All Forum Posts by: Randy Mattila

Even if you can't cover all the expenses at the beginning each year as you increase rents your out of pocket expenses (rent) will decrease until your property has positive cash flow. Some expenses that are commonly overlooked during analysis are snow removal, lawn care, HOA fees, fire inspections (newer buildings with sprinkler systems), city inspections and rental permits.

I have house-hacked two fourplexes now and am currently living in the second house hack.  Take Michael Noto's advice and make sure you get the location correct.  In my opinion is is FAR more important to make sure you are buying in the right area than to get the most cashflow you possibly can.  Buying in a great location will help your property appreciate much better and your rents will grow more quickly.  Most importantly, having a great location will make it significantly easier to find good residents to rent your unit.  My first fourplex was in a C class area.  It took me one to two months to find a resident that met my criteria.  I went though hundreds of applications and only found a couple that met our criteria.  Most of the good ones didn't want to live in my neighborhood and therefore I was left with the high maintenance residents that couldn't get approved for a rental in a better area.  Almost all of my headaches were due to buying in a C class area.  A year and a half ago I found an off market deal on two B class fourplexes in a really great area.  I was able to sell my C class building and 1031 into the new properties.  My wife, daughter and I are house hacking in one and renting out the other 7 units.  Owning and renting these eight B class units is 1/4 of the work of owning and renting the four C class units.  We had our 1st vacancy in the new units last month.  We cleaned up the unit and listed it for rent above market just to see what happened.  We had a signed contract with a great resident that fully met our criteria within 9 hours of listing the unit for rent.  In DECEMBER.  Through experience I found the 3 BEST ways to make money in real estate.  Location, Location, Location.

Sold my first class-C fourplex and did a 1031 exchange to purchase two class-B fourplexes. Went from self management to hiring a full time professional property manager. Doubled my net worth. Became a board member of my local REIA.

Hey @Shawn Regnier!  Thanks for the great advice!  I already listened to the podcasts and preordered both books a month ago!  That's what got my wheels turning and prompted me to seek additional advice here!

@Mary M.  It sounds like you have purchased all 20 doors with your own money.  That's great!  I would love to own all my real estate 100% with full control.  However, my problem is that I don't have the cash to keep the momentum going.  It will take me years to save up a 25% down payment plus adequate reserves for each purchase.  I would need to start a profitable business or take crazy risks in crypto (sarcasm) to make that happen.  Regardless it would be great to speak with a commercial loan broker to figure out what my options are!

@Heath Thomas Jr Thanks for the input! I had to purchase in my personal name to take advantage of FHA financing. They will not lend to an LLC. If I can get away from FHA and put 25% down on every deal then I believe that I can purchase through an LLC using commercial financing. Thanks for the rest of your great ideas! I'll looking into all those options some more.

Hello @Emily Houser!  That is a great example of what I am trying to do.  I would also prefer to invest outside of the west coast states.  The landlord-tenant laws here have become much worse in the last few years and could potentially ruin an otherwise solid portfolio.

I have attended a few real estate conferences in the PNW but none that specialize in multi-family.  I will put that at the top of my to-do list!  In the mean time I would LOVE to jump on a call.  It would be great to speak with anyone who has real experience doing larger commercial multifamily deals!

Congrats on 2,900 doors!!

I appreciate your feedback @Heath Thomas Jr.  I definitely was intimidated when we were in the process of buying our first fourplex.  That decision paid off big time!  We were actually able to purchase both new properties using only the cash from the property we sold and in addition to that we received a check back for $10,000 at the closing table.  It's worked out great so far!

My goal at this point is to continue "the stack" as Brandon Turner calls it. I want to purchase a 16-24 unit next. I'm not sure how to structure the deal if I use OPM to purchase. Do I simply use private money and purchase in my own name or do I go the syndication route and if so, do I need to create an LLC to hold the property? What kind of return would you offer the investors in either case? Do I offer investors equity in the deal or a decent interest rate on their money? Or both?

I self managed our first fourplex but these two newer ones are under professional property management.  I would like to keep all further RE purchases under professional management so I can focus on acquisition and my full time career until I can grow this enough to financially support my family.

