All Forum Posts by: Sarah Msuya

Hello everyone, 

This Sarah Msuya from Real Estate Rookie Episode 399! My partner Amanda Salovitch (Rookie EP # 207) and I just bought a lodging home. When construction is complete it will be an 18 unit (some rooms with shared bathroom, some full apartments).

Instead of dealing with 18 separate tenants, we have decided to rent to one operator - sober home, group home etc. 

We are trying to figure out how to price this and how to vet the operators - specifically for sober home and similar facilities (we already do DSP and understand that well). 

We have a sober home operator who is interested. Some residents pay privately, others use General Assistance, and some have some state assistance. They get about $681 a bed and we estimate they can fit 40 beds. I'm sure they have some overhead. Would $15K a month sound about right? 

If you currently operate something like this please reach out - thank you!

Hello all, 

I am renting out a 3 bedroom home in a great area and was approached by a home care professional company specializing in individual with intellectual disabilities and autism. I've looked at their website, checked the state of Maine to make sure they are in good standing, and am now waiting for them to provide me with a lease which I will edit if needed. I got a great feeling from them and one of them ran for city council in the city its in. I know better than to just "trust my gut" but I don't know the appropriate vetting process. I don't want to hold this transaction up too much and I really do feel good about it. It feels strange to vet the owners of the company through a background check and apartments.com cannot run LLCs through. 

I'm so used to vetting long term rental tenants and have a solid process around choosing good tenants. With this situation, I don't know what I don't know. 

Does anyone have a lease generator for this situation? Any other checks I should be performing? Items to be sure to include in the lease? 

They said they take care of all repairs and maintenance outside of structural. I'm assuming this means anything residents damage and I would still be responsible if a fridge breaks or a roof leaks. I guess I'm just looking for someone with experiencing doing this to give me a few pointers before I officiallly sign this 4 year lease. 

I am putting together a large deal using capital from one private investor. Does this classify as a syndication or is there a less complicated structure that can be used? 

Hello everyone, 

I have a large portfolio deal that I working through. The lender I am using for another property said its required to have 10% of seller funds in the deal. I would love to have less than that and use more of a seller carry. I have called a few local banks, gotten one that said they require 20% and waiting for call backs on the rest of them. Is there another way I should go about this? I've heard on podcasts of people getting into large deals like this using 80% bank money and 20% seller carry. 

The portfolio is in Lewiston Maine - TIA!

Investment Info:

Small multi-family (2-4 units) wholesale investment.

Purchase price: $188,600
Cash invested: $1,000
Sale price: $194,000

I got a property under contract that wound up to be too big of a rehab for my first deal per my private money lender. I learned the neighbor was someone I had talked to at my job about real estate before. When I realized I couldn't take the deal down, I called him to see if he was interested. At the same time, the duplex next door went on the market for about $100K more than I had this locked up at. He realized the benefit of buying the contract from me instead of waiting for it to go to the MLS

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

I wanted to do a BRRR and was looking for a small multi.

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

I saw a duplex that needed a lot of work. I told the listing agent that I really love side by side duplexes .
I put a low offer in and it didn’t get accepted. When she notified us, she said that duplex was a part of a portfolio she was selling for an estate. There was a side by side coming soon that I might like.

I searched the city’s property tax records and found it. I offered the valuation amount in the tax records and got it under contract before it hit the market.

How did you finance this deal?

I put $1000 EMD down and then whole-saled the contract.

How did you add value to the deal?

I got it locked up before hitting the market.

What was the outcome?

I sold the contract to the neighbor (past bank client of mine) for $5400. He had tons of instant equity. He's fixed it up and rented it and owns it to this day.

Lessons learned? Challenges?

1. That realtors don't typically get involed in wholesales and I can do the contract myself with a title company.
2. Talk to everyone about real estate, you never know what will come of it.
3. Continue working a lead from whatever angle you can. You can't buy it, can you wholesale it?
4. Don't waste having a property under contract if you can help it.

Investment Info:

Small multi-family (2-4 units) wholesale investment.

Purchase price: $188,600
Cash invested: $1,000
Sale price: $194,000

I saw a small multi in my hometown that needed a lot of work. At the showing I told the listing agent that I really love side by side duplexes (this one was one unit over the other).
I put a low offer in and it didn’t get accepted. When she notified us of the decline, she let us know that that duplex was a part of a portfolio she was selling one by one for an estate. There was a side by side coming in the same town within a week or two that I might like.

