All Forum Posts by: Mike B.

Thank you Christina, I appreciate the reply!

Construction finishes and possibly some layout design.  I am also considering furnishings/accessories as I will be furnishing from scratch.

So I am in the middle of purchasing a house that has not been updated since it was built in 1994. This will be my personal private residence, but I am also using the occasion of the full renovation as a test run for my future BRRRR investments. I have some GC recommendations (and will always take some more if you feel so inclined), but what I personally lack is the ability to design well...I am a man after all. I would like to get this one right since I will be living in the home, so does anyone have any good recommendations for someone who can help me tastefully design the new kitchen, baths, and home in general? Much appreciated.

In my experience, there are two types of section 8 tenants.  The first group are usually elderly and need the subsidy to afford rent on their fixed incomes.  This group is usually respectable, takes care of their home (this is an important distinction), and is a good, long term tenant.  The second group usually fall into those that won't work (not can't, but won't).  Or the subsidized qualified person works, but has a lot of loser family members that all move in and free load.  This group does not consider the unit a home, but just a roof over their head...and they treat it accordingly.  The problem between the two groups is that you cannot discriminate if you hold out the offer of accepting section 8 vouchers.  Just know what you are getting yourself into and learn how to physically prepare your unit for this type of tenant.  I highly recommend reading the Section 8 Bible (Vol 1 & 2) to learn about these things.

https://www.amazon.com/Section-8-Bible-Michael-McL...

@Lane Kawaoka  I am always happy to answer questions.  I did not go through any training with Brad, but I did go through all of Dave Lindahl's bootcamps.  I found them helpful, but now know they gave me a just enough info to be dangerous.  Thankfully most places are in an appreciating market and that can cushion any mistakes.

@KJ Smith and @Account Closed

The best training you will get on raising money and not infringing on SEC rules is going to be "It's a Whole New Business" by Gene Trowbridge.

Operationally, I suggest going to IREM.org and learning all you can about multifamily management and operations.  Even if you plan to have a third party management, it helps to know what they should be doing and gives you insight into areas you can improve and make more money while doing your due diligence.

I also suggest CCIM.com to learn more about investments and valuation.

Glad to answer any other questions, feel free to message me anytime.

For valuation, look up Steve Berges on Amazon and get his Apartment book.  Very good look at how to value anything from 5 units and up.

Cap rates kind of matter.  What I mean is it gives you a starting point for where the seller is likely expecting to value his property at for sale.  Price per door on comps will also play a role.  This also ties into your question about how to find a discount.  That is all about your strength as a buyer and the your ability to negotiate things like specific property condition, current management of operations, etc.  There aren't really any discounts out there as competition is pretty good in almost all markets at this point.

You will need to put down money on any commercial loan.  The lenders will require you to have some skin in the game.  If you find someone doing otherwise, please let all of us know how to contact them!

 @Ron Steele You will only get your 75-80% loan on the purchase price regardless of the appraisal being higher.  I have had instances where Fannie would give more money if the appraisal came in that much higher, but they ALWAYS required it to be kept in escrow under their control and designated for improvements.

You can refi and cash out, but beware any prepay penalties on the first loan and you will have to season the loan for at least a year. You will want steady operating history anyways for the refi, and hopefully you will have increased NOI over that time. But beware, you might only get a 65-70% LTV cash out. Lenders really don't like you to not have any skin in the game. With a half a million in unrealized equity though, that should return at least 50% of your initial capital at a 65% refi. Not bad.

@Jamie Spitale Yes, the lenders will have their maximum LTV (based on the purchase price at sale and based on their underwriting and appraisal at refinance) and then require you to provide the rest of the equity. This can come in the form of a syndication however, so the sponsor does not need all the cash himself. One caveat to all of this is the Debt Service Coverage still needs to be in line with their requirements as well. Usually 1.25 to 1.3. With today's compressed cap rates, sometimes pricing goes so high that LTV is limited to a lower amount simply because you hit your DSCR limit before you got to the 75% (or whatever number they were at first willing to quote).

This is a common problem in a growing number of cities.  Unfortunately for you this is probably going to be an expensive lesson.  You need to have these things professionally taken care of (but don't just hire any exterminator and blindly let them do it).  Educate yourself on the treatment protocols like spraying or heat boxing and discuss with whomever you hire how they will do this.  I can tell you if they are not removing all of your outlet and switch covers when they spray, they are probably not doing it right.  The tenant also plays a huge role in this, because if they do not comply with treatment protocols on their belongings, then you will have the problem flare up again within 30 days of completing your treatments.  You have to manage these tenants and make sure they are complying.

You can protect yourself by adding a pest clause/addendum in your lease. Make sure you have it checked by your attorney so it meets your state's requirements.  But essentially, your lease should state you are renting the lessee an apartment that is free of infestation and that any future infestation is the fault of the tenant.  It should reflect damages they can be charged so you can correct the problem (hiring the exterminator) and consequences of not following treatment protocols.  The last thing you want is a tenant that won't comply and you have no recourse to evict and get rid of them so you can properly fix the problem. Also, providing new tenants mattress sleeves at move in is an extra expense, but can be well worth their cost when  problems arise.

You mentioned that this was a low (or no) income resident and they had depleted their security deposit for other damages already.  I really hope you are not allowing a tenant to use the deposit as a credit account while they are still living there.  That deposit should be for unpaid rents and damages if they skip out or move and leave a mess.  If they damage the property while still living there, they should have the charges added to their next months rent bill.  And if they don't pay in full, they should be evicted.  If you do not train these residents this way, they are training you. And what you are left with is a broke tenant who infests your complex and once you finally get rid of them, you are left holding the bag of damages, lost rents, longer vacancy while cleaning the mess, and no deposit to help cover this problem.  Hopefully you can find lots of advice on BP to assist with these issues.  If you are going to be a landlord, you should also continually educate yourself.  Here are some resources beyond BP:

www.IREM.org

www.NAAHQ.org

http://www.amazon.com/Landlording-Handymanual-Scru...

@Johann Kleisch

@Joe Baron asks some very relevant questions to answer how much you might make.  Also consider the condition of the laundry facilities....a dark and dingy room in the basement that looks like you could get mugged in is not going to do as well as a brightly lit, large and clean room with clean machines.  

As for pro forma income, assume there is at least 1 person per bedroom that needs to do laundry weekly.  That would be 75 people minus your vacancy factor.  Also assume the pricing per wash is $1.50 and one dry cycle is another $1.50.  Most people will separate their laundry into at least whites and darks, giving them two loads to pay for.  That would be $6/per person/per week.  So assume somewhere around 5% vacancy and that give your roughly 70 people X $6 in machine use X 4 weeks in a month = $1680.  That would be a really good month!!  However the reality is, not everyone uses the machines and/or does laundry weekly.  If you took a conservative estimate of 40-50% of that amount and used it before reducing it further given the answers to the questions about condition of the room and equipment and whether or not a third party handles the income and machines, then you would have an decent and conservative number to work with.