I have definitely learned a lot from the first property we owned and would prefer to stay away from C-class properties unless they are in a really good area (which seems like an oxymoron lol).  This means I would probably have to give up some cash flow and focus more on potential appreciation (general or forced).

My wife and I purchased our first property (a C-class fourplex) in 2017 which we house-hacked for three and a half years. This spring we sold that property to do a 1031 exchange and bought two B-class fourplexes in a great area. We are also house-hacking in one of the eight new units as well. We have made the best use of FHA loans to get to this point.

The problem is that we will have to either find a way to significantly increase our income to make a 25% down payment on a $500,000+ property or wait until our properties appreciate enough to refi and free up our FHA loan for another purchase. Either way it may take a few years unless we make some adjustments.

I am looking for advice on how we can speed up the process of adding another multifamily to our portfolio?  I feel like I need to begin transitioning to commercial multifamily and start using OPM to purchase bigger deals and solve my lack of capital.  However, it's intimidating to think of asking family members or investors to trust me to invest their money.  I feel like I need more experience and credibility before I can take that step.

Thoughts?

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $1,015,000
Cash invested: $150,000

We sold our first house-hacked (C class) fourplex and did a 1031 exchange to buy these two (B class) fourplexes in a MUCH better location. We did this deal only using the money from the sale of our previous property. This was a huge blessing because it allowed us to keep all the money that we had saved since we bought our first property and because we didn't have to use it as a down payment on this one we put it towards our reserve fund and towards our down payment on the next deal!

What made you interested in investing in this type of deal?

My wife and I had already house-hacked a fourplex to begin our investing journey. We wanted to continue doing so as long as we could to save up as much of our income as possible. We are still at the age where it's not an inconvenience to do so and our family (one daughter) is still small enough that we do not need the extra space that a single family house would provide.

How did you find this deal and how did you negotiate it?

We found this deal off-market through our network of investors that I met by becoming a board member of the Benton Franklin Rental Owners Association (BROA). This organization proved vital to preparing us to become great at self managing our fist fourplex. I dedicated a lot of time to attending the BROA meetings and being involved in the association. After a few years I was asked to serve as a board member and I accepted the position. This deal was a direct result of that decision.

How did you finance this deal?

One of the two fourplexes which we are currently house-hacking was financed with an FHA loan at 3.5% down (since we sold our other FHA property) and a 3% interest rate. The second fourplex was purchased with a convention loan at 25% down and a 4% interest rate.

How did you add value to the deal?

I believe the real value that was added was the discount we received on the purchase. We were able to purchase each property about $125,000 below what they would have sold for if they would have hit the MLS based on comparable sales at the time of closing. The reason we were able to make the purchase below market was because the sellers knew us personally through BROA and they were selling off their portfolio to retire stress free. I would also consider them our one of our mentors.

What was the outcome?

With the additional cash flow that 8 rentals provided we were able to afford to keep the sellers property management in place. The property manager was also a board member of BROA and they taught me much of what I know about property management. I trusted them and our end goal was to have all of our properties professionally managed some day. Therefore it worked out great to leave them in place. We doubled the cash flow of our last property even with the added expense of property management.

Lessons learned? Challenges?

I LOVE living in this neighborhood. Location, Location, Location! We no longer have problem with vandalism, police activity or neighboring landlords mismanaging their properties. These new fourplexes were built in a "master planned" fourplex community with an HOA that keep everything neat and orderly. Our residents have access to a pool, hot tub, clubhouse, gym and basketball courts. The entire community looks like it's run by one company even though each building is individually owned.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Randy Hubbs with Investment Housing Specialists is the man to speak with if you are interested in investing in the Tri-Cities area.

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $1,015,000
Cash invested: $150,000

We sold our first house-hacked (C class) fourplex and did a 1031 exchange to buy these two (B class) fourplexes in a MUCH better location. We did this deal only using the money from the sale of our previous property. No additional money out of pocket. This was a huge blessing because it allowed us to keep all the money that we had saved since we bought our first property and since we didn't have to use it as a down payment on this one we put it towards our reserve fund and towards our down payment on the next deal! We are also house-hacking in one of these 8 new units. We are trying to continue doing so to save as much money as possible until our family grows too large to continue house-hacking.