I searched the city's property tax records to find the owner and then searched for other properties that individual owned. By looking at the pictures, I was able to find the side by side and drove by it. I spoke to my agent and asked if we could put an offer in even though it wasn't listed and she said yes. I decided to offer the amount the town had for its valuation which was $188,600. The offer was accepted with $1,000 EMD.

I was going to use private money at 7% for 80% of the purchase price and 20% of my own funds from my HELOC on my primary. After the rehab I would refinance it all conventionally. I brought my contact that was connecting me to the private money to the inspection. The inspection revealed a number of bigger ticket items and he didn't think the private money lender and he didn't think the lender would be comfortable lending on a riskier project like that to a new borrower.

I was also starting to feel in over my head with it. I knew the guy who owned the building next door from my job as the local bank manager. I had spoken to him about real estate investing before at work and had his number. I decided to call him to see if he was interested in buying the contract before it went to market. My realtor had never participated in this type of thing but agreed to write the contract for me if a condition was using her as his realtor for the purchase. The duplex on the other side of this home was listed during these negotiations at $299,000, so if it went to market, he realized, it would likely go for way more than the $194,000 I was offering it to him for. After 4-5 days back and forth, he decided to buy the contract from me for $5,400. That was my accidental wholesale 😊.

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

I wanted to do a BRRR and was looking for a small multi.

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

I saw a duplex that needed a lot of work. I told the listing agent that I really love side by side duplexes .
I put a low offer in and it didn’t get accepted. When she notified us, she said that duplex was a part of a portfolio she was selling for an estate. There was a side by side coming soon that I might like.

I searched the city’s property tax records and found it. I offered the valuation amount in the tax records and got it under contract before it hit the market.

How did you finance this deal?

I put $1000 EMD down and then whole-saled the contract.

How did you add value to the deal?

I got it locked up before hitting the market.

What was the outcome?

I sold the contract to the neighbor (past bank client of mine) for $5400. He had tons of instant equity. He's fixed it up and rented it and owns it to this day.

Lessons learned? Challenges?

1. That realtors don't typically get involed in wholesales and I can do the contract myself with a title company.
2. Talk to everyone about real estate, you never know what will come of it.
3. Continue working a lead from whatever angle you can. You can't buy it, can you wholesale it?
4. Don't waste having a property under contract if you can help it.

Investment Info:

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

Purchase price: $600,000
Cash invested: $80,000

We currently live in half and rent the other half. Its a beautiful duplex that is basically two single family homes attached by a porch. We had the previous tenants leave and were able to handpick our new neighbors and its worked out very well. It's needed minimal work and has provided our family with the bigger home we needed. Overall, an awesome deal!

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

After having a baby, we needed more space. We were open to a house hack situation if we could find a solid multifamily that we felt comfortable living in. Having a new baby, comfort was important and we weren’t seeing the right MF, so we ended up putting in offers on single family homes and even got one under contract. We ended pulling out and then found this beautiful duplex!

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

In September 2021, it came on the MLS for $600k. I immediately texted my agent and we got the very first showing. I offered full asking price with a $10,000 EMD. I knew there were multiple showings scheduled after ours and I wanted to take it off the market quickly. It worked and we got it!

How did you finance this deal?

We used an FHA loan that allows you to finance a single family up to a 4 unit residentially. We got an amazing interest rate of 2.375%, our PITI was $3008.63, and planned on putting 3.5% down. However, part way through we realized that the FHA limit for a 2 unit was $525K and we were under contract for $75K over that!
I used a 401K loan for $30K, a personal LOC for $20K, a HELOC for $35K, and a little bit of cash when all was said and done!

How did you add value to the deal?

So far we have repainted parts of both units. We fixed the decks and repainted that and the trim. We replaced a toilet and have repaired/replaced components of both heating units.

What was the outcome?

We live in one side and rent the other side. Our part of the mortgage is $508 and the other side pays the rest. It's not cash flowing but its signficantly reducing our living expenses while appreciated and having someone else pay down the majority of the mortgage!

Lessons learned? Challenges?

1. Know the FHA limits by number of units for your area.
2. You can use projected rental income to help your DTI on a small multi-unit.

