All Forum Posts by: Steve Morris

I think if you start screening people for anything other than credit score, you're asking for trouble.

If someone has a good credit score, why would you turn them down?  Corona only has a certain life span and people can catch it 10 minutes after they move in.

Besides, the next few months may be a fight for good tenants, I wouldn't act hastily.

Beware YELP, those reviews cost.

"It would be a stretch but not impossible. Are SBA easier to get right now?"

Well, based on the PPP program, they're flush with money :)

SBA loans are favored by banks since SBA will ensure a major chunk of the loan which lays off a lot of risk for the bank.  Property just needs to be >50% owner-occupied.

"my section 8 rental has been almost no work since I have a strong pm that takes care of everything and only calls when they need me to pull the trigger on a larger maintenance issue. I make less cf but I put less effort into it (ymmv)"

Count yourself fortunate to get a good tenant, the same thing goes for market-rate stuff with a good tenant.  Being a good tenant isn't related to having a Sec 8 voucher and may actually be a negative since rent is mostly (excepting the copay) not the tenant's out-of-pocket money.

LIH? AMI?

WIth income-qualified properties (i.e. tenants at lower rents 60% AMI = they can't make more than 60% of median income), your income on a similar unit (vs. market-rate) will be lower even with vouchers.

Yet your expenses will be the same.  Plus, since LIH usually requires more compliance paperwork, mgmt will be higher (most market-rate mgrs charge 8% of gross vs. 13% for LIH mgrs).

This gets reflected in the pricing since LIH units are anywhere from 25% to 60% lower $/unit based on NOI of each.

I'm not knocking the need for LIH at all, but it's a lot less wieldy animal to manage and profits are lower.  There are very few for-profit owner/operators.  Most o/o are non-profits or housing authorities.  Plus they usually need a tax break of some kind or tax credit financing for debt.

Section 8 is a HUD funded program. They give funds to local housing authorities to distribute as vouchers for individual tenants. The HAs determine who gets the voucher and for how much.

If you have a use restriction on your property as LIH, the HUD limits (assuming 60% AMI which is most) set max rents they'll support. However, those rents may be market, but if the tenant pays for electricity or water, you need to back that out of their rent (utility allowance).

Tenants are not supposed to have a co-pay >29% of qualifying income and the voucher addresses the difference.

For a small investor, I wouldn't target them since I stated the major rules, but there is paperwork if your property has a use restriction requiring income qual. 

However, (at least in Portland) you can't turn down someone for source of funds, so a voucher is part of that.

"$5200/month in rents ... Based on my figures of (NOI/CAP) - the building is worth 425-450K so I didn't think getting 320 was too unreasonable. I am going to sharpen up my request packet and contact more lenders."

1) Need to address LTV so a lender will need an appraisal. If $450K is the appraisal, $315K loan = 70% LTV.

2) Need to figure DCR (Debt Coverage Ratio) - At $315K and 3.75%, 30 years = $1459/month, assuming your rents are NNN, then meeting a DCR > 1.25 should be easy ($5200/$1459 = 3.56).

3) I'd hold off until COVID sorts itself out (EOY?).  Banks are risk averse and even if the cost of money is cheap, they'll raise their margin as a risk-adjust - Which raises your rate.

Any chance you occupy >50% of the building?  SBA loans are great and banks like doing them.

Kevin Pfeil - "I'm curious what your thoughts would be for someone in my shoes on how they should go about getting involved in Real Estate Investing?"

1) Get a mort broker and figure how much you can buy. On loans, I get buyers all the way from Dave Ramsay who says you should owe ZERO debt to the nothing down guys. I understand Mr Ramsay is great for the 90% of people that don't manage credit well or spend on fool-hardy things. However, for the 10% that do get it, using other people''s money allows you a lot more leverage plus any upside in price goes to you. I'd say figure on 70% LTV. Lower means less leverage of OPM and higher means more property but less CFBT for emergencies.

2) Make sure you understand the fundamentals of rental properties and how money is made.  I'm not supposed to self-promote, but wrote a free 80-page book on buying apartments.  You can DM or whatever is secure to get an eMail address I can send a PDF to.

3) If you do decide to go remote and have a prop mgr - When you own a property, I really prefer people that are involved at a high level. Prop mgrs should take care of lower level things like local lease laws and minor repairs and leasing. I think the discussion you have with them should be" What are the 3 (or whatever number) things we're going to do to increase NOI?" That's the basic discussion so you can decide on CapEx, enhancing tenant appeal, planning on future spending.

4) If there is a city you want to buy in that is growing in a good way (I'm not real crazy about LAX/SFO for example) and want to be there (I think SE USA is good growth), then pick a city and talk to a broker there.  There are good neighborhoods (they are growing, the income/employers are there also and not much competing inventory) and bad neighborhoods.  PHX and LV are examples of this.  I'm a big proponent of buying cheaper and upgrading to increase your equity.

Anyways, that's a lot to start, but let me know if other questions.

Well, you can't beat CRE for tax-sheltered income. I guess if you can get past that, then the next question - Are apartments a safe investment?

In sum, if apts have 10% vacancy, it's Armageddon. Any other type of CRE (industrial, office, hotels, retail) would kill for that return on average.

Primary question - Are you doing calculations based on REAL ACTUAL operating info reflecting real rents and actual expenses for a recent period like the past year?

Do NOT rely on broker ProForma, that's what the property could be - Not what it is.