All Forum Posts by: Sam Levine

@Ryan Tebeau 

Welcome to BP! I'm based in STL as well. Always happy to connect with other investors in the area.

I just bought a 4 plex remotely in St. Louis and can give you recommendations on people who I successfully worked with during the process. PM me if you're interested. Always happy top talk.

@Andrey Feygin Welcome to Saint Louis! Your accounting background gives you a great leg up when investing in real estate. What are your goals for real estate investing? What research have you done so far? I'd be happy to give you points or resources that helped me get started.

I'm actually in need of a good tax accountant. Perhaps we can talk via PMs.

@Gregory A. I've always heard 10% as an estimate for CapEx and Repair expenses over the long run. Given that I'll be doing the repairs and management myself, I certainly expect the numbers to lower, but I want to be safe should I turn it over the management at a later point. Have you found 5-6% as more realistic?

We had to pay one of the tenants cash to move out of a unit because the lease was expiring in the spring and FHA requires an owner occupancy.

At closing, we are collecting pro-rated rent because of the closing occurring part way through the month. This helped offset the cash we had to put into the deal.

Hello BP!

Three months ago, I set out to find a purchase a small multi-unit apartment in the St Louis area because my girlfriend and I are moving there in early August. We have been living in California this whole time, so I knew networking would be key to having everything move-in ready. Over the last 3 months, I spent hours networking with people on the BP forums, analyzing the rental markets and neighborhoods, and asking lots of dumb questions. Fortunately, I was able to get a great agent and lender through the recommendations and referrals on BP. We were able to find a fourplex in a great neighborhood (looks like it will appreciate but don't need it to) and close through an FHA loan. Thank you @Alicia Sierra for helping through the whole process!

Onto the deal!

To be honest, the property immediately caught my eye. Great photos, excellent neighborhood, and the price kept being lowered. However, the rents were way too low to fit my initial criteria (1% rule). However, after analyzing the market rents through Padmapper, Rentometer.com, and Zillow, I discovered the units themselves were underpriced for the area. We put in an offer, and after some haggling, decided on $251,000 with the seller contributing $7000 to closing costs. After the inspection, we were able to get $2,500 in additional repair completed. 

The units themselves are all 1 BD 1 BA and currently being rented for $525. The plan is to increase the rents to $700 (slightly below market rate) when the leases expire in the Spring. To fit my criteria, I analyzed the numbers with the increase rental rates as though I was not living there. I want this investment to make sense if we choose to move out after the 1 year FHA requirement. All numbers are on a monthly basis:

Gross Income: $2800

Vacancy: 8.33%

Adjusted Gross: $2566.67

Repair: $256.67

CapEx: $256.67

Management: $256.67

Taxes: $197.29

Sewer: $9.33

Water: $63.14

NOI: $1343.40

Mortgage Payment: $1138.98 (financed at 3.875% with 3.5% down)

Mortgage Insurance: 157.66

Cashflow: $46.76

Downpayment: $8785

Cost to Break Lease: $2000 (all leases ended in the Spring)

Pro-rated Rent: (651.13)

Total Cash Required to Close: $10,134

Cash-on-Cash Return: 5.54%

IRR over 5 Years Due to Loan Paydown: 52.08%

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The big takeaway for me is that networking is essential to making these kinds of purchases sight unseen. St Louis is known for having neighborhoods that vary greatly block-by-block. I was fortunate enough to find people I could trust and really knew the market. All thanks to BP! 

Other takeaways are try to avoid being in a time crunch when making a purchase! My original goal was to have the property cashflow at a much higher rate, but as the moving date became closer, it was harder to find deals off the MLS in areas we would want to live in. Probably could have found a better rate of return cashflow-wise if we were more patient or were willing to do rehabbing upfront.

Try to get lease information upfront if doing a house hack. We got the lease information later in the process. Buying the tenants out of the lease definitely made a big impact to the total rate of return. 

Going forward, I am going to be sticking more closely to the cashflow goals. That will probably require doing some flips, so networking with other successful flippers in the area will be key. 

Looking forward to everyone's feedback. For now, we expect to be paying much less than we would otherwise for rent, so we can put these lessons learned and the money saved through this experience towards our future deals.

Thanks everyone for the great responses. Excited and nervous to start officially investing in real estate!

@Ronda R. I'm definitely using your letter outline to officially tell them about the transfer of ownership. 

@Mindy Jensen Great points you're making. I'm certainly comfortable with having some vacancies even if they all are at once. As for criteria, the plan is to stick to it strictly even if it could result in a move out. 

Main ones being - Minimum 600 Credit Score, Income >= 3x monthly rent, clean background check, no prior evictions. I've been reviewing my copy of Book on Managing Rental Properties which has helped greatly, but let me know if there are any other criteria you recommend.

Also, move out checklist! Definitely going to be grabbing one of those prior to the lease termination.

@Angel Lowe Love the personal anecdote. Reminds me of one of the BP podcasts where the interviewee focused on what the tenant is getting from the landlord for the rent increase. Actively looking to improve the property certainly comes to mind. I would think asking them top 3 wishlist items that would help improve their experience living there could help. Not making any promises upfront, but at least getting their input. Thoughts?

At this point, I've decided I'm going to be upfront with the rent increases. Letting them know I intend the bring the rent closer to the market rate and encouraging them to reapply as their lease period comes to an end.

I am about to close on my first fourplex this Friday through an owner-occupied FHA loan. The property fits my investment requirements at market rental rates. Unfortunately, the previous owner has kept the rents for these units at $525 each when the market clearly allows for $700. All the leases expire in the Spring of 2018. At that time, I am planning on having them reapply for leases with the increased rent. From what I can tell on LinkedIn, all 3 tenants are white collared professionals, and during our limited interaction, have been fairly communicative. My question is two-fold:

1. While living there, what would you recommend saying if they ask about rent increases upon the lease renewal?

2. How should I approach the situation when telling them about the increased rent?

Any first hand experience is much appreciated.

Hi Wei,

A few things.

What research have you done to verify the expenses listed here? You can always make an offer and pull during the initial inspection period if the expenses are out of whack on the seller's disclosure.  If you are working with property management, interviewing them would be a good start. They can give you a better idea especially regarding vacancy rates and what it is likely to rent for. These are key to verify when doing these kind of evaluations. I would actually go onto a site like PadMapper and try to see what is comparable. Look at the different features like washer dryer hookups, location near a bus stop, etc and see how they compare to similarly rented properties. Ultimately, try to imagine who you are renting to and why they should pick your property. 

On the financing side, banks actually chaarge more interest for small loan sizes on investment properties. I'm currently looking at a similar size mortgage and rates tend to be higher because it's non-owner occupied and a small loan size. Make sure to get estimates from the lender you're working with.

My $0.02.

Feel free to PM me with more specific questions.

Hi BP

Looking to purchase a duplex I have under contract. Do you typically purchase a survey when purchasing a new property? If so, what type and why?

I understand easements could be an issue, but my understanding is I would find out about these on title report.

Any feedback or personal experiences are appreciated.

@Mike Wood @Mayank S. Thank you both for the feedback. Good to check if I'm missing something. Big lesson here is Fannie highly favors SFHs and owner-occupants when providing financing.