All Forum Posts by: Justin Thompson

Originally posted by @Robert Haviland:

1.) Identify a more run down multi-family property that I can acquire for a better price in a upscale section of the city and use 203k loan to finance the rehab and increase rent value/property value.

-- Have you looked into 203k loans? They are a nightmare. You have to use approved contractors and what not. From my experience, once you rehab the property, you owe basically what market value is. You're  not going to "leverage" this property to gain more ground in investing because you will have very little equity.

2.) Identify a more run down multi-family property that I can acquire for a better price in a decent area more suited to my price range and use FHA loan to acquire the property and 203k loan to finance the rehab to increase rent/property value.

--Same answer as above. If you're looking to do FHA. Find a turn-key property or one that you don't have to do a 203k loan with.

3.) Purchase a turn-key multi-family property that I can afford to put a down payment on with conventional financing in a decent area more suited to my price range.

--I would look for a decent almost turn-key 4 family. Put down 20% and be ahead of the game. Then when you look for your next investment, you have paid down some principal, bank sees you have 20+% equity in your current property and you have good cash flow. Will be easier to qualify for the loan. If you do the 203k route, I could see you ending up in a situation where you haven't gained any ground.

My thoughts would be how committed is your relationship for the long run?  Reason being since its just bf/gf is you're jointly on the loan and you two go south, things will get real messy. Same thing in a marriage except there's a certain security in my wife and I signing the loan as she is, my wife. I would never sign a loan with a girlfriend/boyfriend. I have had friends that dated years, bought a house together as boyfriend/girlfriend and man oh man did things get wild when things went down hill.

I would look at your own personal financial situation and see what you can do if left to do this solely on your own. I would find a duplex that you can afford on your own and rent the other side out. Then as time passes and you look to move onto another home, you rent out your side and that becomes solely an investment property.  For investment purposes, I know some have utilized minimal down payments and made it through life just fine. If you're looking to get into real estate, I would suggest buying the property where you put more money down.

I look at it this way from your question: If you're going to buy a duplex and rent out both sides, stay in your moms place.. then rent a condo... You're not gaining any ground there.

Duplex Rent: $1000 per side lets say... gross rents $2000 per month.

You live in 1 side... $1000 per month gross, you live "free" lets say.

Option #2:

Rent both sides out for $2000 a month.

Rent condo for $1000... you're back to $1000 a month. That's just me though. I would live easier having the tenant paying everything and have the living "free" life style. Worst case scenario... duplex ends up vacant, now you're making your condo monthly rent payments PLUS the mortgage, taxes, insurance and what not on a vacant property. Now you're losing $2000 a month income and paying out your $1000 in rent. If you live in one unit and the other unit goes vacant, well then you're only making 1 mortgage payment, and once it's re-rented you're back to break even status.

Just my thoughts! Good luck on your adventure!

Hard money is expensive but can work depending on how you structure the deal. I wouldn't ever want to give up 50% of my profit but that's me. I've had success in using "private" money which is different but similar to hard money.

If I don't go to my lender and I use my private money connection I ask my lender once it's rehabbed etc. will he loan me on it? 9/10 it's a yes. What he will do is get a "subject to" appraisal done. If the appraisal is good and is around 75% LTV after repairs are made he will give me a commitment letter. I go to my private money guy say I can do the work in say 60 days, my lender will refi it and you'll be paid out by such and such date.

Private money guy provides the cash in a joint LLC I have formed with him. He will give me 100% purchase price and fund some of the rehab or require me to float the rehab. Once it's fixed up, the appraiser comes back out, inspects does a 1004D that all work is completed as plans/specs stated. Close on the loan with my lender, private guy is paid out and no money came out of my pocket except for rehab if I structured it that way.

I wouldn't structure a deal where the property is going to be held jointly by me and someone else. I may partner to fund the project, but at the end of the day, my goal is to be the only one in control once everything is done.  A joint partnership can work, but you have to structure the partnership on who pays for what, when and how profits are split, who makes the decisions etc. Having 50/50 control will end up in a broken partnership. Someone has to have control.

