All Forum Posts by: Marsay Winder

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $140,000
Cash invested: $36,000

This was a 4 bedroom rooming house purchased with a large footprint. We will be converting a large living room into a 5th room by closing off a door and adding a closet for added profit cashflow. This was a turn key property that works well by renting to employees at our local shipyard. The awesome part was that we closed on the 11th and had our first tenant secured by the 25th!

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

A niche market in my area is in single room rentals. This property had space for a 5th bedroom (the max allowed in my city) and the opportunity to cashflow at over 1,000 per month.

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

MLS

How did you finance this deal?

Conventional Loan

How did you add value to the deal?

We will be closing off one of the entry doors to a large living room (the house also has a spacious dining room area) and adding a closet to create a 5th bedroom.

@Greg Moran thanks for your input!  Sent you an email to get the details of your deal. 

I currently have five properties in my portfolio and I'm looking scale. I landed my first private money lender - a friend that I grew up with. He is setting up an SDIRA to invest 25k with me at 10% APR. he wants to allocate his money to me over five years and let it compound. I have a BRRRR deal in the works that I am planning on using the money for up front and then put that cash back to work afterwards. I did have a few questions that I wanted to get some advice on.

1. Collateral- he isn't asking me for anything other than a promissory note. I would lean towards recording against the property with someone I didn't know. If I opt to record, the property I'm working on has a seller financed note that I will be refinancing after the BRRRR is complete.

- if I add the note to title, I would assume this puts the private lender in second position? If that is the case, when I go to refinance and pay off the original seller, will he default to first position? Not sure how the refi bank would feel about this.

Main question would be pros and cons of recording the promissory note with title against the property if I’m not required to do so. I do however want to protect my lender and give them peace of mind for for future business and referrals.

2. Self directed IRA distributions. Since we are looking at a five year cycle, are there any requirements to disburse annually - ie interest payment back to his SDIRA custodian or can I just disburse his compounded interest and capital at the end of 5 years?

Thanks in advance for feedback

@Huso Akaratovic If you have time to set up a new relationship, I would try langley federal credit union or old point national who are both local in Hampton Roads.  I used to do a lot of work with Townebank but they have changed policies recently and are not as investor friendly.  If you are cash flowing at your numbers though, I would stick with a known entity if it would mean you might lose the deal.  I was in a pinch recently on a refi and had to go with a broker but I paid for it. 

I have run into problems on the smaller price point deals below 100K as some banks don't even want to touch them these days.  Message me if you want to talk more about the local 757 market.  

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $23,500
Cash invested: $10,000

Duplex purchased with an unfinished 2nd unit. Property purchased with owner financing and interest only payments. Rehab work on the 2nd unit included electrical upgrades, plumbing, HVAC, flooring, and finishing (sheetrock, fixtures, paint, etc). Also converted the unit from a 2/1 to a 3/1.

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

I originally didn't want to do this deal due to it being a duplex. I typically prefer 3 units and above but we were able to work the numbers and the terms worked very well for me. I became interested because I could add a property to my portfolio with little cash outlay and hold onto it for a while without expensive mortgage payments.

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

My handyman brought me this deal as he was working on it and ran out of bandwidth to finish. We worked out an owner finance deal with 10K down and promissory note for 23,500. I was able to rent out one side immediately and have been slowly working on the second unit.

How did you finance this deal?

Owner financing with 10K down and a promissory note for 23,500. We did interest only payments for 150 a month while I rehab. After rehabbing and renting out the top unit, I will refinance and pay off the note.

Lessons learned? Challenges?

Lessons learned were with contractors. I had an issue with my HVAC guy where he didn't finish the job and didn't provide all of the equipment. He left some of his equipment but I lost out in the end. Lesson learned - you get what you pay for and make sure you have strong contracts in place. I relied too much on a previous relationship with him and got burned in the end. Had to hire a new HVAC guy who cost me more in the long run to fix everything.

Thanks for the input @CJ M. One of my least favorite parts of investing is dealing with banks.  Can't live with 'em can't live without 'em.  I've been fortunate to use seller financing on my last two deals but still ultimately had to go back to the bank on the refi end.  

@Kris L. Fortunately my mortgage broker was persistent and fought for the deal.   We created leverage by leaning on prior relationship with the seller (I had purchased a deal previously), appraisal and tax records attesting to value, and I shared with my broker that I was also negotiating a deal for a 25 unit apartment complex with the same seller (potential to gain future business or lose it based on this experience). My broker escalated the issue above the underwriter and we are able to come to an agreement.

@Jay Hinrichs thanks for the feedback!  With each deal I learn a bit more and will file that one under the experience column.  

I had a recent experience with a lender that baffled me and wanted to share.  I purchased a 40K home that was being used as a college rental.  Based on doing prior deals with the seller and his motivation to liquidate his portfolio, we got this house at a steal (tax value 105, appraised for 110K).  The only rehab work was to do a termite treatment, replace some damaged wood, and add a new roof (~ 10K in repairs).  

My first hurdle was to find a lender who would forego seasoning requirements and lend to my LLC (my prior local lender recently change their policies - another story for another time). Finally found one through a mortgage broker and thought we had things all set. During underwriting, the lender tried to balk because they couldn't fathom how I paid so low and appraised so high with little repair costs involved. Ultimately we got it resolved after jumping through a few hoops. The crazy part was that the lender selected the appraiser!

Overall, things came together and for a 10K investment using seller financing (promissory note set up for the balance), I will be able to come out of the deal with about 35-40K of new capital (after repayment of the promissory note and reimbursement of my repair money).  

Questions for BP - has anyone else experienced anything like this during underwriting?

Thanks @Bill Goodland.  I'm only renting out 4 because that's the max that my city will allow for room rentals.  The pic does make the house look pretty small for that many bedrooms.  The previous owner converted the attic space and there are a total of 3 bedrooms on the second floor. 

The overall lot dimensions for this property are 165 wide by 50 deep.  I am currently researching building a four plex beside this one down the road.