All Forum Posts by: Mike Richter

It would be pretty cool to do a meetup of some sort. I'm a buy and hold guy in the area. Welcome to BiggerPockets!

First off, this is in San Angelo Texas.

@Joe B. , thanks for the information. I'm set up with a local commercial guy, I'm interested in building up my portfolio of transactions to eventually get my CCIM as well. We've got a good working relationship, and he understands my current scope of what I'm looking for and can perform on quickly.

I suppose it'll be a matter of coming up with estimations of expenses and craft an offer based on that, providing adequate justification. By looking over the numbers, a 30% expense ratio seems to be out of the realm of possibility.

Hello everyone!

It's a wild and wooly 2015 so far! There are currently 6 apartment complexes available in my market area, 2 of which are in D or worse areas, 2 are represented by REALTORS specializing in residential transactions so they're less than knowledgeable on what they're selling, and finally the last 2 are being represented by Commercial Real Estate Firms.

The one I'm currently looking at has got me a bit confused. Here are the vital stats:

Asking price: $495,000

Proposed Cap Rate: 11.33%

11 units (9 - 1 Br/1 Ba, 2 2 Br/1 Ba) 1 BR rent for an average of $650, 2 BR rent for an average of $855. On-site Laundry facility. Renovated in 2011. Currently sitting at 85% occupancy.

Based on what they claim to be 2014 actual numbers here is the financial summary for the property:

Scheduled Gross Income - $92,980

Operating Expenses - $27,859 ($4,556.05 of which is 2014 property tax verified at the county. None of the other expenses are verified yet.)

Net Operating Income - $56,069

We've recently experienced an oil boom in West Texas which has taken a huge hit, weakening rents in the area, because several oil firms have laid off many of their workers while oil is at a current low price per barrel, so the rents which have been collected may not remain as high as they were in 2014.

My primary concern is that the expense ratio seems unrealistic to me, I've been accustomed to considering 50-60% as normal for expense ratios in my local area, this complex claims to have a roughly 30% expense ratio. I will have a full breakout on the income and expenses (which seem really low to me) once the listing agent releases the documentation to me.

I'll be looking at the property Wednesday or Thursday, any thoughts and guidance would be greatly appreciated.

Thanks for your time, make it a great day!

Mike Richter

Welcome to the community! It looks like you're going to have an awesome adventure in front of you! This site is chock full of incredible resources at your disposal.

Depending on your circumstances, you could also get a conventional loan with 5% down and have the PMI monkey on your back until the loan gets to 78/22. If you end up using that residence for a rental later on, you could always pay down the loan to 78/22 and end up with a nice 10-15% annualized advantage (depending on your monthly PMI) by getting rid of the PMI and the portion of the loan you will no longer be charged interest on. Just a different way of looking at it.

Depending on the margins, I could totally see a buy and hold investor getting into something through a wholesaler. Cash flow and cash on cash are what the buy and holder is probably looking for, and you're the conduit from which good value is coming. That may be an interesting niche if you can swing it.

I've been willing to pay out significant finders fees for friends/associates who were willing to bring me a deal in my target market. That way, we all win.

Thanks for the perspective Rob. I am coming to find a way to solve a problem or somehow add value to them. The first time meeting with a seller outside of the normal MLS/Realtor process is just so exciting because it's something I've yet to do; I'm sure it'll get to feel normal over time, just like with anything else.

@Elizabeth (Trying to get these name tags to work, no luck. =P) From the podcast, I gather that your husband is a Navy Pilot, so I totally get where you guys are coming from, with moves every 18 mo to 2 years. 

We're trying to move up into wholesaling for capital and fix and rent for income, with an eye to replace my military pay and going at REI full time.

Congrats on your successes as well!

I've had a few experiences with this recently. When I got to the San Angelo area, I purchased a brand new house for my family, which I envisioned would make a great rental when I moved (active duty military), we did that purchase with my VA loan with 5% down, which cut the funding fee significantly, and held back the other 15%. (An oil boom was starting up and none of us had any clue how well the properties would appreciate in 2 years.) A year later, we bought a newer turnkey rental in the same neighborhood, using some of the capital saved earlier.

A year later, we bought the house directly behind our first one just as it was built as a primary residence, and put 5% down in a conventional loan ($63/mo PMI for a couple of months allowed me to do the next deal). Immediately after we closed on that house, we bought another turnkey rental(a pocket listing from the Realtors we've worked with on the previous 3 houses) closer to base using some of what we held back on the previous house as the down payment. After we closed on that house, we circled back and paid the primary to 78% LTV to get the PMI to fall off (thankfully our lender didn't have a seasoning requirement, things to check out, BTW).

----------------------------------------------------

As others have mentioned, the decision will largely be a matter of your ability to work creatively with a mortgage banker (mine is awesome!) and the basic functions of your market, along with the ability to adjust the way your financials look to make underwriters happy (paying off some debts, liquidating some holdings, etc.). 

Hope this helped, have a fantastic day!

Sounds great. So you took the project and broke it into different key areas based on trade, found great workers in each trade to build a team and offered them the opportunity to work on your project?

That seems pretty straightforward, and as the GC, I take it that you pulled all the permits and set up all of the inspections. Now in terms of floor plan and design, where did that all come into play?

Congrats again on the roaring success!