All Forum Posts by: Timothy Doenges

Hello! I’ve found a home in a relatively good neighborhood, near the local college. The lot is zoned B-1, which in the area means it supports multi-family, but has a single family house on it currently. I’m looking into the viability of a building a second structure on the back of the lot that would face a back street. Only potential problem is this: the lot borders a funeral home. Has anyone here managed multi units beside funeral homes? Does it attract any different quality of tenants than, say, a multi family a few blocks away? Have there been any unique challenges related to owning a property in this type of location?

We’re about to close on a vacation rental property, and one of the ideas we had was to set up a twitter account for the properties for grass-roots marketing purposes. On a few of the household items (e.g. bottom of mugs, inside the lid of board games, etc.), we would have a sticker that said something like “tweet a picture of you using this product to @____________ and get 5% off next stay.” By doing this, we basically hit all of that person’s social media followers with marketing, promote family values by customers either eating in or having a game night, and also encourage follow-up stays and repeat customers. I feel like it is worth the 5% of next stay to target a group of people that we likely wouldn’t be able to reach with marketing otherwise.

Any interest among your teammates to be money partners in a multi family? If you get some high-pay players in on the deal, you might be able to get into a good rhythm of buying with teammates’ money, rehabbing, renting, refinancing out of the private money, and finding another deal!

It would matter on the refinance. I need the reno value higher to cash out to pay off the hml, but that fifth unit would put me into commercial loan range. Should I do the first option, then get a construction loan or LOC to do the fifth unit conversion, treating them as separate transactions?

Great point—I would have to look into that. I will say, though, that in my area l, real estate websites are not always super-accurate, and a lot of real estate agents are either not computer-savvy or are not putting in a ton of effort. In the property description is where the 3-unit conversion is listed, but property type is listed as Single-family in the property stats. Would I have to check at the county assessor office to see if the conversion was permitted? Or what is typically the most accurate source for permit data?

*originally posted in commercial forum, but it was definitely in the wrong spot*

Hello all!

I'm posting to MF Commercial forum because I'm interested to hear your thoughts on a deal I'm trying to analyze now.

I found a MLS listing for a 6 bed 5 bath home in my target market, listed for 160k and in really good shape. After looking into it, it seems that the home was converted into three units, and there is a second free-standing 2bed 1bath on the same lot behind the larger home. It almost seems like it was an old bed and breakfast with an owner house behind it. I believe that leaves the three main-home units as 2bed2ba, 1bed1ba, 1bed1ba. Looking into this as a straight rehab-rent situation, I would end up with four units, the 1bed1baths for around 600 each, the 2bed2ba for 750, and the free-standing 2bed1ba for 750. This comes out to 2700, and the deal looks pretty good at that mark, knowing the entry point of 160k. Of course, this is assuming I purchase at list price, but the home has been on the market for almost 2 1/2 months so I may be able to come in at 125-130k and negotiate from there.

However, the main home also has a large unfinished basement with an external entry. I was thinking about doing a BRRRR strategy on this property by renoing the basement into another 2bed1ba unit. Depending on electric/plumbing situation, I would look to put around 30-40k into setting up this fifth unit, but I'm thinking it might not be worth it since this would move me from 4 units to 5 units and I would no longer qualify for residential financing options. However, the benefit I see here is that the four units that are already mostly set up would almost eliminate the "holding cost" period of the HML so that I could build out the fifth unit while the four are covering HML expenses, and I think the fifth unit would more than cover the difference in cost between the pricier 20 year commercial loan versus the 30 year residential loan.

What are your thoughts? Would you reno the basement, get another unit pumping rent, and have a bit higher rate over 20 years for the commercial loan, or leave it at 4 units and take the deal as is? 

Fourplex Rental Stats: 

Purchase price: 160k 

Reno on 4 units: 10k, cosmetic 

Loan stats: 20% down, 5% interest, 30 year mort Rent: +2700/month, a conservative estimate for the area 

Property Tax: -182/month 

Power: -400/month 

Water: -160/month 

Trash: -50/month 

Utility Billback: +300/month (I assume the utilities are not split, so I would eat power/water and bill-back a $75 flat rate utility fee per unit) 

Vacancy: -270 (10%) 

Prop Mgmt: -270 (10%) 

Cap Ex: -135 (5%) 

Property Insurance: -150 

Growth assumptions: 2% / 2% / 2% Sales expenses: 8% _______________________________________________ 

Cash flow: $396/month 

Cap rate: 8.13 

10% CoC return

Five-unit Stats: 

Purchase price: 160k 

Reno on 4 units: 10k, cosmetic 

Build-out of fifth unit: 40k 

ARV: 258k assuming 8 cap in my area

Loan 1 stats: HML for purchase and rehab, 12% interest, 2 points

Loan 2 stats: (193,500, assuming 75% LTV), 4.5% interest, 30 year mort

Rent: +3450/month, a conservative estimate for the area 

Property Tax: -182/month 

Power: -500/month 

Water: -200/month 

Trash: -50/month 

Utility Billback: +375/month (I assume the utilities are not split, so I would eat power/water and bill-back a $75 flat rate utility fee per unit) 

Vacancy: -345 (10%) 

Prop Mgmt: -345 (10%) 

Cap Ex: -172.50 (5%) 

Property Insurance: -200/month 

Growth assumptions: 2% / 2% / 2% Sales expenses: 8% _______________________________________________ 

Cash flow: $602.50/month 

Cap rate: 11.9% 

30.2% CoC return

Thanks for taking the time to check out my deal!

