All Forum Posts by: Nathan R Andersen

Quote from @Drew Sygit:

@Nathan R Andersen your post floats all over the place, so not sure what your situation is, what you are trying to do and what help you want:(

1) Are you living in the home you plan to MTR? If so, how many rooms will you be renting out?

2) If market $800-1500, why would you settle for $1,000? Start at $1500 and see what happens, lower as necessary.

3) What is the $80k HELOC for? You state renovations to add bedrooms will be $45k.

4) Profit $500/month how? If you're living in the property does this mean you'll make $500 over and above your mortgage, property taxes, insurance and utility expenses?

Yes, I have a tendency to ramble incoherently haha

1) We have a limited partner that will be living in the home and renting 2 rooms which she will be paying for. We will rent out 7 room, 5 for other people and 2 for her. 
2) Market rent is between there and we feel that we can quickly fill the rooms at $1,000 and work up from there. 5 vacancies is $5,000 in the hole, so a room at $1,000 is better than not filling all the rooms because we're asking too much. We also don't have all the amenities that some places do. the $1,500 rooms have a personal chef for the home, we aren't doing that lol. 
3) The 80k HELOC is for all start up costs: downpayment, furnishing, renovations, holding costs until rented. It is likely we come in under budget, but I prefer to estimate high.
4) $500 will be the monthly profit after all expenses: mortgage (PITI+PMI), HELOC interest payment (not principle pay down), maintenance, vacancy at 15%, and utilities.

@Bryce Hammill You make a good point about the hospital, but my mother also works there and she explained that it would still be used for medical purposes, but could just not be a hospital after 2030. We are close to Victor Valley Hospital, and roughly 15 minutes to Kaiser and Desert Valley hospitals. There is also a halt on progress on that hospital due to legal issues, so it might change all together. 

I've found the break even point of 5 total rooms rented (or 3 on top of the 2 out partner is renting) keeps us afloat financially if we take out our monthly vacancy savings of 1k and don't pay our partner as the property manager. 

The vacancy is my biggest worry personally, but both my mom and wife assure me that there is a significant need for it. We also have a low amount of AIRBNB options for people (I get it, we're not San Diego), so any vacancies would allow us to open up to those shorter term rentals options to help close the gap of vacancy hopefully. 

I appreciate the feedback and suggestions, keep em coming! 

I'm having a hard time analyzing this deal. I have mostly looked at small multi family properties with cash flow being my major target as a newer investor. 

My wife works in healthcare and regularly hires traveling Occupational Therapists, Physical Therapists and their assistants as part of her job. We also have a REALLY hard time getting traveling professionals in our area as we live in Apple Valley, CA (outside of "the good part" of Southern California). Many educated people choose to live closer to the coast. There are also 3 hospitals within 15 minutes of the location and 2 of them are within 5 minutes of our target home. 

We have a 5 bed 3 ba, that we can enclose a room (without it being weird floorplan-wise) and enclose the garage for a 7th br (unpermitted that we'd remove if required if we sold). Market rents for MTR rooms are between $800 - $1500 per month. We plan to rent them for $1,000 per room. There is definitely a shortage of rooms as my wife has had potential travelers turn down jobs due to lack of housing. 

My hesitancy is that I can talk myself in to the deal and out of the deal with the same numbers. I see the need, think we can keep it full with minimal vacancy, but with the worse case scenario I can come up with we come out down 80k, the HELOC interest paid and I would have to work a job (currently stay at home dad with a side hustle as a nursery) to pay back the money (not that bad TBH). A good case scenario is we profit around $500~ depending on the rate we can get, and then refinance out of it within a few years to bring it down a few points and that will jump the cashflow up several hundred dollars and we have a ~$400,000 asset that appreciates at like 6% per year on average if not more (which we get virtually none of in the midwest).

Deal Analysis Points of Emphasis:

I over estimated the cost of adding the rooms and furnishing at $45,000 instead of our projected $33,000 as I figure my wife is tack on something here and there. I will do a significant part of the renovations myself with previous skills developed (framing walls, running wires and finished electrical, laying the vinyl myself | drywall, texture, two exterior window installations, sawing out the tile for the wall, and hanging one door will be done by someone else). I also have underwritten in 15% vacancy, ~$200 over for utilities, and $300 for property management which COULD be removed if profits fell as we have a live in partner doing that (gains equity year over year at 1.5% each year capped). All of those are high and give me a bit of cushion. 

Tell me whether I'm crazy or normal. Anyone with MTR experience and advice would be greatly appreciated. 


View report

*This link comes directly from our calculators, based on information input by the member who posted.

Quote from @Jeff S.:

With the prime rate currently at 6.25% do you actually think that any private lender will lend you money at 5% for 25 years? Their cost of money will be higher.

