All Forum Posts by: Sean Wilkinson

Thanks Scott. I do feel that it has been worse since we have had AC running so the coils are a great idea. There is not any duct work in this unit so hopefully cleaning those coils helps out!

It smells like smoke....

It was previously an apartment with animals and and a smoker. We did a pretty major rehab on the place pulling up all flooring, doing an a.chemical wash on the wall. Tried doing a kills primer, but when that didn't seem to work we did a shellack oil base primer on everything including the subfloor. We then primed and painted and put new floors in and did everything else to finish the remodel. There was still a faint smell so we ran a ozone machine for days in there... The smell STILL came through so we put wall air fresheners and charcoal bags trying every possible thing we could think... But the smell persists!!! Of course with airbnb, reviews are critical and we have gotten multiple people that mention the smell.

Any other ideas would be greatly appreciated!

Great point @Dustin Lang on the higher interest rates some of these guys want to charge and I like the concept of pointing out what the loan market looks like. What I have found is that sellers try to do this when they feel like they are doing you a favor and that you have no other options. Giving them the second cash offer takes this power away from them, makes them more confident in your abilities, and makes them feel still in control by having two options to choose from. 

The other thing I would say is to not rule them out due to wanting high interest. I know this sounds backwards, but higher interest rate has worked in my favor in the past! Being that they are investors and want you to make your payment, they understand that the cashflow has to support the payment. When they want more interest, that gives me the ability to show them that the cashflow at that rate would just mean a lower purchase price to support the payment. If the better interest rate makes them feel better and you get a much better purchase price, you win while still giving them what they want! Because after you close, you can refinance or sell whenever (as long as there are no prepayment provisions in place), and you'll have more equity! 

Congrats on your house hack BTW! First couple deals are the hardest so keep it up! 

I don't have any great resources for this as these are just things I've just picked up while doing deals. What I will say for lead generation is that these very much come down to building relationships as these folk in my experience don't respond super well to direct mail or cold calls. 

Know your market and who owns lots around or just long-time landlords that obviously owner manage. Then try to connect and create a relationship with someone connected to them -- neighbor, lawn care guy etc to where they can introduce you and vouch for you. Then when you get a chance to connect with the owner there are a couple things I like to ask: 1) what their advice would be on being successful in the rental business (successful people like to tell about it). And 2) do they have any problematic properties they might have any interest in selling. Not just asking about a specific property they own because it limits their answer to yes or no rather than thinking about all their properties. 

The drip effect. Be persistent and call them up every so often and follow up! This is a must to getting deals! As long as they like you, they will appreciate the calls. These people know other people that have property too! So they will also point you to those people and know when other people are interested in selling. You want your name to be the first they think of! 😁

I wanted to make this post because creative financing has been such a powerful tool for me. Of our portfolio of 117 doors, currently 39 of those are seller financed while 13 are in the pipeline to close before year end.

WHAT IS SELLER FINANCING?

Seller financing is when the owner of the property is willing to be the bank for you to buy their property -- Typically they own the property free and clear. Just like getting financing through a bank, you take ownership, start making payments to the seller every month for a set term. And just like a bank, if you stopped making those payments the "bank" (seller) can take back the property and foreclose. 

WHY WOULD A SELLER DO THIS FOR YOU?

Many sellers believe asking them to finance seems like a lose-win scenario for them and that they are doing you a huge favor. In most situations, this is completely false and there are so many reasons why they should want to do this, you just need to show them! 

**Tip: Make 2 offers; one being a full cash offer for a substantial discount that if you got it people would be lining up to supply you the cash, and a second with owner financing. This shows. so much more strength then simply asking for seller financing as that can come off as desperate. Showing you "have" cash to close gives lots of credibility. 

So why would they Seller Finance? 

1) Continue letting this asset be an investment for them through interest WITHOUT the stress or headache of managing it. Let it become truly passive for them! 

2) Capital Gains. Avoid massive capital gains tax from a lump sum of cash on a traditional sale. Spread the gain over 15-30 years. 

3) Avoid all realtor commissions 

4) No appraisal risk or inspection risk from the bank which also can make for a much quicker and painless closing. 

5) Fast Closing. You set just enough time for title to insure and for you to perform whatever due diligence you feel necessary. 

