All Forum Posts by: Michael Lyons

 Appreciate the input Robin! The lower debt option is something we are considering as well, and I'll do further analysis with different options. The property we're looking at has been priced down a few times, and has been sitting on market for over a month. It may be naïve of me, but I was thinking if we were to use all cash, we may be able to get an even better purchase price given market turmoil right now, which is a driving factor I failed to mention above.  

Hi all,

I am hoping to get some outside opinions on a deal I am currently structuring. A bit of background:

I am 23, and this will be my first deal. I have sourced ~$150k in equity among friends for my LLC, and will be partnering with an outside investor to be an equity partner with another ~150k.

The property is in a growing, historic city with low seasonality (summer always does better, but still steady business flow in the winter months as there's year long activities). We've been following the market for a few months, and have identified a property that falls into our ideal profile (maximize 2b, 1.5 bath, has the right turnkey finish we need, minimal wasted SqFt you wouldn't be able to get value through as an AirBnB, compared to utilizing as a LTR).

Given where rates are, and due to the number of investors, the loan products we are looking at are not too favorable for Cash flow. 

We are considering purchasing the property all cash for three reasons: 

1. Less operating risk as we learn the in's and out's of running a STR effectively

2. Having a bit more pricing power to attract occupancy and build a strong review foundation.

3. Giving ourselves the opportunity to build a more accurate expectation of NOI

Initial expectations for COC is about 7%, which isn't amazing for a STR, I know, but we're also looking at a 2X equity multiple and a 10% IRR, but with a lot of room for upside on market appreciation (market has been the fastest growing in its MSA over the past 10 years and shows no signs of stopping in terms of population, and job opportunities, and long-term price growth). This is with fairly conservative operating assumptions and revenue expectations.

My plan would be to run this for 8 months to a year, re-evaluate debt options, and cash out refi at whatever LTV still allows for decent cash flow.

Questions:

1. Is this return metric worth considering for the minimal risk profile?

2. Would you consider this a base hit, and find the low-risk learning opportunity valuable? 

3. Should I hold the cash, and look to hit  bigger with a larger property that can cash flow more effectively with debt? (It's also worth noting that our team should be able to accumulate cash to a similar level within about a year, so even if this isn't the best deal in terms of opportunity cost, we aren't locking away the only capital we will have for the foreseeable future)

Thanks for the help!

@Andrew Bang this is a good perspective to hear from a lender, as a lot of the BP community (at least us newbies) fall into the energetic, less money category. 
What can individuals who are in that position do to make a lender more comfortable, or is it just going to be accepting higher rates?

@Anthony Zotto While I can't speak from experience (PS congrats! You've clearly put in a lot of hard work and had a lot of success with your investing), my advice would be to utilize your experience and resume of success to look for a partner for a bigger property. Commercial benefits a lot from scale, and if you have experience with the acquisition, effective mgmt of less units, marketing, etc, when the property is big enough to support a PM company, you can really start to achieve some economies of scale in cash flow, and saved time. 

With only a few properties above 5+ units available, the competition and acquisition phase will be a lot more difficult than if you can increase your search parameters to say 50 units with a partner. The amount of time you invest may be more overall, but you can now charge say, an acquisition fee, an asset management fee, and again you get better economies of scale with more units.

Good luck! I hope all goes well with your transition.

@Mike B. A good analysis for you may be to look at your ROE at this point. Look to compare it at the start of the deal when you were cash flowing, versus now as you have a lot of appreciation equity. 4 years of aggressive property appreciation for less cash flow seems like a good opportunity to sell the property and maximize your ability to utilize that equity across a bigger property with more debt, or a few smaller properties. As you get aggressive price appreciation like you have, it reduces your ability to drive good returns on your dollars invested unless you refi or rents increase just as much to follow. 

Has your rental rate increased in step with appreciation? 

I don't have a specific location, but I'd suggest looking at cities and towns within an hour driving radius of large metropolitans (I think DC is a great one to base off). As hybrid work becomes more of the norm, more people are going to be willing to take the hour drive once or twice a week, for a reduction in living expenses (especially families who want more space !). There's opportunity to find better yields in these smaller markets, but now you have more downside protection in theory, as more individuals will be willing to expand their search radius to these smaller towns that are within a reasonable driving distance of a large metro.

Hey Lance,

It sounds like you're looking to do a house hack, which is definitely something worth doing, and a great investment. One piece of information I'd look for is the price-to-rent ratio for the area you're looking. How expensive is it to pay for a mortgage vs renting. If they're fairly comparable, it'll typically be a good investment for you personally to purchase a home, as you will be paying into equity every month, as opposed to burning cash. Not to mention, over the long haul your property will most likely appreciate over time.

As for the acquisition - do your due diligence to purchase something for the best price possible, and take advantage of all first time home buyer benefits, and programs. You'll already have access to lower interest rates than if you were acquiring for just an investment, so this will help your cash flow down the road when you do decide to rent your property. 

Good luck!

I'd recommend all of the above, at once! Get yourself setup with a good, flexible excel model (message me if you need assistance, or a starting place, I can send you mine!) that can be used to underwrite deals quickly using conservative numbers.

The more deals you see, you'll get a better understanding of what's available, and what is feasible in terms of an investment. So, get on all the wholesaler lists, connect with a solid investor-friendly agent in all the markets you're interested in, and search redfin, Zillow, foreclosure sites, and even local tax sales, and keep running the numbers.

I'm also new, and looking for my first property, but this has been effective for me in sourcing plenty of opportunities... now just time to execute (find a GC or CM)! 

Hoping to be there! This will be my first meetup.

Hi all,

Currently modeling out a couple properties for my first rental property. I'd be looking more for a longer term hold on the rental, and wouldn't have much in terms of refinancing. At current house prices, it seems very difficult to find a strong cash flowing property at 75% LTV without having at least a 5% annual rent growth. Is this feasible? Note I'm looking in a market where MF rentals increased 15% YoY, and is projected to increase 9% and then 6% over the next 2 years. These numbers make great sense with inflation and rates data.

How can I use these numbers as a gauge for how much to project rental growth over the next few years? As this is my first rental property, is it reasonable as a landlord to increase rents in line with MF numbers, in this case something like 8% next year? Or will I just piss off tenants in which case I'd be better tips or advice? Should I just model out with a super conservative 3% assumption?

T