All Forum Posts by: Michael Jones

@Brad Crumpton I moved from Dallas in 2015 and I keep tabs on how things are going in the metroplex.

You should start by interviewing Realtors that work specifically with investors. Few do, so plan on some thorough vetting. This one thing alone will make or break your strategy.

I would recommend investing in Greenville, maybe W Dallas (depending on continued gentrification) or Royse where you live. Its going to be tough to find properties that truly cash flow at those price points (except maybe Greenville) so you need to keep your eye on the prize which means finding solid homes in good and improving neighborhoods that can provide you future cash flow. What you need to be careful of though is the leverage that multiple properties can create. You need to make sure you have enough income from your job to handle multiple vacancies and repairs if they arent providing additional cash flow.

@Pavel Ushakov this isn't necessarily true. All he has to do is figure out what the taxes and utilities are, increase the monthly rent, and say "utilities included." That's essentially a NNN lease.

@Joshua Holt definitely get TWO contractors out there. Just going off one could be a disaster. They could either take you for a ride price wise OR they could under bid the project up front and you get slapped with higher costs than you were expecting. Two separate bids should not be too far off from one another.

Go ahead and make an offer on the property, but make it contingent on several things like full city approval, permits clearing, etc. If you have to go through permitting, it can take months, so make sure you want to carry the property on your dime. If you structure it right and the seller is willing, they can keep it until permits are approved. Remember, don't let emotion override sound investing practices. It'll bite you EVERY time one way or another.

Joshua,

The biggest step you need to take is to talk to the city. Even something as simple (or seemingly so) as subdividing and existing space will likely require a permit. That can take some time and they'll like ask for an architect and an engineer to be involved which is probably wise. Depending on when that building was originally created, you may be forced to bring other aspects of the building up to code which can drastically change your budget. Not getting the city involved can be a bit dangerous because if they figure out you've done something they won't allow, they can just come in and shut you down. So, I'd plan on visiting with them.

I wouldn't count out talking to a bank. Not that you necessarily need to get financing from them, but they've likely been approached to do other deals similar to this. They can provide a level of questioning and due diligence that will help you cover your bases.

As long as the numbers will still make sense for you during a possible economic slow down, I say you hold on to it. It would appear that you're in a good spot with this property and while new opportunities may arise IF there's a downturn that drags values down with it, I wouldn't kill the golden goose just yet.

Even in a downturn, your property may not lose value with consistent, stable cash flow, so your offer now may not be off the table later.

You need to figure out what the net operating income is. Take the income above and subtract all the expenses. Make sure that you actually get financials from the current owner and then VERIFY them. Don't take their word for them. Get copies of the leases and figure out how much each tenant has left. Also, get rental histories (or verify the income) to make sure that the tenants are actually paying.

You'll also want to find out how much similar properties have been purchased for in the area.

You can reverse engineer the value by figuring out the cap rate. This will somewhat depend on how much risk that you want to take or how risky others would view this investment.

Are you wanting one to set up a deal or fund or to offer legal advice on an existing deal or fund?

It will all depend on how a bank classifies a single family rental. Even though it's for investment purposes, it will likely go into their residential tranche/classification and it may not be treated as commercial from their eyes. You might want to get that clarification.

Also - most banks are not going to want to offer a fixed rate for more than 5 or 7 years, so you're looking at an ARM, even if they allow for a 15 year amortization.

Start with seeing if the loan can be assumed, depending on the interest rate and other terms. This may save you a headache because banks are getting more nervous about the economy and may clamp down on lending.

What are the terms of the lease? Is it triple net, meaning the tenant has to pay taxes, utilities, maintenance? Have you been able to calculate cash on cash returns and IRR?

@Charles Ledet I've thought about doing this too and even kicked the tires a bit. Biggest issue is going to be finding affordable land. Then, you've got to get the city on board because these are going to be unique properties.

Happy to collaborate a bit on this.