that's just because it's what everyone I've learned from has recommended. The financing sounds good. It's a 20 year fully hear amortized loan?

I have not sent out a lot of LOI letters at once, but the ones I have sent out, I included an offer amount that was fair, a fairly size able refundable deposit, and all subject to due diligence. In short, I agree that you should include a target price.

I personally haven't done it, but I've heard of gift cards to restaurants as a thank you. For my good tenants, I update something relatively small, like a new ceiling fan. For homes that will need them anyway, and if I can find a deal on appliances, I've done that. 

Going forward, I'll continue to make small updates, but I think a gift card is probably a cheaper way to say thanks. 

I am going through some of these same issues with numbers provided by brokers/Loopnet vs actual numbers, but I can't get actuals until I get the property under contract. In each case that I've asked for rent rolls, trailing 12 months, tax filings, etc, the response is to put it under contract and then they'll provide numbers. So, do you put it under contract at the ask price or most aggressive offer, then see if the deal holds up, or build your model, offer on that (likely get rejected, countered, etc.) and keep going until someone accepts?

This is a great question and I'm curious to hear the other responses. I am currently evaluating this same type of scenario because I have SFH that are mostly B class in B class areas. In order to diversify a bit, I've started looking at small 8-15 unit apartments. My question was very similar to yours: is A class worth the price increase because of some of the inflation protection and potential crash protection? I'm also looking at an A class in an exceptional A class area where the address is a premier location and people really want to be there. My thought is similar to yours: some people that can afford the units may lose jobs, but for the most part, the very upper class, trendy areas tend to attract a clientele that should be able to handle the next downturn. My biggest concern is that the premium price that it will cost and the associated financing doesn't leave much room for decreased rents or high vacancy. But the hard question for me is that this building doesn't turn over tenants and the rents are still rising at a good pace.

David Darnell at HomeBanc and Michael Kilpatrick at Grow Financial Credit Union. PM me if you need direct contact info and let them know I referred you. Absolutely top notch guys, they get deals done, and are aggressive and flexible.

Great that you have a good mentor and someone that you can continually pick his brain. Here's my take on one element of his advice: I've lost out on some great properties because I held fast to my number, which may have been less than $10k off of the number they wanted. Recently I lost one that my offer was $4k off. I expected the owner would negotiate, because I made a cash offer, but that didn't matter and I lost it. Maybe what your grandfather was telling us is that we should offer the number that makes sense for us to get he deal done and not worry so much about the purchase price that we lose a great deal over what is a relatively insignificant amount when we hold long term, which I do. There is no hard and fast rule or way to make money, except buying the right assets! What right is varies tremendously for each of us. Best wishes on your offers!

Brent Coombs Yeah, I guess a double close is only when selling to another investor. I'll talk to my bank and see if I can just keep the money on deposit, make a cash offer and let them finance it at the close. Shouldn't make much difference but wondered if I needed to use any other strategy to make a cash offer and then finance it without going through a refi...

For the most part, this is referring to a seller that will not accept a financed offer. They've had it fall out of contract and are only negotiating with cash buyers. The price is $900k and I can bring about $800k. I can scrape the remaining $100k, but that puts me in a tight spot until I can refinance it. My thought was to pull everything I had together to make the proof of funds letter and then work on financing, but I'd have to close once I get past DD, I'd lose my deposit. Unfortunately, the contract could not be written to have securing financing as a legitimate reason to terminate the contract.

That's a good start, but every number will change over time, so conservative is good. For me personally, my vacancies are much lower, so I use 5%, but I also have single family homes and tend to keep tenants for multiple years. My taxes and insurance are much higher. Taxes average 11% of my monthly rent (in Florida) and my insurance is close. Including an umbrella policy, taxes and insurance take up 25% of my monthly cash flow. I put aside 12% for maintenance and CapEx reserves, but this also depends somewhat on the age of the property and whether or not you rehab it prior to renting it. There is a learning curve, but as long as you adjust to real numbers and use as many "real" estimates as you can, you'll get better. I agree with assuming 10% mgmt fees and recommend starting out managing your own so you are a bit better at finding good managers later.