This is a scam, @Nathan R Andersen. A scam.  You can look up all the documents you want. It doesn’t mean the website or the representative you are speaking to is legit.

Do yourself a favor and stay off the web when looking for money. There are way too many scammers out there and it's almost impossible to anonymously identify the crooks. If it's completely out of the question for you to go to a local REI club, call the owner and ask them for the names of some lenders they know who regularly attend their club. This is a business based on relationships. Go to lunch and get to know one another.

Perhaps this is regional, but the very few REI clubs out here that charge a membership fee will allow you to pay by the meeting. Miss a few meetings and this is the cheaper way to go anyway. Plus, as much as I don't like them, a lot of clubs still meet using Zoom. Certainly, there is a way for you to attend these?

Jeff, I appreciate the straight forward answer here. Sounds like good advice to follow. 

I appreciate everyone's comments here to help me in various ways. Looks like I'll be following up with a few of you that have reached out already, and ignore this lender that I was previously working with. Thanks all! 

I have live in Apple Valley, CA most of my life and have insights into the above property if you end up being interested in this area.

Great suggestions to ask for references, I love that. Thanks for that recommendation. I will also see the contract once it is drawn up. 

I am a week from closing on a small multi, and this would technically be my second deal. 

Erik, 5%. I see you reached out to me, we can discuss more there. Thanks! 

"Most Private Money lenders that I work with do offer competitive rates, but it is mainly due to my relationship with them. Be weary of the ones you find on an online website advertising such rates." 

This was my initial hesitancy. 

Quote from @Bob Willis:

Hey @Nathan R Andersen - what are you trying to do with the Private Money? Is there something you are specifically trying to find out about the lender with your vetting? If they have the money to lend to you and you like the terms won't you be good to go? Am I missing something? Good luck.

 I'm mostly trying to be careful and make sure I don't get into something bad. Like I mentioned, I've only dealt with typical loans up to this point.

What I'm trying to do is purchase a home that I plan to rent out, only that the lower interest rates make the deal work much better than other loan options I've come across. He has offered me $460,000 loan amount at 5% for 25 years with a monthly payment of $2,689.11 PI, or interest only for 25 years at $1,155.78 with balloon payment after 25 years. 

As for the REIA @Rick, I'm going to a BP meetup in a few weeks. I'm a good way away from a local REIA meetup (hour and a half minimum, 2 1/2 hours minimum), and have a crazy life atm. I'm trying to make time to fit one in soon. I also don't have a significant time in the REI sphere as a whole, so I'm working on building up relationships with people as I can, and reaching out to tons of lenders to see what is available.

I have a friend here who is a broker, but he doesn't deal with this stuff as much. 

"In your situation, I'm more concerned that they could be a complete fraud altogether."

This is one of my worries, however he hasn't asked me to do anything outlandish at the moment, just trying to do my homework and vet if possible. Are there things I should look out for in your experience or things that would stand out as weird? 

They state that they are private lenders, not brokers. If that is helpful or revealing in any way. 

I'll be honest, I new to the private lender idea. I'm trying to vet a lender and this is all I can find. I have the LLC filing, their website, and other than that I'm not sure if I'm able to find anything else (or should be able to) to vet this private lender. My initial hesitancy is that the rates look really good, which gives me the "too good to be true" feeling, but I've seen other people find good rates as well. Any help in this endeavor would be much appreciated.

Missouri State Filing

Website

"You have this student loan debt hanging over your head. My opinion isn't popular, but I think your focus should be on paying that off. Many will tell you that it's better to pay 5% interest on the loan while making 10% return on your investment so that you're 5% ahead. That's a fool's errand. Financial discipline gets you ahead in life, not shortcuts."

The loans will be forgiven/paid off in two years due to her having worked a public job that qualifies for public loan forgiveness after 10 years. We're making minimum payments until then. I agree, sorting out financial things first is always a priority, but thanks to the government offering this program, we end up saving 100k+, so we'll be taking that route. 

"The one thing I'd suggest caution on the most is the sentence "we have figured" in conjunction with your plans for the "cash flow". You have a nice round number of $9,000 and in my experience true net cash flow is rarely nice and round and even, implying that your numbers might need tweaking. I'm not knocking it, I'd be a hypocrite, I ball park all the time. But if I follow you correctly, you are about to pick up 8 doors as an investment. That is A LOT all at once. No shame in seeing how it goes. I can promise you it won't be all roses and sunshine. What if one month 4/8 don't pay? What if another month a hot water tank goes out? Etc. Sit on that extra money from the HELOC, at least for a short minute after you pick up these 4plexes. Give it a little time, be sure these properties are a blessing and not a curse. Don't burn through all other reserves."

