All Forum Posts by: Robert E Thompson

I'm assuming you mean Portland, OR... 

I haven't built in Portland myself but I work in the building industry. Portland is very ADU-, multi-family-friendly, so that's on your side. I would be ready for the permitting process - Multnomah is not much fun, Washington County isn't either. I would start looking into that immediately - prices and requirements. Also do your due diligence on what is and isn't allowed on your property and any SDC's (System Development Charges) you may be in for (these are for infrastructure that you may be on the hook for when you build - sidewalks, streets, sewers, etc.). The costs of these will vary depending on where you're building.

Very brief thoughts - if you do have more detailed questions (or if I'm telling you things you already know), please feel free to get in touch.

Andrey,

I think your best bet is to first talk to a couple of folks.  First would be a lender - a bank or a broker - to explain the situation and see what, if any, hurdles you might have: is your credit adequate (you may not have super deep credit and so would need to talk about this, for example), ask what you might qualify for.  Ask people you know if they have recommendations.

There are lots of programs out there for first-time buyers (and some are state or county specific). There are also down payment assitance programs. One of the mainstream options out there for you might be FHA - FHA requires a minimum down payment of 3.5% but also, (one of your other replies mentioned buying a multi-family property), allows for 1-4 units (as do many loans) but you do need to live in the property. There are lots of options out there and a lender can help steer you in the right direction.

After getting some idea of financing options, I would speak to an agent in your area. You can talk to the agent first - he or she may have recommendations for good lenders - just be up front about where you stand in the process... that you're trying to learn how the process works and what possibilites are out there for you.  They'll appreciate your being up-front with them - if not then they're not the agent you want to work with.

I would start there and then start worrying more about cash flows, etc. as one of the next steps in your journey.  I don't know where you are, but location can have a definite impact on your plans.

(Also remember that there are two reasons to stay in the house - one is what is required by the bank, one is how it affects your taxes - those two time periods can differ so make sure you're covering all of your bases).

Hope that helps.

Napat,

you're right - some of the 'rules of thumb' don't work well in expensive areas.

A couple of thoughts:

As to financing, you may quickly hit a ceiling with your DTI. This is when you have to start looking for other sources of money or structuring deals in creative ways (partners or owner financing, etc.) There are a lot of options out there which will require more searching (though not too much more once you're looking in the right spots) or 'thinking outside the box' than 'traditional' financing. Ultimately, if you were to continue investing (assuming buy-and-hold), you would need to find other financing anyhow (even if DTI weren't an issue), as you are limited to 10 conventional loans. I don't know your situation, of course, but I'm assuming you aren't planning on buying multiple properties at the same time. Of course I could be completely wrong on that - but I would probably concentrate on finding the first deal, making sure it cash flows, and then keep learning and thinking about what's next and how you'll structure future deals. (On your first deal, also don't forget that you have the option of living in one of the units and procuring owner-occupied financing - obviously depending on your situation.)

Finding good deals, i.e. lower prices, will also help your numbers.  Keep your eyes wide open to strike quickly (have financing ready, etc.) if a deal pops up, look for problem properties (or owners who need help), properties that have been on the market "too long" (they could simply be overpriced but sometimes there are more benign reasons) but buyers (and agents) won't look at them because they've been on the market so long.

As to location, I won't speak to investing in another distant area of the country. But you can certainly, fairly close to Portland, find rural areas (or even not-so-rural - just not in Portland proper) where the prices are lower, the DTI's are more appealing, and cash flow is more likely . I live in Molalla (east of Woodburn, south of Oregon City) where 1-4 unit properties are much less expensive (rents are also lower but not necessarily proportionately).

I've also recently worked with folks in both Independence OR and in Lyle WA.  I sometimes do double-takes when I see the prices.  And neither of those spots is so far away that it can't be managed fairly easily (depending on your definitions and desires, of course!).  Some out-of-the-way areas also may have potential of being in the way of progress so eventual appreciation is also on the table (not a certainty of course) - as long as it cash flows (important to almost all investors).

Hope that helped!

Investment Info:

Office Space commercial investment investment.

Purchase price: $335,000

Purchased commercial building on lease option to turn into shared workspace and meeting / conference building (there is very little of this in my small city).

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

I have been a residential agent slowly turning my business toward investment and small commercial. This opportunity presented itself as a fair buy on the property and a fairly easy path to cash flow. One of the good things about a shared workspace is that if you lose a tenant, you only lose a small portion of your revenue.

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

Was the broker representing the seller and subsequently the buyer on the deal. The buyer and I had discussed various uses for the two buildings he had just bought in this transaction and as his old tenant did not pan out, I agreed to lease option the building.

How did you finance this deal?

