All Forum Posts by: R S

is this for long or short term rental homes?

@R S

We have done it.  We self-built our way to 37 doors… 25 properties.  We started in 2018 and bought 8 properties (21 doors) - all financed with 20% down.  2 of the properties had 2 duplexes on one parcel… so while not true quad plexes, each had 4 doors.  The others were duplexes and one triplex.

You can argue that our timing was excellent - but at the time you never know that.  We were paying mid to high 5% interest rates, but the key was that our average $/sq. foot buy price was around $78-85/sq ft.   Over the next 3 years we also did 2-3 flips as well as buying other units. .  

Market appreciation allowed our portfolio to rise in value significantly over the next couple of years.  Through selling the flips, as well as the triplex (which was in a bad part of town but still got 6 figure appreciation between 2018 and 2021) ) we were able to pay down a lot of debt on the growing portfolio which helped our monthly cash flow numbers really climb!

We also did some cash out refis where we lowered our interest rates and got some cash out (at lower rates) and used those funds to also pay off additional debt on other higher interest rate properties… going from high 5 to low 6% rates to 4.1% - again helping our cash flow.

When we started, our goal was to have a cash flow of $300/month after PITI and a maintenance reserve. Since then we have raised that number into the high $700's / door through paying down loans with the proceeds of flips, along with rent appreciation over the years. We went from 19 loans (between my wife and I) to just 7 loans (although one of those was a consolidation loan for 5 properties).

After the first year we actually switched to more single family homes because competition on the multi’s was just too high… there were far more single family properties available at prices that were cheaper than a comparative duplex (ie. 2 singles would cost us less than a duplex) ,

By 2022 the market appreciation had found its way into the seller’s asking prices and for 2 years we bought no units.  Between the higher prices and 7% interest rates, nothing really cash flowed well.

Since then we have bought a SFH we flipped, as well as a wholesale deal that started with a $200k spread between purchase and ARV, which we think we will net about $120k on when renovated.

Our mantra is that “we do what the market tells us to do”.  As an example of this, we renovated at home that we were looking to sell. It’s in the $400,000 range, which puts it in the better 25% of homes in the area where it is  located. But that property has been sitting on the market for coming up on 90 days with very little traction in the market. We have lowered the price multiple times, staged the unit, etc.  The price per square foot is right for the market area, but we’re still seeing very little traffic. This tells me that interest rates are having a significant impact on affordability, and also that sellers are trying to hold onto their higher prices, even though they aren’t getting many bites at their properties. What the market is telling me here is that I should probably just turn this back into a rental for the time being until interest rates drop out of the sevens and high sixes.

Hope some of it helps!

Randy

Hey R S,

Yes, commercial loans for 5–20 unit properties usually have higher rates than DSCR loans—typically around 7.5%–9% right now. They also come with shorter terms and more underwriting. DSCR loans (like your duplexes) are more flexible and often 30-year fixed.

You'll most likely be looking at somewhere in the 8.5+ range for 5+ unit DSCR.

Commercial full underwriting may be a bit better, but not 100% sure.

A syndication is actually the perfect vehicle for a buy-and-hold strategy, and a 5-8 year hold is, by definition, a buy-and-hold strategy.  It would also work for a buy-and-hold-forever strategy, but you would have a hard time attracting investors because nobody wants to be captive forever.

Your main issue is not the investment vehicle.  Your main problem would be finding a way to allow passive investors to exit. 

The strategy you propose would be one.  However, I don't find that particularly attractive offer. All you are providing is the cashflow and then getting their money back.  For a 5-10% return with lots of risk, I would never invest in that deal.

More realistically, your partners are going to want to be bought out at fair market value of the equity.  If you've done a good job, that may mean you would need to pay them 2x to 3x their original investment to buy them out.