I agree, we actually have 188k on the HELOC but wanted to leave around 30k+ in reserves to be able to pay the mortgage, any crazy cap ex things that come along, etc. Hence the 150k HELOC with 60k used already (high estimate for the second property and closing costs). We actually plan on waiting a few months and maybe working harder to find a deal afterwards unless something screams at us before.

I'm hoping that we wait and stuff dips a bit more and then we can jump on a good BRRR if things go right. Thanks for the input!

@Chris Levarek I love the 3 roles that you presented. I definitely have the time, I have some experience in renovation (used to do finished carpentry with my dad, helped him build our house when I was younger so lots of jack of all trades master of none), and I have a tad bit of capital to use. I guess finding someone that is lacking in one would be the route to a parnership. Do you have any suggestions for me doing this out of state and how I could add value to a partnership from afar if they're in the location themselves? It seems like them having time would be most helpful, but am I missing something that I could be doing to add value that is plain to the trained/experienced eye?  Thanks for the advice btw. 

Bigger Pockets community

I come here to post a ridiculous wall of text with a few questions to help me in my quest to financial freedom, wealth, and supporting my spouse. Let me lay out some details below, some of my plans, and some of my problems or future road blocks to see what all of your collective knowledge can solve.

Background: 

My wife came from homelessness and was driven to earn her doctorate. She works a killer w2 job that makes us a good living. She also wants help with the financial burden she bears. I run a plant nursery from my home to be home with our 3 kids and help provide some cash here and there, but it isn’t sufficient to feel that she is being provided for (reasonably so, I get it). My quest is to provide through real estate.

*790 Credit score, rough DTI due to wife student loans (hopefully forgiven from Public service loan forgiveness in 2 years)*

We live in SoCal, have a home worth 500k roughly, bought it for 259k 6 years ago and a 150k HELOC on it atm. We are under contract for two 4-plexes (Indiana and Maine) and have spent 60k~ on down payments. We have figured around 9k in cash flow through year 1. We'll be using that cash flow to pay back the HELOC for the first few years (hopefully 3-4 as we overcalculate for repairs, capex, and other expenses to be conservative)

Plans: 

My plans are to hopefully scale much faster than buying two more 4-plexus and just sitting on it until we pay back the HELOC and then buy some more. My initial plan was to buy a property, combine the cash flow and hopefully pay it back faster. Then once I lower the HELOC enough buy another and so on. I see this as a decent plan for 20 years as I can build my money's velocity as time goes.

I would love to do things like BRRRR with the remaining 80k~, find a way to partner with someone to speed things up, creative financing, seller financing, and possibly flip or do other things. The problem is cash flow is harder to find, and deals I come across either are too much to finance at a higher rate (not to mention the HELOC interest payment), or are great buys for 3-5 years down the road and will appreciate quite a bit. I've tried to come up with ways to make this work, but I'm coming up with a good idea and it falls short of something, like cash flow lol. I'm having a hard time putting the last pieces in the puzzle. This also is a bit harder because the cash flow we DO have coming in is used to repay the HELOC (the interest is included in the underwriting), so I don't feel comfortable investing into a net neutral and appreciation gaining market/deal.

Example: I think "Maybe I could partner with someone that could house hack and I could fund the operation with the HELOC!" then I can't seem to figure out a good way to split the equity/profit with them to make it work. I have the HELOC interest only payment I need to pay, and a way to pay the HELOC back. Can I split the profits 50/50 once the HELOC is paid back and we factor the interest payment into the underwriting? This takes advantage of a lower down payment, but leaves the live in person to make a payment that funds the cashflow, otherwise it doesn't make money until they leave. Who is funding repairs? Etc. This just seems like a great situation for them to do without me, because I'm not adding much value. I'm not sure this is a great partnership.

Questions:

Does getting a partner seem like the only way to scale quicker than I want?

Is there a way to setup a partnership where I can still cash flow up front? What am I missing?

Am I doing something wrong or in the wrong market when I’m analyzing BRRRRs and barely cash flowing if at all, or are possible value add and refi out some money, but negative cash flow for 3 years at like -$300/month?

I also don't know if I'm looking at 5+ unit properties properly, but they seem to not cash flow for me, even though they tend to be priced based on cap rate and debt service coverage. (example, 700k for 7 unit with room to expand, NOI of 74k, but the debt service would be 73,568 because I would only have 10% down. I'm asking for creative/seller financing, but 1031 is making it difficult)

Tell me where you see a lack of logic in my plans please :D 

All this said, I’m keeping at it, looking for seller/creative financing, and will keep going whether you tell me to stop, give up, or not. Not looking for ya’ll to provide my financial freedom. Thanks so much for all your advice and help community!