All Forum Posts by: Robert Leonard

Hi everyone,

Happy New Year! 

We have a few contacts we are in talks with, but I wanted to reach out to the BP community and see if anyone has any firsthand experience with multifamily insurance providers in the New Hampshire area that they could recommend?

Our team is moving on a property in southern NH and I am looking to get quotes from great insurance providers in the area so we can have more concrete numbers. 

Thanks for the recommendations!

Robert

Hi everyone,

Happy New Year! 

My team and I are working on a multifamily deal in New Hampshire. The property is currently a 4-unit (two 3-bedroom units and two 4-bedroom units) multifamily. However, there is ample space in the basement that can easily be converted into a 1-bedroom or studio apartment for a great value-add opportunity.

We've been talking to some lenders about financing options, what they'd require us to do, the city about zoning/permits, etc., but I wanted to reach out to the BP community and see if anyone has firsthand experience with this type of situation, and if so, what you did. 

Would you get a residential mortgage since it is currently only a 4-unit, and it is not guaranteed (yet) that the basement can be turned into a 5th unit? If the 5th unit does become possible a few months after closing with a residential mortgage, what did you do about financing at that point? Must the loan be refinanced to a commercial loan? Would you just start with a commercial mortgage?

Thanks for the input everyone!

Robert

@Sarah Preston Welcome!

I cannot speak directly to the Houston market as I am primarily focused in NH and MA, but I figured I'd share some insights and thoughts I have based on what you've said.

First, you do not have to be handy to successfully complete a fix-and-flip, AND, you don't initially have to have any contract contacts. You DO have to understand the process and be well-educated on what's going (your market, costs of the renovations, etc.). It is likely that your real estate agent has contractor contacts that you could leverage, or you could even "drive-for-contractors", as @Brandon Turner says. Drive around to houses being renovated, try to look at the renovations being done, and if you like them, talk to the contractors. However, you need to understand the process well before hiring contractors to limit the likelihood of them ripping you off.

All of the being said, I too prefer the buy-and-hold multifamily rental property strategy. That is the strategy I mainly implement. I look to purchase 3+ unit multifamily rental properties with strong cash flow in up and coming areas. My main focus is on properties that can be BRRRR'ed (Buy Rehab Rent Refinance Repeat). This is the majority of my focus/portfolio, but I do also complete some fix-and-flips as well, mainly to raise capital in order to fund the purchase of rental properties.

All types of investing include risk, real estate included (no matter the strategy). Ultimately it comes down to your long-term goals and how involved you want to be. Rental properties are generally more passive than fix-and-flips. 

It seems like a decent deal on the surface based on the numbers you provided, but as Vincent and Jaiden alluded to, there might be some numbers missing, like insurance. Also, similar to what they mentioned, I generally use an 8% vacancy rate (about one month vacant a year, on average). This tends to be a bit conservative, but I'd prefer to be prepared for when vacancies do occur.

I also estimate on average about 5% for CAPEX, 10% for repairs and maintenance, and 10% for property management. I've attached an image of a spreadsheet I created to analyze multifamily rentals. It shows some of the general assumptions I make when analyzing a deal.

@Dean Dutro Great questions. As @Brandon Sturgill mentioned, much of "good" is relative. It'll depend on your market and preference. If you're investing in a buy-and-hold rental mainly for appreciation, you can accept lower cash flow and initial cash on cash ROI, but if you're investing for cash flow, that's a different story.

For me PERSONALLY, I am an investor focused on buy-and-hold multifamily rentals with strong cash flow. I consider appreciation to be a nice "side-effect", but I do not depend on it. I look for properties that would be good deals even if the property value remained relatively stagnant. 

That being said, in my market, New Hampshire and Massachusetts, I won't even consider a property if it isn't cash flowing AT LEAST $150 per month per unit. That's my absolute minimum to even look at the property. I most likely wouldn't invest in any properties cash flowing less than $200 per month per unit, but $250 per month per unit is my ideal threshold. 

For cash on cash return, my ideal target is 30% per year. This has become more difficult to find given lofty property valuations and our current position in the market cycle, but that is my ideal target. 

These numbers are what they are because I focus on cash flow, not appreciation. If appreciation is a variable in your equation, the cash flow per month per unit and cash on cash ROI can be a bit lower.

@Dean Dutro Great questions. As @Brandon Sturgill mentioned, much of "good" is relative. It'll depend on your market and preference. If you're investing in a buy-and-hold rental mainly for appreciation, you can accept lower cash flow and initial cash on cash ROI, but if you're investing for cash flow, that's a different story.

For me PERSONALLY, I am an investor focused on buy-and-hold multifamily rentals with strong cash flow. I consider appreciation to be a nice "side-effect", but I do not depend on it. I look for properties that would be good deals even if the property value remained relatively stagnant. 

That being said, in my market, New Hampshire and Massachusetts, I won't even consider a property if it isn't cash flowing AT LEAST $150 per month per unit. That's my absolute minimum to even look at the property. I most likely wouldn't invest in any properties cash flowing less than $200 per month per unit, but $250 per month per unit is my ideal threshold. 

For cash on cash return, my ideal target is 30% per year. This has become more difficult to find given lofty property valuations and our current position in the market cycle, but that is my ideal target. 

These numbers are what they are because I focus on cash flow, not appreciation. If appreciation is a variable in your equation, the cash flow per month per unit and cash on cash ROI can be a bit lower.

Thanks for the additional information. I'm certainly no expert with flips (yet) - I focused more on buy-and-hold multifamilies, but nothing in your report raises any major red flags. It seems like an interesting opportunity.

Are you only open to investing in your current area? You may have better luck with long-distance investing. 

In the New Hampshire/Massachusetts areas, we are not finding any great deals these days, but we have come across a handful of good opportunities. I think much of it comes down to what you believe would be a "good" deal. We have started considering expanding outside of New England and into the Midwest in hopes of finding truly great deals.

On paper, it seems like an interesting flip opportunity. There isn't much more that can be said on the situation without seeing the property and being able to determine if your rehab estimates are realistic. However, based on the information provided, assuming it is accurate, it seems like a good flip opportunity. 

The one thing that is missing is the down payment amount. That'll need to be added to the closing and rehab costs to determine upfront capital needed.

As some have said already, I would just remember this is a business and should be run as such. I completely understand wanting to be nice and understanding for the tenant, but ultimately it is a business and should be treated as such. Action should be as needed to alleviate the situation.