All Forum Posts by: Steve Olson

Hi @Ross Rauschenbach, we might need to have a chat. It depends on what kind of cash you have. We (the Fourplex Investment Group) just completed a 10 4plex subdivision off of Mills Rd in NW Houston. Our clients typically get construction financing and then upon completion, refi out into a 30 year fixed. This works if you have 25% down and it gets you a brand new 4plex. It doesn't work well on a lower down or FHA option...if that's the way you want to go then something existing and go FHA from there. I bring this up because upon completion of our Mills Rd Project, some of the clients may be willing to sell their units. I'm showing the current 4plex limit for FHA in Harris County to be $634,700, and there's a chance we could get a client to sell for that. We have another development we'll start on in Katy in February that will be a large project comprised of 50 separate 4plexes, but that one is a ways off. Let me know if you'd like to chat.

I can second @Andy D..  The term "conventional" is most likely applying to Fannie/Freddie loans which cap out at 4 units per property.  A commercial loan would take down an 8 plex no problem. There's pretty good lender appetite for those kinds of loans right now.  Most of my clients end up getting similar down payments and rates to a Fannie/Freddie loan, but the hooks being 1) There's usually a 10 year balloon payment on it and 2) strict underwriting on the asset.  That's what they're worried about.  Best of luck to you @Cyprian Sadlon. 

Hi @Alex Wong, I work in the turnkey business and have previously flipped single family properties.  You're in the Baltimore metro which has some very affordable properties and some good rents to back them.  That's going to lead to a lot of do it your selfers in the market because it's easier to find a property at a discount there than in say, San Diego.  So yeah, any local investor group you take a deal like this to is going to rip it to shreds because from their point of view, they can go find a junker, buy it, rehab it, and be in it for under market value.  And hey, if they can do that, good for them.  

You might not have the time or the know how to do that. Or the cash for that matter, as "junkers" often have structural issues that won't qualify for conventional financing, so you have to have all cash to acquire them and do the BRRR strategy.

So if you can find a rehabbed home in a good area with good tenants and the return works for you, then more power to you.  A "good return" is a different number to everyone.  

Regarding the specific points the other investors made to you:

"You don't buy retail as an investor."  I think that's too general of a statement.  What if "retail" is a really good return for you?  You get the best deal that YOU can get.  If you have a direct mail budget and a robust off market campaign to source deeply discounted deals, then yeah, you can buy below retail.  But if you don't have that and don't want to take the time to be an expert in it, you can probably still get deals with decent returns paying "retail."  Most people will tell you that 19% cash on cash is good, and I agree.  If somebody comes to me and says they can do better than that for me and it's legit, sign me up for 10 of them.  

"You don't buy a rehabbed house so a tenant can trash it."  Then you're left with buying an "un-rehabbed" house so that you can get less rent and have a ton of maintenance calls.  The key is what kind of rehab was done to the house?  A good turnkey rehabber knows where the money should go to optimize the rent as well as minimize future maintenance calls.  

Okay, I'm done with my tangent!  I wish you the best of luck going forward.  The first one is always the hardest! 

@Walter Correia, @Michael Le is correct.  4 doors and under on a property is typically going to be appraised via a fannie mae financed loan, and all fannie knows is the sales comparable method.  Above 4 units would be commercial, but having an "owner occupied" for 5 and over I think is a bit of an odd situation.  

Hi @Jeremy Margaritondo, welcome to BP!  I'd be happy to chat with you sometime about what you're trying to do.  Helping long distance turnkey investors is what I do and I have extensive experience in Chicago as well as a handful of other markets like Indianapolis, Memphis, Kansas City, Dallas, Houston, Birmingham, etc.  All these areas have different pros/cons from landlord friendliness, the local teams, the numbers, etc.  Good luck!

Hi @Joey Collins and welcome to BP!  It looks like we aren't too far from each other.  Happy to see you're getting into the business...it's the best!

There is no "set"way to structure a partnership, but I do agree with a lot of comments on here.  You're tight with your Dad and I get it.  When you go in on a property together, you have to have everything in writing even if it's with your Dad.  It's not because you don't trust each other...it's just to memorialize everything for if something doesn't go right.  Because when something doesn't go right, partners start remembering "the agreement" differently oftentimes...even if they are father and son.  Plus, heaven forbid, if one of you gets hit by a bus, now you've got different partners who didn't have a role in the negotiation of the partnership.  

1).  Putting your agreement down on paper and sticking it in a drawer somewhere is good...because the paper remembers better than you and Dad do.  If you have a misunderstanding, guess what?  The same stuff is on that paper years later.  It doesn't change, even though people's understanding of the deal in their own mind may.  

2).  If you guys are going to partner on the down payment and plan on going conventional for financing, clear that with your lender first.  Lenders are concerned about sources of down payments so it's good to get with them before you go put something under contract, only to find out that the loan won't go through due to the way the funds were transferred around, etc.  Let them know exactly what's going on and they can tell you if they can sell it to the underwriter or not.  I have a few great nationwide investor friendly lenders if you need a referral. 

Good luck!  

I agree with @Jeff B..  10% in today's market is dreamland.  Cap rates are compressed on multi family almost everywhere, so unless you can bring some kind of value add your'e going to likely be in the 4-5%.  I broker 4plexes in Salt Lake City and Houston and am seeing about the same cap in both markets.  When somebody comes to me and says "yeah, but I can get this 4plex over here for a 9 cap" I know they're missing something.  Nobody just gives away an alleged 9 or 10 cap...there's going to be some hair on that deal that you're not seeing.  So you have to buy something distressed and put the time and money into it to get  good cap.  Or, I've resorted to new construction with clients in managed developments so they can get a little break on price but also a substantial drop in vacancy/maintenance due to the brand new construction.  Good luck to you @Nick Romano!  If you have any questions I'm always happy to help.  

Hi @Lawrence Pascua congrats on investing in your first property!  I work in the turnkey business and actually lived in Indy for a year.  I love that market.  Let me know if I can be of any assistance to you in the future.  I second everything that @Clayton Mobley posted. 

Hi @Jonathan C., I work in the turnkey business and regularly help investors acquire properties in Jacksonville.  Happy to assist if you'd like to have a conversation.  Good luck! 

Some good points in this thread and to a large degree this is a matter of your personal comfort level.  I think it's less about the actual amount of 100k, and more about the fact that you need to have reserves above and beyond down payments, closing costs, etc.  Squeaking into an investment is asking for trouble.  You have got to have reserves.  I work with a lot of investors and it seems like the ones who squeak in are problem magnets.  Anything that can go wrong does.  You get in trouble investing in real estate because you HAVE to do something.  You HAVE to sell this month.  You HAVE to have the income from the rental, etc.  If you have adequate reserves and a cushion (100k, 50k, whatever), you don't HAVE to do anything.  You can be patient and make decisions based on the market...not a temporary personal financial problem.