All Forum Posts by: Ray Johnson

@Bill Zarzecki It's all about the numbers for your scenario. What's the current loan rate for your occupied SFR?

A scenario I have is this example in which I have a property I purchased in February 2016 at 3.42% interest rate (I lived in it for 16 months before renting it out), It now has over $200k in equity, a Cash-out Refi would be the worst thing to do since current rates for investors are in the 5.50% range, the only option to get the equity out is through a HELOC since I'm not going to go from a 3.42% rate to a 5.5% rate on a property.

Let us now what your scenarios are which will help in the analysis.   

@Tarquinina Ford Your post isn't clear, Are you saying "You" need Bulk properties in these locations, or "You have" Bulk properties for sale in these areas for buyers that "Need" them in bulk?

Also what type of properties are you referring to? SFR, Cond's, Multifamily, Commercial Office, Storage, etc... there are many types or properties, however not all buyers/sellers participate in every category. A little more detail may get better responses to your post from potential business contacts.

@Gaurav Mehta Like all others have mentioned there are cheaper more efficient ways to acquire a Duplex which I agree 100%. Because you're looking for this asset to be a Build-and-Hold, here at some questions for you.

1) On the 3,700 sq ft lot, What's the actual buildable sq. ft. per the zoning? It will not be 3,700 sq ft once you satisfy the required city property setback from the boundary and the city required area to allow for underground utilities from the street.

2) Are you saying the 1,600 sq ft "two unit house" is a combined 1,600 sq ft (meaning each unit is 800 sq ft) or 1,600 sq ft each? I'm assuming 1,600 sq ft each unit. If this is the case, where is the parking for these units going to be on the 3,700 sq ft lot?  

3) Are utility connections already set-up at the street? This may be the case is there was a property there previously then it was demolished, you may have to upgrade those connections depending on what was there prior, i.e. the Sewer, Gas, Electric, Water, etc.. an example would be if a SFR was there previously then was demolished the new property will require changes when building a Duplex, meaning more on your Soft Cost budget.

4) Is this a dirt lot or a concrete lot? The cost to grade it will vary depending on a concrete demo then grade, meaning you will have some engineering cost to include soil testing, Surveying cost and a list of other test before the land is construction build ready.

4) What about the Architecture cost, Are you buying one of those already designed Duplex plan kits? Those are the cheapest instead of having an architect do everything from scratch, even those will add some cost to your Soft Cost budget since the plans don't cover any of the permit cost associated with them.

6) Keep in mind that you will need 20-25% cash to secure the construction loan for this project, some banks may let you use the debt free land as a portion of the collateral on the deal to get you to that 20-25% target to secure the construction loan. This means you can't spend all of your money on purchasing the land, because you'll be left holding it vacant for a few years until you save up that 20-25% cash to secure the construction loan.

7) See if the city will let you build without an onsite parking requirement, this will only happen if there's excess street parking (you may be charged by the city for using street parking on a permanent basis) or see if there's a pay for or public parking lot nearby in which you can secure annual parking, If this is the case, see if Zoning will allow you to build Up, instead of making it a Duplex, make it a small Four unit by stacking your duplex footprint and reducing the cost to build this project.

8) Maybe look for a GC that has done many Duplexes and may have a set of plans he can use on your project, this way he can give you a better idea for the total Soft and Hard cost before you purchase the lot. The last thing you want to do is buy the lot and realize the final cost will mean you'll become profitable in year 20 on this deal. 

There are a lot of other things but I won't make this post a novel, I'll just say keep in mind that since you'll be holding this property as a rental, all the money you put into the property extends your Break-Even point on recouping all of your prepaid money (land purchase, Soft and Hard construction cost, Loan cost from the construction loan) you're hoping to get back from tenants paying down your mortgage, basically when will you really start to make money on this deal? The timeframe to build in which you're asking about in the introduction isn't the only timeframe in your Cost of Capital and timeline calculation. Keep in mind the Cash Flow received once you get your Certificate of Occupancy really isn't true cash flow, it's just money received to pay yourself back that you loan the project upon acquisition. 

