All Forum Posts by: Richie Thomas

@James Camp oh interesting, how did you determine this was several properties?

Hi @James Camp, I found the MLS listing for this property on Realtor.com, and looked up the address in PropStream. I'm showing the last arms-length sale for this property was on 23 Dec 2019 (recorded on 1/15/2020), for $268,000. And now it's listed on the MLS for $68,500? I'm confused why the property is on the market at such a seemingly steep discount.

Its current owner is listed as Growth Developments LLC, which appears to be a "We Buy Homes" business.  It's probably safe to assume the seller is an investor, meaning they likely know what they're doing.  What did they find out in this 6-week timespan (12/23/2019 up to today's date of 2/7/2020) which motivates them to take a $200,000 loss?  I see the neighborhood is, let's say, less than great. But the LLC is based in-town, not out-of-state, so they must have known what part of town they were buying in.

I'd suggest getting really familiar with disclosure laws in Missouri.  Find out everything the seller is required to tell you, and what they're not required to tell you as well.

I'm currently an aspiring (i.e. not experienced) investor, so bear that in mind.  I might be totally wrong about the whole thing, and / or mis-reading the transaction history in PropStream.  Or maybe the PropStream data itself is less-than-accurate.  Either way, make sure you have a local team in place (realtor, property manager, etc.) to advise you on this property.  Seems like there could be some sharp edges here.

Hey @Daniel Hardy, this property is pretty hard to find consistent comparables for.  The prices per square foot for recent sales in the neighborhood are all over the map:

You can see the price-per-square-foot ranges from $66 to $308!  I removed the bottom and top 5 properties in terms of ppsq, and got these 21 comparables.  Still a pretty big range- anywhere from $104-$208/sq ft.  But either way, your property's on the market for $89,700 (or a ppsq of $74.50), which is well below that range.

Speaking of which, This property has only been on the market for 1 day, but it is on the MLS, currently offered at $89,700. Your calculator results show a purchase price of $55,000. What's your plan for closing this deal so far below asking price?

I see income estimates of $1,200/month. Meanwhile, your down payment is 3.7% of the total purchase price, indicating you'll be looking for an FHA loan. As far as I know, FHA loans are only available to owner-occupants. Do you plan to live in one bedroom and rent out the other two? If so, is $600/bedroom/month a reasonable rent price for bedrooms in that neighborhood?

In addition to the PMI which I see you've budgeted for, there may well be loan points and fees for a loan of this type. Be sure to find out whether those fees would apply in your case, since they're not yet included in your numbers.

I don't see any budget for vacancy, cap-ex, or repairs.  This property was built in 1936, and even if you're budgeting $30,000 for rehab costs, you'll need to save a certain amount every month (I'd say 10% for each of those 3 categories) every month for future, unexpected repairs or for when a tenant moves out in the middle of the night.  So that when the inevitable happens, you will have a prudent reserve set aside to cover those costs without impacting your cash flow.

Lastly, I'd advise setting a further 10% aside for a property manager.  Even if you plan to live in one room and rent out the others, you may decide to move out and rent the 3rd room as well some time in the future.  When that happens, you'll thank yourself for budgeting the money to hire someone to handle this property for you, so that you can focus on identifying new properties to invest in.  The number of headaches the PM saves you will be more than worth their fee.

Hi Alex, is it not possible to either visit or call your local Building Department (I'm guessing in Brookhaven) and ask for the certificates of occupancy for your property's address?

Also, out of curiosity, why would it be illegal to have a *finished* basement?  Do you mean that it would be legal if the work had been permitted?  Or are all finished basements illegal in your area?

I'm only an aspiring investor (not an experienced one), but I'm confused why it would be illegal to make any room in the house *more* livable.  Assuming of course that the finishing work was permitted and performed to code, and the new room's use conforms to habitability laws (for example, the bedrooms meet minimum dimension, ventilation, heating, and ingress/egress requirements).

Hi @Meng Khong tong.  Echoing @Darren Looker's point, more data is needed.  Additionally, the source of your data will be just as important as the data itself.  You mentioned the quality of workmanship and income projections.  What's your source for this information?

Additionally, I'd caution against making appreciation your Plan A, even in a rosy market like Dallas.  Appreciation is largely caused by factors outside of your control, such as the path of progress, changes in local demographics, micro- and macro-economic fluctuations, etc.  Planning your purchase strategy around things outside of your control is not investing, it's speculating.  Cash flow, in contrast, is much more within your control.  It's not a sure thing (if it were, it wouldn't be an investment).  Nothing in real estate is guaranteed.  But at least with cash flow, you can shop around for better financing rates, control how much capital you devote to rehabbing, screen for a better quality of tenant, etc.  All things which can positively or negatively affect your return.

