All Forum Posts by: Spencer Cornelia

My first deal was a 4plex using a seller carry.  $20k down on a $260k purchase price.  6.5% interest amortized over 30 years.  And this was my first deal.  These options exist.  Talk to the owner, get to know them, understand why they're selling.  Offer something you think is fair and you'd be surprised what can happen.  Dan is clearly experienced, but the idea that you have to come to the table with 20% is laughable.  Every owner is on a different path in life and some may be willing to get rid of it with nothing down :)

One angle to this would be those who bought at the bottom of what became a rapidly appreciating market.  Certainly not overnight, but those who were able to buy upwards of $500k-$1,000,000+ worth of property in Southern Cali, Vegas, Denver, etc. back in 2010, probably saw their net worth double or triple in the following 9 years.

I consider $1mm as 'wealthy' so that's my metric for this exercise.  Many people in appreciating markets probably gained $500k+ of equity on just pure appreciation.

Additionally, many people hit it really big in crypto and experienced a 2 year run of turning less than $50k into $1mm.  This is probably the best answer for shortcut to wealth.  Someone who jumped on a massive appreciation train with a reasonable amount of money ($50k - $100k or more) and saw that investment 10x in a matter of a few years.

@Byron Scott congrats on your first deal.  Your first one will provide you with education on how to close a deal.  Additionally, it will give you some conviction in your abilities to win at this game.  I don't think you can put a price tag on that.

I like the idea of adding bed and 1/2 bath to each unit.  Have you considered getting a roommate?  Adding a roommate to your unit cuts your costs even more.

Regarding self managing:  I personally would self manage the property.  Finding one other person for the other side shouldn't be difficult.  List for rent on Facebook Marketplace, Craigslist, and Facebook groups for rentals in the area.  I would recommend paying for pictures too if you're going to market it yourself.  Seeing as the unit will be fixed up when tenants move in, you'll have ample time getting comfortable with being responsible for another person's living situation and being able to solve issues as they arise (they won't all come at once).

This is all considering that you will be living there.  If in a year you decide to move, then hiring a property manager may make sense because the stress and time to handle two tenants miles away from your job, house, etc. may not be worth the extra $100 a month.

Food for thought...

Since this depends ENTIRELY on the individual, only you know what is best for you.

Personally, if I could handle the negative cash flow, I'd hang on to that thing for another decade.  I lived in Oakland for a year and never experienced anything like the rental market there.  You will have 100% occupancy and likely the same tenants for years.  Since there is such scarce supply up in that area of the US, I see it as a solid long term play.

However,

Maybe you could offer a lease option to a prospective owner?  Allow them to build equity for a few years or however long you want to hold, you get cash today as a non-refundable down payment, higher monthly payment to you, and none of your cash going towards capex, repairs, or property management.  This may be the best situation for you.  I know a lot of families in the Bay Area are struggling to find a place to buy and/or have the means to qualify.  This is where you, a hero, step in to allow them a path to home ownership.

@Doran Summers and @Steve Hiltabiddle

The owner decided Option #3 was best for him and his wife.  Of course, it's easy to look at that deal and come up with reasons why I shouldn't have overpaid for a property.  But the seller was cool with holding the note for 30 years.  It was also my first deal and wanted to get in the game so was cool over paying.  Lastly, he was only asking for $20k down so I viewed it as a win win for buyer and seller.  I don't plan on selling any time soon so the overpay was arbitrary.  It's now worth ~$300k.

Every situation/property is unique, especially if seller financing is involved.

"You're only limited by your creativity" is a quote I heard a few years back that has stuck with me since.

One recommendation is to offer 3 options with the owner.  I recently closed on a 4plex in Vegas that is a seller carry.  Terms were very favorable for me.  I offered the owner 3 different options:

Estimated Value: $245k
Down payment: $20k

Option 1
Purchase Price: $225k, 7% interest

Option 2
Purchase Price: $245k, 6% interest

Option 3
Purchase Price: $260k, 5% interest

I provide this example since I think it may be something for you to consider.  Maybe come up with 3 different options that you think are fair to the owner and present them to him...

@Nate Vil No there isn't correlation between more units and more occupancy

@Nate Vil The purchase price is low compared to Austin, Bay Area, NYC, but the market rents are really low too.  And be very careful with realtors who will say that rents are below market value.  These 4plex tenants can only handle so much rent and just because one unit in the surrounding area is getting $50/more per month doesn't mean all of the tenants in that area can start affording that increase.

Buy on current rents, not on what realtors are selling you.

@Nate Vil Here's the numbers on a 4plex at a $330,000 purchase price.

PITI with 3.5% down:

$2,167 / month

Let's say there is no work needed and the property is stabilized.  At best, you're getting $700/unit in rent.

So for the other 3 units, you are receiving a total rent of:
$2,100 / month

Seems great right?  Add a roommate and you're cash flow positive.  In the short term, yes this is a better option than paying $700/month in rent somewhere.  But now let's add in the remaining numbers:

I pay my utilities for my 4plex at:
~$220/month
I pay property manager:
$255/month

And there will always be repairs and capex to spend money on or to leave reserves in the event you need to fix something ASAP.

So let's set aside another $300/month for reserves.  Yes you will need this much.  A lot of 4plex in Vegas need work and an unexpected expense is likely to happen.

So now you move out and your total monthly is....

$2,167 PITI
$300 property manager
$300 reserves
$200 utilities

That's $2,967 / month in total expenses.  Assuming $700/month rent, you now have a property where you are extremely leveraged and negative cash flows.

@Nate Vil the multi family market right now is way too hot for numbers to work. If you're buying off the MLS, even if house hacking, the numbers will not be lucrative as an investment based off many people's standard of what a bottom line return should be.

If you're absolutely desperate to begin your real estate investing journey, have $15k to blow, then maybe putting down 3.5% on a 4plex in a C-/D neighborhood would be something to look into. But these things don't cash flow at the certain market prices and they absolutely will not cash flow if you ever move out with your PITI adjusted to a 3.5% down payment.

If you have a chance to grab a 4plex off market that needs a little work and you can add value through rehabbing it, then you'll potentially have a good property where the numbers 'will work'.

Side note: generally, when investors say 'the numbers work' they are alluding to at least 6-8% cash on cash return.