If I had to structure a deal where we share cash flow/losses/costs etc. I would do something say a property has $300 net cash flow, I would offer $100 per month regardless to the other person and I keep the additional $200 profit. However, I maintain the property, pay for repairs, market it for rent etc. They hold the debt service in their name solely and structure the deed that both people have rights to the property. That's just my thoughts on that though.

Joe,

Another thing I didn't mention above... If you are constantly flipping houses and have consistent track record, you have another option.

Say your current portfolio is $200k in houses that are paid for in cash, they can issue a line of credit on your properties in your current portfolio which you could then pull that cash out to buy more places. Once you sell one, the bank will want it replaced with another property, but if you are consistently buying/selling then that shouldn't be a problem for you. Just make sure if they hold say 5 properties as collateral you set up a amount that each property can be released for if sold or structure it at least for the bank to release it with no money paid if you substitute it with another property. that keeps the cash in your pocket

Joe,

Go commercial, don't go residential mortgage route and here is why:

Find a local lender that keeps the loans in house. Put together a package showing the properties you want to keep as rentals and the potential returns expected. Find a local "portfolio" lender and take a shot at them. I have 5 units, with a 6 set to close in a week or so and I have no "residential" loans. All my loans are in my LLC's name and nothing on my personal side. I don't deal with Fannie Mae/Freddie Mac. Most members I've seen advise to get 10 loans in their personal name and then blanket loan the properties to free up space to add a few more rentals. My advice is find a local bank that will keep the loan in house and start with commercial loans from the get-go.

Going commercial keeps the loans in the LLC name. Yes, you have to sign on the loan but it keeps it off your personal reports. All my loans are 15, 20 year amortization under $100k amounts. Over $100k they go max of 25 year amortization. I will only ever go commercial loan route. Dealing with the residential side you will deal with loan officers who have no clue what they're talking about. All they know is this way or no way at all. Get yourself a good small lender and you'll have no problems.

I've done 3 deals in the past 2 months with no money out of my pocket with 100% of the rehab money provided and I pulled out $11k at my last closing for myself. 

Jon,

I've had contractors request as much as 50% upfront! What I typically do if I am providing materials and they provide labor is I'll front the material cost. I make sure though I pay for the material and I am there when it is delivered. Then after the contractor has done A, B, C I have them submit me a draw. I will NEVER give a contractor money upfront. I made that costly mistake once before when I first started and the guy burnt me for almost $3k.  Now if the contractor requests money upfront and demands it... that tells me (could be wrong) he doesn't have a company that has enough cash flow to pay his workers before he gets paid.  Now if you can't front materials upfront and are relying on him to supply labor & materials then I'd find a well established company that does that regularly. From my experience most contractors can't afford to buy materials and pay their guys.  So if you can buy the materials and make them complete the labor part then get paid that's the way to go. I warn you to not give someone money before a projects started or complete.

I tell every contractor I work with, even if I am doing a rehab in all cash no bank involved, that I am required to submit a draw request to my bank before the funds are released. Make sure when you do pay the contractor they give you a Lien Release/Waiver form notarized and signed.  This way they can't come back on you in 3 months and put a lien on your property stating they were not paid.

If he is insisting on money upfront... I'd find someone else. I have turned and burned dozens of contractors because they all give you the same story.  "do you know how much I spend at xyz company or do you know how many houses I rehab... My favorite is the "I don't need your work, I am doing you a favor, I have so much work I'm overloaded." Now I have a great set of guys I can call on, no money up front and I pay them within 3 business days of completed work.  I require the work to be done and a few days to inspect it with out them breathing down your neck.  This has worked out great for me.  I'm in the process of a rehab currently... Just had roof installed, HVAC done, gutters & soffit, interior demo... I didn't pay a dime upfront. After work is completed and they have their lien release/waiver signed and a few days passed I pay them.