Lastly, have you spoken with a realtor in the area about which attributes are most in-demand in this neighborhood?  Maybe small master bedrooms and small closets are a deal-breaker for wide swaths of the buyer's market, or maybe they're not.  Moreover, this criteria could totally change in the 6-8 year interim in which you plan to hold the property.  So any criteria you use now may be invalid at that future date.

I received a list of properties from a wholesaler, including addresses and asking prices.  For a certain property on their list, the asking price is $115,000.  I wanted to know if I could find the price that the wholesaler paid for the property, so I could find out how much negotiating room they have on the asking price.  The last recorded transaction was non-arm's length, and there is no sale price recorded, so I'm trying to get creative.

I used the address to look up the transaction history on PropStream, and I found the transaction that mentions the wholesaler's LLC as the buyer. They bought it from Fannie Mae, and the property's transaction history includes a document number for the special warranty deed issued for this transaction.

I then went to the online portal for the deeds office in the county where the property is located, and looked up the PDF files for that deed.  I found the following paragraph:

My question is: what are the odds that this $38,400 corresponds to the price that the wholesaler paid?

Hi @Todd Springman, you've budgeted $5,000 in closing costs on a $700,000 property.  That seems low.  Closing costs of 3-6% of the purchase price are more common.

Also, $3,000 is very optimistic on a property at this price.  Especially a multi-family.

Hey @Brandon Wulff, I ran a 2-bedroom Airbnb in Brooklyn for 2+ years.

It's hard to gauge the accuracy of your estimate without specific property information, such as address, year the property was built, # of bedrooms, etc.  So $10,000 for up-front repairs may or may not be accurate.  I can tell you that you'll need to budget for furniture if you'll be doing short-term rentals.  The budget for this will depend on whether you're aiming for an up-market or down-market rental.

Will you be living in the property and running the short-term rental yourself?  Even if you're self-managing, you should still budget for a property manager.  At the very least, you'll want to take a vacation every now and then, so you'll need to either pay someone to take care of guests while you're away or shut down your rental during that time.  In my experience, Airbnb co-hosts (the equivalent of a property manager during my vacations) charged 20-25% of the fees earned during a guest's stay.  That was in NYC, so other markets may be less expensive.

Vacancy budget of 5% is quite optimistic.  I experienced vacancies of around 10-15% in tourist-heavy Brooklyn.  In a smaller market, you can expect much larger vacancies.  Check AirDNA for specifics in your area.

Your combined budget of 10% for repairs + capex is low.  Short-term rentals will have more wear-and-tear than a regular rental; if I were you I would probably double that.

Expect utility costs to be higher for short-term rentals than they would be for regular rentals.  Guests know they don't have to pay them, so they'll crank the heat up in winter and the A/C up in summer.

How are you financing 100% of the property purchase?  I'm surprised that the lender doesn't want you to have some "skin in the game".  Otherwise, what's to stop you from walking away from the property if things go south?

Your refinance loan amount of $240,000 is also optimistic.  My understanding is that most lenders want to see a loan-to-value ratio of 70%, maybe 80% max.  You'll likely need to leave some equity in this deal, unless your appraisal comes in higher than expected (and there's no evidence to suggest that).  Also, make it explicitly clear to both lenders that your intention is to do short-term rentals at this property, even if you plan to live there.  That may be pertinent to their loan decision.

Without more specifics on the property, I can't gauge the accuracy of the monthly income.  I'm happy to do so if you can provide the address, otherwise your best bet is to buy a market report for your area from AirDNA.

Good luck with this property, I hope it works out!

 Hey J, glad to meet you at tonite's VIG meetup.  Out of curiosity, I looked up the sub-title to the original "E-Myth" book.  I didn't see "Work The System" in the subtitle, but I did find a separate book called "Work The System" by a different author, was that the one you were referring to in your presentation?

I looked up the rest of the books in Gerber's E-Myth series, and yeah there are a surprising number of real estate titles.  He just released "The E-Myth HVAC Contractor" a few months ago, so he might be running out of niches lol.  Maybe he took your advice and has a team of VAs ghost-writing for him.

Nice job @Jason Coleman.  A couple questions:

-How long was this property listed before you scooped it up?

-You said 2-4 unit multi-family. May I ask how many units specifically? I'd love to run the numbers on this in the BiggerPockets BRRRR calculator for some practice on a real Triad-area deal, and knowing the # of units is useful for calculating gross monthly income.

-Are there tenants already in place?  If so, how long are their leases good til?  Did you do checks on them (credit / criminal / job & income histories, etc.) as part of your contingencies?