Most of these above reasons are also great from the buyers perspective. But to add to this list for positives for seller financing on the buyers side are the following: 

1) Less cash needed. One of the hardest parts to getting deals is having the cash to make them happen. When a seller lets me know that seller financing is an option, I like to ask them if they are needing a certain amount for a future investment up front or if the monthly income is more important. Typically they don't need the cash but just want you to show you have skin in the game. I have nearly always been able to negotiate 0%-10% down. 

2) The property never hits the market. In this current housing market, it is difficult to find deals, and when a deal hits the market most of the time there are bidding wars if they are decent deals. And when that happens, whoever gets it typically ends up paying too much (in my mind). When you are able to communicate all the reasons a seller should finance to you and they see their own benefit, it can make them not even interested in taking it to the market. This means you can negotiate a price that makes sense! And being that the seller is also an investor, they understand that the property needs to cashflow for you so that you can always make your payment TO THEM. So telling them that you want to pay as much as possible with it still slightly cash flowing so you never default should make sense to them! The cool part to this is that you can negotiate a price off of their current income. But often times, old time landlords can get pretty behind what market rents are. So once you close, you might only be cash flowing slightly but through getting the units to market rates, this can increase cashflow substantially.

3) Full amortized debt on commercial properties. Banks typically have shorter term debt on anything over 4 units meaning that you will need to refinance or sell after 5-12 years. Whereas with a seller that has the property paid off, you can set the loan up to be a fully amortized loan meaning you don't have to change a thing all the way until it is paid off.

Thanks for reading if you made it this far! Hope it was helpful. Please share your thoughts if you have any further insight on the positive aspects of seller financing or tips to getting sellers on board!

EVERYONE WELCOME! MAY 11, 2021 we are holding an RE meetup in Walla Walla! Come and network with likeminded people in the area. DM me for the address! Look forward to seeing you then!

@Account Closed

I really like your response here. Really resinates with my thoughts on the topic. 

To expand, with real estate investing, we are talking about income producing properties that hopefully cashflow and cover all expenses. So of course we want both, but I would argue that you can systematically build your equity much faster than your cashflow. Cashflow in my mind and is the actual operating cash that is in my account at the end of the day (this is not entirely correct, but just the way I think of it). NOI is different and has a direct correlation to equity, so NOI shown on your P&L is very important in building equity.

@Account Closed

I really like your response here. Really resinates with my thoughts on the topic. 

To expand, with real estate investing, we are talking about income producing properties that hopefully cashflow and cover all expenses. So I completely agree that we want both, but I would argue that you can systematically build your equity much faster than your cashflow. Cashflow in my mind is the actual operating cash that is in my account at the end of the day (this is not entirely correct, but just the way I think of it). NOI is different and has a direct correlation to equity, so NOI shown on your P&L is very important in building equity. Cashflow can be very unpredictable. With IRR (as @Account Closed mentioned) being the important metric, equity seems to be the most controllable of the two and a great way to systematically build wealth, but I'd argue that Cashflow is more valuable because at the end of the day you want money you can put to use. 

Thank you all for your thought out responses! 

NET WORTH/EQUITY pros: 1) Ability to leverage assets with current low interest. 2) tax free money which could become very valuable with the new administration. 

CASH FLOW pros: 1) money without debt for real operations. 2) the beauty with real estate cashflow is that you can depreciate to show less cashflow on assets that are almost always appreciating. 

Which do you strive for? Where is the balance? 

Thanks to everyone in this thread up to this point! To briefly highlight a couple of your responses, @Dan H. I really liked your point on the cash for keys. This has never been a practice of mine more from a pride standpoint and not bribing for poor behavior, however I had not thought of the ramifications of it for future landlords and how that effects us all negatively. Also your point on credit is very important (especially now!). 

And @Stephanie F., you have many great points that would be interesting to take a deeper look at implementing in the screening process. 

To @Russell Brazil, @Sean McKee, @John Underwood and @Jennifer Donley, I completely agree that the screening process is more important than ever. Thanks for your comments! 

Thanks @Charles Carillo and @Ujwal Velagapudi. Completely agree. I have a pretty rigorous application process so thankfully we have not run into major problems yet... I just foresee as it becomes more and more apparent to tenants that we literally have zero recourse, this will be very taken advantage of as it already is for many other property owners. Crazy time to be a landlord.