All Forum Posts by: Steve K.

The key might be in the County records. Can you look at the property tax records ad see if your building is in an HOA and deeded as 6 townhomes?

As for motivation, some sellers want to sell "as is" at a discount becuase it's easy. (the "I buy ugly houses" billboard must work on some folks...they could make more if they decluttered and painted, etc....but they don't.

A investor/seller might have deal-fatigue and just want headaches to go away. Could have inherited, etc

Such a plan could be profitable and attractive. I believe that your "volume discount" for buying 6 units might get you a deal. If they then can be sold separately, you now should have full residential/retail value (i.e more buyers looking for one home, than buyers looking for a 6-plex).

Can you look them up on Jeffco county records? They could be 6 individual deeds that happen to be owned by one investor. That would be easy.

Sometimes, a complex is owned by one entity and just for rentals.....one deed. It would then be difficult to divide an apartment complex into condos, for example and sell them off indivudually for the first time. (that is possible, it is done sometimes... requires new surveys/plats/condo hoa formation docs, etc.)

@Justin Minikes

You have an enviable starting point, Justin.

You have a degree/profession in the construction business, have 4 yrs experience and it directly applies to building or remodeling your own properties in the future. You have $30k in the bank (is there student loan debt?).....whereas most newbies on BP forums are trying to become REI with zero savings. So, you exhibit discipline (to live on less than you make) which will be an asset to you.

I'm a landlord for the past 5 years. One reason is that I make a decent return on my money. Restated, my tenants are paying 130% in rent for what they could be paying to own it. So, I'd encourage you to look at owning instead of renting, for your own residence. Have you read in these forums about "house hacking"? You could buy a quad-plex or duplex and live in one unit and rent the remainder units. FHA loans for owner-occupied (1 to 4 unit) residences can be as little as 3% down. I.e. your $30k down could be enough for a $200k or $500k property.

Next, I'd agree with the above posters, decide if you want to fix/flip for short term profits, or buy and hold (rental/landlord) for longer term wealth growth. Have you read about BRRRRR buy and hold?

Good luck. Learn all you can in your current job; don't rule out owning your own company some day....or at least, real estate investing on the side.

@John McCormick

BRRRR works in any market wherein you buy and rehab the property for around 75% of it's ARV. Then, upon re-appraisal, the bank loans you 75% LTV and like magic you get all of your cash back out to "repeat".

In my Denver market, competition for fix and flips is so intense, investors bid them up to about 85% of ARV. So, it's not easy to find a fully BRRRRR here.

But, 3 years ago, I did four properties in the $450k ARV range that all BRRRR'd, and yes the rent did cover the mortgage on the 75% LTV loans

Admittedly, there are more stories of BRRRR in the modest priced mid-west markets.

@Mohamed Berete

Welcome to BP. Looks like your first post.

It's worth a lot more to your "investors" than 1% fee. But, you may not be an experienced expert operator of this partnership?

It's not as simple as pooling $80,000 between you and buying the 1st property and repeating until you have 25. (and by the way, is your goal to own 25% of 100 units, or 25% of 25 units? If you're talking small properties, it's a lot of work to share 4 ways??? What if loans are needed in the future? will you be 100% on the hook for the loan, and let the "investors" have a free ride on risk of foreclosure?

Separately, listen to some podcasts on multi-family syndications. In this established industry, it's customary for a passive investor to earn 70% of the rewards and the manager makes around 30%.....but they have to have a proven track record before they can get that investor to trust in them. To repeat. The folks with the money get 70% (and contribute no day to day manpower), the manager has the vision, locates the property, closes on the transaction, arranges financing and oversees an onsite manager.....and get's 30% of profit (without putting any money into the down payment)

If you own a single family rental, you'd pay 6 to 10% of rent proceeds to hire a realtor to manage the property and tenants for you. Are you doing that job too, for the 1%?

@Jake Langley,

I was actually advocating the cash-out refi, Jake. If you're keen to grow a real estate portfolio, don't be so quick to decide to sell, just to extract your precious capital.

I'm an engineer by background. I build spreadsheets. When I start out making 30% IRR on a new rental in Denver (yes, I assume a modest appreciation of market value, in addition to a little monthly cash flow and tenants paying down my mortgage principle), projecting into the future several years, the growing equity (on an opportunity cost basis) gradually lowers the future IRR. (at a 50% LTV, I have 50% of my precious capital earning about 4.5% APR of what a mortgage would be) and half making the 17% IRR like yours.....I get a blended average of about 11%. Later, it declines more until, when the loan is paid off further, I get down to arround 6%.

All of the REI's here on the forums are "adding" to their portfolios....they aren't selling one to acquire another. But they do cash-out refi to extract their equity to be able to buy more rentals. (BRRRR investors in particular, are seeking to use maximum leverage).

@Jake Langley

Jake, this is a problem not often spoken of in these forums. True, you are making 17% cash on cash on your initial $35k investement ($6k annual net/$35k). 

However, you then say that over the past 2 years, the SFH has appreciated by an additional $65k (either due to your remodeling or general market appreciation or both).

If you hold on to this investment, you really are passing up the opportunity to extract $100k (omitting transaction costs and income tax due for simplicity). There's an economic concept called "opportunity cost". You should now think of this like you have made a $100k down payment to acquire this property. Now, what's your return?

$6k/year net rent / $100k equity = 6% return.

So, you used to make 17% cash on cash (because you had very little cash in the deal and had more leverage), now you have more equity in the deal and it's reducing your returns.

If you refinanced and could extract the $65k extra (assuming your original $35k down would be enough equity for proper LTV), could you get back to 17% IRR?

Would you keep this property if you burdened it with $65k more loan (and higher monthly payment?)

Then, take the extracted $65k cash and go buy another rental? Perhaps with BRRRRR strategy?

@Justin Mitchell

Have you searched the forum posts on "house hacking"? That's what you're doing with obtaining an FHA loan to buy the duplex, living in one half and renting the other. You can achieve the same or more with a triplex or quad-plex....with FHA loans available on 1 to 4 unit residences. If you have more down payment, maybe you could go for a quad?

I understand that after living there for one year, you'd be eligible to buy another property with an FHA loan; perhaps you keep the first duplex or quad for a complete rental, and go "hack" another?

@Matt Ferch

You're correct on the math. If you kept your full 401k invested, and the mutual funds happened to yield 6.5%, the incremental $50k left in the account would appreciate 6.5% and it too would be fully taxable when withdrawn.

If you borrow $50k, you pay back the 6.5% and it too goes into your 401k and is taxable at a later date when you withdraw. Yes, it will feel like you're paying 8% APR or so, due to taxes.

What are your alternatives? In your net worth, is there home equity that's less costly to access? The one time I used hard money, it was 10% apr and 2 points for 6 month loan....the lender was making 16% APR annually.

Note, some will argue that they are in real estate because it beats the stock market. Some like real estate because they don't trust the stock market. Some will even advocate liquidating your 401k and investing in RE.......with the idea that leveraged real estate can make 15 to 20% cash on cash and over time, you'll make up the difference. Most of these advocates, however, won't advise you to give up "matching" 401k deposits (if your employer offerst that)

Turo, I'd encourage you to re-analyze your last rental. Read up on Bigger Pockets. Check out the rental profitability calculators. I'd challenge you to really look at what the "cash on cash" return was for that house? It would have been higher with a 30yr loan and minimum down payment. (more leverage).....if you're comfortable with more debt.