All Forum Posts by: Serge S.

Mike H ... regarding your loans after the first 10, are you getting commercial loans using the strength of your assets and income or via a strong W2? I went conventional for houses 1-4 and a portfolio lender 5-10. Portfolio lender cut me off after that and the only reason I was even able to do 5-10 was due to having a strong job and w-2. Now I'm investing full time and no w-2 = no financing, at least traditional. I've found investment groups that will do 5 year balloon refis at 9-10% 50% LTV but the closing costs are so outrageous that I chose not to go that route. So all properties after 10 have been more difficult to acquire, I've had to change my profile to lower end cash flow property (from mid range quality cash flow) and add 1-3 flips per year to help finance the growth in rentals.

Access to financing is certainly the limiting factor. If I still had access to the 75% LTV traditional financing I could grow very fast. Without that I've had to adjust. Someone once said on one of these forums or blogs ... if the government really wanted to clear out the foreclosures they would simply make access to investor loans available past an arbitrary the number. I understand your statement about the banks being burned by investors but this is a different time. Investors are putting large downpayments on properties that actually cash flow. Seems a much safer bet than hoping that first time FHA buyers with no cash in the bank or significant downpayment don't eventually foreclose. All the FHA, VA, Homepath buyers I've seen have been one broken AC or job loss away from losing their home.

I'm considering packaging up some 4plex buildings into an owner finance deal. Looks like a fair win win deal. I am offering very fair terms and the deal will cash flow for the buyer. This would be my first real owner finance where I am on the financing side. My questions for the pros that have done it:

Any issues with the SAFE Act to consider?
Would you use a lawyer to draft the deed of trust and promissory note or online template?
If using a lawyer, any AZ recommendations? All the legal help I've had has been pretty shoddy and unresponsive.
If using templates it would be great if you could share those.

All help and advice is appreciated.

In AZ I post a notice of abandonment which gives the tenant 5 days to make contact. If no contact is made you have the legal right to retake possession. If they are hiding this notice gets their attention and if they are gone then I repossess. Check CA laws for abandonment.

I am originally from the Bay Area (San Mateo) and can't imagine trying to make something cash flow out there. Seems like appreciation is the play. I have friends working Pittsburg, Stockton, Richmond and Sac and they talk a good game on property they buy for low $100s and rent for $1k. More like the 1% rule. A lot of CA investors have done well in PHX and Vegas metro. Short flight and cheap cash flow houses. If you know the burbs of Denver it sounds like you have your answer.

I'd be interested in hearing everyone's worst rental situation, tenant, house, repair or whatever.

Definitely been an adjustment in Arizona. 2012 was the year the big hedge funds came in and ate inventory. It feels like they have slowed down, most likely one of the major 3 stopped buying. I have taken what the market has given me meaning changing target cities as necessary. We are buy and hold and strict staying at the 2% rule while staying out of war zones. It was nearly impossible in 2012 but some cities have started to soften up. This is using MLS and trustee sales as the main sources of inventory. Flippers I know are no longer active and buy and hold guys are happy living by the 1% on $100k+ homes.

I have a 32 unit and used a local sub metering company. They installed all the submeters for free and bill the tenant $5.95 for the equipment rental and another $5.95 for reading the meters. When tenants pay they net the fees and remit to the owner. Owner continues paying the water co. There were a lot of catches in the contract that charged me for turn offs, bad debt etc. I was able negotiate the deal where my onsite maintenance man did the reads and the bad debt fees were dropped. I debated a long time if it would be worth it concerned that the tenant class would not pay and I'd have a higher turnover rate. Just did it in November and have not seen much in the way of data yet so the verdict is still out. I personally would not pay the $8k to the city if I could avoid it although this should add the value to the property.

Hey Shawn -- welcome to BP and the AZ market. I'd be interested to hear how you got "burned" in our market. Unless you purchased in 04-07 you should be doing pretty well. I started in early 2009 as a CA transplant and have not looked back. Maricopa county can be tricky, especially right now when there is little inventory that will truly cashflow. Be patient and learn the neighborhoods city by city, street by street. Check out Pinal county also and take what the market gives you. Houses we bought in decent neighborhoods in 09-11 for $50k-$90k are retailing for $150k-$190k. They rented back then at $1200-$1500 and still do. Rental demand is very strong and consistent. There are a lot of investors that purchased at the right time that are cashing out right now.

I personally think AZ is one of the best markets for investors due to the combination of newer inventory, low property tax, low insurance and little weather related maintenance issues. On the SFRs we own, the PITI payments on the home (including all debt and principle) are usually less than just the property tax alone on comparable east coast homes. Easily less than $100 monthly for both property tax and insurance! Not sure where else you can find that! I don't get why so many CA investors are eager to invest in the midwest or east coast.

Be sure your not buying at today's prices hoping for some magical capital appreciation. I don't see much more room for price appreciation over the next 5 years making the cash flow numbers all that more important. I have learned to live and die by the 2%, 50% rule, it is pretty much spot on. The times I strayed I got lucky and was bailed out by the enormous 2012 run up. It really has been tremendous. The media points out 28% year over year median gains but in most submarkets under $100k the gains are easily 50%-100%. True roller coaster.

Share with us your plan of attack and let the experts weigh in. Good luck!

Joel Owens is right on about the expense ratios in mf project. 60%-70% expense is common. I don't even look at a multi if I have to pay anything but trash. I have rarely seen a project cash flow anything positive if the owner is paying water, trash, sewer and anything else.

I own both multi and sf and can say that single family is much easier to finance, resell, manage and buy.

Multi can be high ROI but typically only if you can buy in a distressed situation and improve. That takes experience and effort even with a PM. There are tons of burned 4plex owners out there, believe me.

Overall I love my MFR (10 buildings in 2 locations, 50 units) and they cash flow well over 20% but only because I purchased turn around projects and did the work. The 18 SFRs are always consistent, easy and liquid. Moving in and out of them and having them available to raise cash for the next turnaround project is key.

The capital appreciation for sfrs purchased at the right price in 2009-2011 metro PHX is 100% right now.