All Forum Posts by: Victor Menasce

Sendhil, great job. I recommend you go to some of the live RAL events. I believe there is one coming up in a few weeks, and Robert Kiyosaki will be speaking at it. The relationships you could form might be worth more than the information in the training. 

Lenders have differing criteria. For example, I've seen some lenders price a loan at 75% a full percentage point higher than a 70% LTV loan, and two points higher at 80% LTV. If you have sufficient income history, the price might come down. It pays to work with a commercial mortgage broker who specializes in cash-out refinancing. You will pay an additional 1% in fees up front, but you will get a better loan overall. In many cases, I've taken the lower loan amount and then put secondary financing for 5-10% of the value behind the senior lender at 70%. The secondary financing is much more expensive, but it's on a small percentage of the loan. So the blended rate could much lower than a high ratio loan with a single lender.

There are still some good deals around The Fairmount, Brewerytown  and Francisville. Prices have come up quite a bit for vacant land, but there is still a lot of supply. The city has recently rezoned areas to RSA5 (single family) from RM1 (multifamily). That will create new opportunity in the area just North of Center City. 

Fifth Realty is a boutique brokerage firm that only specializes in investment property. The owners are investors and they fully understand investment because that’s all they do. They’re on South Street near Rittenhouse Square.

Gross operating expense includes anything that is associated with the operation of the property. This does not include debt service. So it would include: property tax, insurance, utilities, property management, cleaning, maintenance, repairs, book-keeping, etc. The ratio will vary widely depending on the property. Properties where tenants pay utilities and taxes are low could have an expense ratio of 25-30% of revenue. In high tax areas where landlord pays utilities, you could face expense ratios of 50-60%. It all depends. 

I'm a developer in Philadelphia and have built numerous buildings just North of the Fairmount district. In my experience, you'll need to update the property to modern finishes and amenities to command top rents in the market. I have no idea on the condition of your property, but a distressed property that won't pass inspection probably needs much more than $20,000. There will be years of deferred maintenance in places that you may not see at first. Bring an experienced eye to inspect the property.

In terms of operating costs, will tenants pay utilities? Electric heat can easily be $500 a month during the coldest months. 

Finally, is the building a legal duplex? You need to check with the city to ensure permits were pulled for any previous renovations. Will it pass fire code, and sprinkler pressure tests, monitored fire alarm, etc?

Quickbooks is the best small business accounting software on the market. One drawback is that it doesn't handle multiple companies well. Each company must be in its own separate file. If you envision multiple companies, then this may be a limitation.  If you're going to be using 3rd party property management for any of the portfolio, they will almost certainly be using property management accounting software. There are many out there that are good.

1) Yardi

2) Rent Manager

3) Buildium

4) Appfolio

5) Propertyware

to name just a few. The critical item is setting up the chart of accounts in conjunction with your accountant so that everything gets classified correctly. Quicken is a toy by comparison and I don't recommend it.

It's very common for an appraisal and an assessment to legitimately yield different numbers. For example, an appraisal alone can vary widely depending on the constraints you apply. You can look at replacement cost appraisal, income multiple comparables, or sales comparables. The radius from the subject property can also affect the result. Some cities have valuations that vary widely from one block to the next, which makes the process more complex. You can further change the result if you tell the appraiser that the property must sell in 30 days versus 120 days. That will result in different numbers again. Finally, a residential appraisal versus a commercial appraisal will use a different methodology. 

The city will have a strict guideline that they use when looking at appraisals. They will want to see sales comps within a specific time window. The appraisal must be for a specific purpose (they may not accept bank refinance). It sounds complicated, because it is.

Finally, the appraisers and the city sometimes make mistakes, just to make it more interesting. Find out from the city what type of appraisal they will accept. They will have a document that describes it in detail.

You posed your question as an either / or. I think you need both, but for different reasons. 

You need to find properties by connecting with sellers. That involves, direct mail, cold calling, knocking on doors, networking with mortgage agents, networking with realtors, etc, etc.

You need a basic website to market yourself (validate you) to someone who might buy properties from you. You don't need to invest in SEO, or anything like that. When you meet someone in person, and hand them your business card, they will check you out online. What will they find when they check you out? You need a validation website, not a lead generation website.

As I'm thinking about it, you might benefit from coming to my event in NYC on Sept 23-24. It's the NY Capital Summit. It features George Ross, Donald Trump's advisor from the TV Show the Apprentice as the keynote speaker, along with a bunch of similar calibre speakers on the topic of raising capital. You could find more info at nycapitalsummit.com