All Forum Posts by: Sergio Altomare

@Matt N. the lien comes with the property, so you either need to get it removed or paid, or you inherit it. This is why we always pay the water bill on Philly properties. 

@Kollin Buchholz I might suggest looking at it a little differently when it comes to a small multi-family that you will live in. As for the price, the market is dictating that, so it will need to appraise for whatever you agree to. Keep in mind that you are buying at the top of a market, so numbers are going to be skewed. If it truly is a long-term hold and you plan on living in there for a couple of years, then you have to factor in your desire to want to live there. What I mean by that is that you have to ask if you actually WANT to live there. Could you live in a place where the numbers worked better, but the place needed work, or had some other flaws that you didn't consider. 

The fact that you will be living for almost nothing is a great start to an investment career, so consider that when crunching numbers. 

Lastly, the only other main consideration is whether it would cash flow when you leave. Factor in the market in 2 years, and any other opportunity to maximize income and minimize expenses. Think AriBnb, etc. 

Good luck!

Investment Info:

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

Purchase price: $420,000
Cash invested: $130,000
Sale price: $680,000

This was a complete gut rehab of a triplex in what was an up and coming part of the Philadelphia (Newbold). Crunching the numbers and projected rent rates (my estimates), showed a cap rate of 8.2% and COC return of 11.5%. This was a syndication deal where we raised all of the funds needed to close & received a 5% sweat equity stake in the deal, with sponsor share escalators upon sale. We maintained management through the hold period, which included leasing commissions and management fees.

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

We knew the area had plenty of upside, and we also knew that our marketing of the property could get max rents, making the cap rate much better than the developer thought.

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

We had a relationship with the broker and developer. They knew we could close, so we had it under contract before it was even listed.

How did you finance this deal?

75% LTV loan through a local community bank. 100% of cash down was through 2 investors. 5.5% APR with 1 pt. Personal guarantee.

How did you add value to the deal?

Our property management strategy emphasizes quality listings and being ultra responsive. It being a new building with all the modern amenities made it easy to get the rents we projected.

What was the outcome?

The final distribution was as follows:
Net Proceeds from Sale $314,419
Account Balance Adjustments $18,822 (reserve funds, mortgage reserve, insurance refund, etc.)
Total Funds Available for Distribution $333,241
Disposition Fee - .05% of Sale Price $(3,400)
Return of Capital $(130,000)
Tax and LP Dissolution Reserve $(15,000) (funds set aside to dissolve LP)

Subtotal $184,841
Limited Partners Profit - 75% to Capital Contributors $138,630
Managing Partners Profit - 25% to Managing

Lessons learned? Challenges?

The biggest lesson I learned was that I was giving away some money by not having my RE license. I've since acquired it and used it to make "extra money" while we build our company. I should also include that it is extremely important to crunch your own numbers and not rely on information you are told. In this case the deal made even more sense because I knew that we could get more in rents than what was extremely conservatively estimated.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Just me :-)

@Hayden H. I had to split that $60 with a partner-contractor, so I consider the project a loss lol. Consider syndication investing for out of state interest, which is what we primarily focus on. 

@Hayden H. Looks like a beautiful job, congrats! Be sure to really dig into the numbers to get a better feel for your return. Hopefully your split was in your favor because a year is way too long for a flip. I made $60k on a 4 month project last year, but did not find the time value of money for it to make sense doing again. 

@Gibran Jones an LLC will be of help if you have a lot of assets to protect, but works against you if you finance property with it, as you will pay a higher interest rate on a loan. As for what else you need...a cash-flowing deal! Let me know if you have any more specific questions on this part.

@Patrick M. You can't open up a "Business" account without an EIN and Certificate of Organization, so a separate personal account is what you need. 

@Patrick M. You can't open up a "Business" account without an EIN and Certificate of Organization, so a separate personal account is what you need. 

@Adriana Diaz As David said, it comes down to inquiries, showings and feedback. Quality of the listing is vital, so be sure to look at it yourself (assuming it's being remotely advertised.) Also check Rentometer.com to be sure it is priced right. Lastly, exact location and layout are very important too. 

@Tomiko Graves I'm not sure what the ARV will be, but I did a flip on a $255k sale price property in a premier school district last year and spent less than 2k on the bathroom. If it's small and you can't make it bigger with a remodel then your return will be minimal. Consider replacing the toilet, vanity, light and mirror and then tiling over the floor and reglazing the rest of the tile. Neutral paint of course. See before and after pics of what I did.

The only other thing you may not notice is that we reversed the door to open out. This created the appearance of more space.