@Theresa Sanford

I have had great success of what you already mentioned which is painting the exterior.   Personally my opinion to add a sharp, crisp curb appeal would be to paint the exterior a tan color, white trim, white doors with black shutters for the windows.  I can't see much from the photos, but those window unit air conditioners don't help the building. Not sure if you could replace those with smaller, more efficient window units that would take away from the bulkiness of the existing units.

As far as waiting for the tenants to move out before renovating I'd suggest the opposite.  I would go in and rehab all the vacant units and see what the increase in rent is. If people are paying $400-$450 for non-updated units with a neglected exterior building, what are the market rents for a similar updated and well taken care of property?  If those units rent for say $550 average, then after renovating and renting out the vacant units, I would renovate all the rented units as well and increase the rents. That is if leases are not in place preventing that.  If they choose to move out, then rent the freshly renovated unit for the new higher rent.  That is just my opinion though.  For not wanting grass, I have seen a few properties in similar areas with the "yard" being different types of stone/decorative rock with minimal landscaping throughout. Not sure if that could work for you or not.  I would pressure wash all the concrete sidewalks & walkways.

I recently bought a duplex where one side was paying $450 and the other unit was vacant.  Within a few weeks I had the other side renovated and rented for $550. I told the inherited tenant that came with the building I was going to be redoing their unit and increasing the rent to $550 or if they did not want the full renovation I'd do a few updates/upgrades and rent would increase to $500 (they had no lease in place).  So I kind of gave them an option to choose which they wanted.  They ended up moving out literally over night ha.  I rehabbed that side and increased the rent to $575 for that unit. 

Hope that helps some!

Justin

A new 2 ton unit with new a-coil & line set installed here runs me: $1600-$1800. I am only 1.5 hours from Indianapolis, so that should be a similar price point.  I've bought the units before myself and had them installed by a guy as well to save on the markup on the equipment.

I just spoke with a long time real estate agent and received great advice on what I asked above. After talking with him, I think my original plan which is to appraise and build the rental portfolio at the same time is probably the smartest route to take. I'm open for others advice/suggestions!

Hello All,

I am having an over analysis with myself going on and I'd like others opinions. In a year or less if things go to plan, I'll hold a general appraisal license... but I am rethinking things.

I've never given the sales person's license much thought till recently and I am quite shocked at myself for how excited I am about it. I would love to create a sales team and just kill selling houses while I still aggressively invest. That's a whole different topic though of discussion. I know the pros/cons side of things, mainly want another perspective.  I have a natural ability of a sales person as that has been what has made my last few deals go through. Having the appraising experience has earned me credibility with the lender, my sales/negotiation ability has propelled my deals.

I am so close to the general license that a part of me wants to finish even if I wanted to become a gardener. I have already given appraising so much time/energy. I only have a 2 courses left to take which I need anyways for CE. Also, I have positioned myself to earn into the 6 figures with appraising alone. However, I am really whole heartedly liking the idea of becoming an agent and start really investing more aggressively... and leave the appraising behind. It's difficult though as giving up appraising is giving up a 6 figure income.  But I also believe I could make a far greater amount of money by becoming an agent, creating a killer team and investing the way I want to.

Plus, if I gave up the appraising license and just held the agents license while investing, that's a big relief of personal liability I'd be rid of as well. That's another topic for discussion though.  Please help! ha! I have a few choices for brokers as I have been asked a time or two but haven't ever gave it thought till now!  I have a few brokers that would be more than willing to sponsor me if I did decide to do this. I also have made many connections with people that would really help with marketing myself as an agent and actually be successful at it. I would be gear myself for being a listing agent, I would NOT repeat NOT be a buyers agent. No way you could ever get me into being strictly a buyer's agent.  Now if I created a team, someone could do that ha! I know starting out take what you can get, but long term buyers agent isn't for me!

Any responses would be great!