Seller financing on a lease option

How did you add value to the deal?

Adding a strong business as a tenant.

What was the outcome?

I suppose we'll find out one day. I'm in the building.

Lessons learned? Challenges?

Asking for what you want will sometimes get it for you.

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

Myself as a broker; Everything was cash. Always recommend Sheila Houck at First American Title in the Portland and Clackamas county markets. Started working with her 19 years ago.

Investment Info:

Office Space commercial investment investment.

Purchase price: $335,000

As an agent, listed two commercial spaces for my client. An investor buyer bought both in a 1031. After close, I lease optioned the larger of the two buildings and am turning it into a shared workspace / meeting room / conference room with eventual plans to turn it into a small, local theater in back. If full, there are seven desks for rent by the day, week, month or with flexible options When desks are full, building is break-even. All money from leasing meeting and conference space as well as food and beverage available for events is positive cash flow. Also meant to be a local meeting spot for local community endeavors including my own non-profit and business- related classes offered to local businesses. Purchased the building to cash flow, help community and be in the way of progress, which I believe this city is. Picture is before I took building.

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

I have been a residential agent slowly turning my business toward investment and small commercial. This opportunity presented itself as a fair buy on the property and a fairly easy path to cash flow. One of the good things about a shared workspace is that if you lose a tenant, you only lose a small portion of your revenue.

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

Was the broker representing the seller and subsequently the buyer on the deal. The buyer and I had discussed various uses for the two buildings he had just bought in this transaction and as his old tenant did not pan out, I agreed to lease option the building.

How did you finance this deal?

Seller financing on a lease option

How did you add value to the deal?

Adding a strong business as a tenant.

What was the outcome?

I suppose we'll find out one day. I'm in the building.

Lessons learned? Challenges?

Asking for what you want will sometimes get it for you.

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

Myself as a broker; Everything was cash. Always recommend Sheila Houck at First American Title in the Portland and Clackamas county markets. Started working with her 19 years ago.

Yes, find a mentor.  Find mentors.  And don't be shy about it.  No one will be offended and most will consider it a compliment and be happy to do it.  That was a lesson it took me some time to learn.  These days, I am always searching for mentors.  As a matter-of-fact, I just got off a Zoom with one of mine (super savvy subdivision/big-scale development guy), and have a meeting at 1 today with another - he's a builder I'm working with on some smaller one-off development ideas.  They mentor me on these things, I try to provide value to them in others or by mentoring back on something else.  I believe a great piece of advice is to come up with something you're interested in, find someone who's really good at it, and tell them you want to 'intern' - you'll do whatever she or he needs done and your 'pay' is exposure to that field and mentoring from the person. (You can still be working on other things to make a living, obviously!)

I am of a mind that it's better to get licensed.  Yes, it does hold you to more rules and the code of ethics, but I feel that the exposure you get, the deals you can find easily, and the money you make all stand you in good stead.  And it's a great way to start getting money to invest.  Yes, you can invest without money, or with little... but it's a lot easier with!  

But answering  "Should I...?" questions is tough - start listing what seems interesting or intriguing and start pursuing it.  If it turns out to not be a 'thing' for you, then move on.  I've spent lots of time and money on things that have turned out not to be something I wanted to pursue. But I always walked away with enough from the experience to easily justify the time and money.

I agree with the comment above about the closing costs seeming awfully high.  I might double-check that.

The home equity line is also something I would look into, as mentioned above.

A lot of this also depends on a lot of your details, which we don't have many of. Do you have any cash to put into the next house, how much equity do you have in the existing house? Since you're talking about possibly re-using your VA entitlement for the next house, you're planning on house-hacking this one too? If you refinance your current home, what's the max loan amount to make sure your payments give you positive cash flow (which I'm assuming you want) if you're renting it out and moving? Remember, as you do these things, that if you refinance or purchase at owner-occupied rates with owner-occupied financing, that you'll be agreeing to occupy that house for some amount of time. With traditional lending on investment properties, your rates and required down payments will be higher.

Seller financing is possible in different guises, but in our busy market, what will motivate the seller to carry?  Money is easy for people to come by now, so unless the seller wants to carry for a personal reason (such as taxes, e.g.), he or she may not have a reason to do so when so many buyers in the market can pay conventionally and the seller can just walk away.  This said, seller financing can be sweet if you can find the right person (or the right hard-to-sell or distressed property). (I would definitely consult an attorney when you write this).

Foreclosures aren't particularly a thing right now because of moratoriums.  How that looks in the future remains to be seen, but I don't think Portland will be the best market for that.  Vancouver/WA though... potentially better??

Robert Thompson

Lic'd Principal Broker in Oregon, Lic'd Broker in Washington