What made you interested in investing in this type of deal?

My wife and I had already house-hacked a fourplex to begin our investing journey. We wanted to continue doing so as long as we could to save up as much of our income as possible. We are still at the age where it's not an inconvenience to do so and our family (one daughter) is still small enough that we do not need the extra space that a single family house would provide.

How did you find this deal and how did you negotiate it?

We found this deal off-market through our network of investors that I met by becoming a board member of the Benton Franklin Rental Owners Association (BROA). This organization proved vital to preparing us to become great at self managing our fist fourplex. I dedicated a lot of time to attending the BROA meetings and being involved in the association. After a few years I was asked to serve as a board member and I accepted the position. This deal was a direct result of that decision.

How did you finance this deal?

One of the two fourplexes which we are currently house-hacking was financed with an FHA loan at 3.5% down (since we sold our other FHA property) and a 3% interest rate. The second fourplex was purchased with a convention loan at 25% down and a 4% interest rate.

How did you add value to the deal?

I believe the real value that was added was the discount we received on the purchase. We were able to purchase each property about $125,000 below what they would have sold for if they would have hit the MLS based on comparable sales at the time of closing. The reason we were able to make the purchase below market was because the sellers knew us personally through BROA and they were selling off their portfolio to retire stress free. I would also consider them our one of our mentors.

What was the outcome?

With the additional cash flow that 8 rentals provided we were able to afford to keep the sellers property management in place. The property manager was also a board member of BROA and they taught me much of what I know about property management. I trusted them and our end goal was to have all of our properties professionally managed some day. Therefore it worked out great to leave them in place. We doubled the cash flow of our last property even with the added expense of property management.

Lessons learned? Challenges?

I LOVE living in this neighborhood. Location, Location, Location! We no longer have problem with vandalism, police activity or neighboring landlords mismanaging their properties. These new fourplexes were built in a "master planned" fourplex community with an HOA that keep everything neat and orderly. Our residents have access to a pool, hot tub, clubhouse, gym and basketball courts. The entire community looks like it's run by one company even though each building is individually owned.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Randy Hubbs with Investment Housing Specialists is the man to speak with if you are interested in investing in the Tri-Cities area.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Kennewick.

Purchase price: $335,000
Cash invested: $20,000
Sale price: $485,000

My wife and I purchased this (C class) property in 2017 and house hacked for 3.5 years while self-managing. We did some light rehab while we owned the property and sold in spring of 2021 to do a 1031 exchange and buy two more (B class) fourplexes.

What made you interested in investing in this type of deal?

I wanted to save as much money as I possible could to invest in real estate. This allowed me to save a huge portion of my income for the next deal and get my foot in the door!

How did you find this deal and how did you negotiate it?

I found this deal through a local realtor that I built a relationship with. The property was listed on the MLS. We submitted our offer at full asking price with an escalation clause of $20,000 to sweeten the deal. The sellers accepted our offer without needing to use the escalation clause.

How did you finance this deal?

FHA financing at 3.5% down. 3.75% interest rate.

How did you add value to the deal?

The property was poorly managed by a farmer who didn't have time to focus on the management of the property. We came in and significantly improved the management and quality of our residents. After we removed a few bad tenants which we inherited we did some light rehab in each unit and put in some really great residents. We learned property management from a local investors association which proved invaluable to our success!

What was the outcome?

Our property increased in value significantly in the three and a half years that we owned it. We also brought the rents up an average of $150 per unit in that time. We sold the property in the spring of 2021 with a gain of $150,000 to do a 1031 exchange and buy two more fourplexes in a much better area of town.

Lessons learned? Challenges?

We learned that location is KEY to being successful in real estate. I doubt I will ever buy another property in a C class area of town. We had to deal with vandalism, police activity and difficulty finding good residents that wanted to live in our neighborhood. It usually took us 6-8 weeks to find a good tenant because we were VERY careful who we put in our rentals. We also had to deal with neighboring landlords who didn't care about their properties like we did.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

If anyone is investing in the Tri-Cities area of WA I would recommend they contact Randy Hubbs with Investment Housing Specialists. They are a broker and property management company. I HIGHLY recommend their services!