Lastly, when looking for Lots to do Build-and-Hold projects, you want to keep in mind the more units you build the cheaper the per unit cost becomes, additionally the neighborhood Class makes a difference as well since if you're building a Duplex in a Class A or B neighborhood, your interior finishes will be much more expensive that if you're duplex is in Class C neighborhood.

Like @Frank Wong says, Why build this duplex from the ground up?

@Brian Burke What are some of the differences in your "Desktop" underwriting template, versus your complete IRR template? Do you have a desktop template you can share?

I come from the Institutional Grade Real Estate side of the business so my tools and skillset skew in that direction, there's no way I can get through these personal acquisition smaller multifamily packages quickly with what I'm using. 

Because of my experience there are some deals I can look at on the surface and know it's a terrible deal or simply someone testing the market to see what buyers are willing to pay so I don't need to waste my time building out a complete IRR analysis on assets that fall into those categories.

@Account Closed Dealing with LoopNet and other publicly listed deals on the market for lengthy periods of time, you'll notice the asset may fit your criteria on paper then your team walks the property and you see all the issues before you even get to an inspection and immediately know the deal isn't going to work.

@Roy C. Like others I would recommend other sites in addition to Craigslist, When I post ads I usually post on the following platforms:

1) Zillow - They also push your add to the Zillow affiliated sites Trulia, and Hotpads so you get three ads on three sites when you set-up the ad on Zillow 

2) Apartments.com

3) Realtor.com

4) Facebook marketplace

These platforms are also a little more professional and has the fill-in boxes for most of what you're asking on the Craigslist ad so people won't feel like you're an email or phone number collector fishing for contacts to sell the information which is common on Craigslist.

@Joe Wood maybe @Chris Mason can weigh-in on the scenario from the lending perspective. 

@Joe Wood @Chris Mason may know how to handle that scenario from the underwriting standpoint.

@Joe Wood The bank underwriter is basically trying to make sure those funds just deposited into your bank account are really yours and didn't come from another loan or some sort of new debt not factored into your Debt-To-Income ratio on the mortgage they are giving you. Because the underwriter will typically run your credit just before closing on the loan, if you did get another loan of some sorts, it will show up within that 60 day seasoning period.

What I've done in the past is provide the paper trail that proves the money belongs to me, I'll show two months (60 days out) of the bank statements from my other account, this has satisfied the underwriters in my experience. The 60 days is on the proof of ownership of the funds not necessarily the single bank account, people transfer funds all the time from other accounts while in escrow, prove the money is seasoned 60 consecutive days in your custody using combined account statements.

@Julie Marquez While the process in which you're forcing the tenants to essentially perform in accordance to a 1 year lease to get all of their money back, yet you're officially having them on a month-to-month lease for your own benefit in case you want to raise rents, etc... is a little aggressive on the business tactics but I wouldn't consider you "a Shady Landlady".

Personally I would never do it because I would never want to be put in that situation by a landlord if I were the renter.

What property class are these assets? If you're doing it on a Class A or B property, the strong-arm tactics will hurt a little less, if you're doing on the working poor in Class C and Class D assets, that's a little tougher to say it's ok.

While I hate to blame the victim, but at the end of the day the tenant is choosing to participate in this business tactic, It's voluntary and a part of the free market enterprise so enjoy your business strategy to make a little extra money.      

@Maggie Brown what @Russell Brazil is pointing out is dead on, you will run into rental caps on the AirBNB rentals and your cash flow will be sporadic. With so many colleges, and young professionals in the area, it will be easier and less work if you just rent out your basement on an annual lease to a young professional, a friend of mine does this on his place in DC and he currently has the same tenant for over 3 years.

By the way I would recommend you reach out to Russell offline when you're interviewing Real Estate Agents, I've worked with him in the past and he knows the neighborhoods very well.