Investment Info:

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

Purchase price: $600,000
Cash invested: $80,000

After having a baby, we needed more space. We were open to a house hack situation if we could find a solid multifamily that we felt comfortable living in. Having a new baby, comfort was important and we weren’t seeing the right MF, so we ended up putting in offers on single family homes and even got one under contract for $399k. We ended up pulling out of this contract at the last minute for a few reasons and thank goodness we did!

In September 2021, a beautiful duplex came on the MLS for $600k. I immediately texted my agent and we got the very first showing. This was way outside what we wanted to spend/thought we qualified for. We were prequalified for $425kish for a single family but with MF they can use projected income for the other unit so that allowed us to qualify for the higher purchase amount. We decided to push forward with it until someone said we couldn't and no one ever did!

It's two single family 3bed/1.5bath 1500 sq ft homes just connected by a porch. It basically was the single family we wanted with another house just super close by. We got in for the very first showing and had an offer put in within hours at full asking price with a healthy $10,000 EMD. It was accepted!

We financed it using an FHA loan that allows you to finance a single family up to a 4 unit residentially. We got an amazing interest rate of 2.375%, our PITI was $3008.63, and planned on putting 3.5% down. However, part way through the deal we realized that the FHA limit for a 2 unit was $525K and we were under contract for $75K over that! The limits are state and county specific and change periodically. You can google to find your local numbers.

We had to come up with the difference. We were so invested in it by then that I pulled every dollar I could get my hands on together to try to make it work.

I maxed out the loan I could take on my 401k which was $30K (half of the total balance for my plan), I pulled the rest of my HELOC off about $35K (other $20K was still tied up from the down payment on my first LTR), maxed out my personal LOC of $20K, and the little bit needed after that was cash from savings. We squeaked by with less than $5,000 in liquidity when all was said and done.

I knew that I was going to be able to cash out refinance my other LTR, would have additional income once I returned to work, and would have another $4,600 coming in from the two additional rentals this created. It was a tight couple of months but I felt confident in the investment and after weighing all risks decided it still was best to move forward. Worst case, I have $80K in available credit card lines that I could rely on if it got bumpy for a moment. We ended up having to put about $6000 on credit cards until we corrected course. We have since paid that all back.

After 3 long stressful months and many “pivots” we successfully purchased the property, rented the other side, got the other tenant to vacate, moved out of our house and into that half of the duplex, and rented out the single family home we were living in!

Instead of paying an extra $913 in mortgage for the bigger home we had been under contract on, this is what happened:
Cost:
• $80,205.77 = Cash to close, Sources (#s as of 7/12/22):
o $214.33/month - $30K borrowed from a 401k loan from my bank job
o $0/month (Int Only) HELOC on single family monthly payment – originally took $35K but paid off with refi of another rental property in May 2022. Originally $112/month @ 4%.
o $0 - $20K from personal LOC monthly payment: it was $400/month but paid off with refi of another rental in May 2022. Originally it was $400/moth.
• $214.33: Current total Monthly Debt Cost Remaining from Cash to Close
• $4,276: Combined mortgages for duplex and our single family:
• $4,490: Combined mortgages for duplex and single family + monthly cost of 401K loan for CTC.
o $2,100 = Monthly rent + pet fees for Single Family
o $2,500 = Monthly rent + pet fees for half of duplex
• $4,600 – Total monthly rents from single family and half of duplex
End result - $110 positive cash flow + live for free or a $508 “mortgage” payment if you just look at the duplex by itself.

This is a savings of $1268 (+$110 in cash flow= $1368) from what we paid for our 864 sq ft 2bed/2 bath home vs. what would have been an increase of $913 a month for an upgraded 3 bedroom/larger home. So we saved/earned about $2300 (if we put 10% down) a month from what we would have paid with the upgraded single family for $399k. And that’s a savings every single month on our largest monthly expense!
Plus we now own a duplex + a single family home that tenants are paying down for us and will appreciate.

@Tony Wilcox

Okay thanks Tony!

@Joe Splitrock

I appreciate the real life example as I was thinking basically the same thing ...

After some more reading and talking with my loan officer I came to learn that Actual Cash Value is not even an option if I want a loan through this local Savings Bank. 

My lender seemed to think this was the case with major banks and many local savings/credit unions ... 

When I think about it, that certainly makes sense for them to be protecting their risk. 

I'm wondering if those who were able to get ACV policies were using hard/private money or their own HELOCs etc. vs traditional fixed rate loans from local establishments. Was your ACV policy secured by a traditional personal mortgage?