Tim

Welcome to BP! Real estate agent and aspiring RE investor in Southern WV here. Glad to see more ‘neers round here!

Hey all! Thanks for the great insight on finishing out the basement but not setting it up as a fifth unit. I’m wondering how far I can finish it without it being counted as a unit? Is a rentable living space a “unit” only when I as the owner say it is? Also, I wonder if I could find a way to make it a rentable space without it being a “unit” per se? How about a rentable common space for parties, sports events, game nights, etc? I could get away with a kitchenette and bathroom install, then could just frame out a bedroom and closet when I want to convert to a fifth unit. Has anyone had experience in renting out a common area like this — does it seem to generate income without causing too much extra headaches? Is the upkeep and cleaning worth it?

Hello all!

I'm posting to MF Commercial forum because I'm interested to hear your thoughts on a deal I'm trying to analyze now.

I found a MLS listing for a 6 bed 5 bath home in my target market, listed for 160k and in really good shape. After looking into it, it seems that the home was converted into three units, and there is a second free-standing 2bed 1bath on the same lot behind the larger home. It almost seems like it was an old bed and breakfast with an owner house behind it. I believe that leaves the three main-home units as 2bed2ba, 1bed1ba, 1bed1ba. Looking into this as a straight rehab-rent situation, I would end up with four units, the 1bed1baths for around 600 each, the 2bed2ba for 750, and the free-standing 2bed1ba for 750. This comes out to 2700, and the deal looks pretty good at that mark, knowing the entry point of 160k. Of course, this is assuming I purchase at list price, but the home has been on the market for almost 2 1/2 months so I may be able to come in at 125-130k and negotiate from there.

However, the main home also has a large unfinished basement with an external entry. I was thinking about doing a BRRRR strategy on this property by renoing the basement into another 2bed1ba unit. Depending on electric/plumbing situation, I would look to put around 30-40k into setting up this fifth unit, but I'm thinking it might not be worth it since this would move me from 4 units to 5 units and I would no longer qualify for residential financing options. However, the benefit I see here is that the four units that are already mostly set up would almost eliminate the "holding cost" period of the HML so that I could build out the fifth unit while the four are covering HML expenses, and I think the fifth unit would more than cover the difference in cost between the pricier 20 year commercial loan versus the 30 year residential loan.

What are your thoughts? Would you reno the basement, get another unit pumping rent, and have a bit higher rate over 20 years for the commercial loan, or leave it at 4 units and take the deal as is? 

Fourplex Rental Stats:

Purchase price: 160k

Reno on 4 units: 10k, cosmetic

Loan stats: 20% down, 5% interest, 30 year mort

Rent: +2700/month, a conservative estimate for the area

Property Tax: -182/month

Power: -400/month

Water: -160/month

Trash: -50/month

Utility Billback: +300/month (I assume the utilities are not split, so I would eat power/water and bill-back a $75 flat rate utility fee per unit)

Vacancy: -270 (10%)

Prop Mgmt: -270 (10%)

Cap Ex: -135 (5%)

Property Insurance: -150

Growth assumptions: 2% / 2% / 2%

Sales expenses: 8%

_______________________________________________

Cash flow: $396/month

Cap rate: 8.13

10% CoC return

Five-unit Stats:

Purchase price: 160k

Reno on 4 units: 10k, cosmetic

Build-out of fifth unit: 40k

ARV: 258k assuming 8 cap in my area

Loan 1 stats: HML for purchase and rehab, 12% interest, 2 points

Loan 2 stats: (193,500, assuming 75% LTV), 4.5% interest, 30 year mort

Rent: +3450/month, a conservative estimate for the area

Property Tax: -182/month

Power: -500/month

Water: -200/month

Trash: -50/month

Utility Billback: +375/month (I assume the utilities are not split, so I would eat power/water and bill-back a $75 flat rate utility fee per unit)

Vacancy: -345 (10%)

Prop Mgmt: -345 (10%)

Cap Ex: -172.50 (5%)

Property Insurance: -200/month

Growth assumptions: 2% / 2% / 2%

Sales expenses: 8%

_______________________________________________

Cash flow: $602.50/month

Cap rate: 11.9%

30.2% CoC return

Thanks for taking the time to check out my deal!

Tim

A manual way to look at the numbers would be to take the monthly rent, subtract away all the expenses (not including mortgage) and take x12 to get net operating income, or NOI. Divide by purchase price to get Cap rate. With your numbers, not counting mortgage, I have rent of 1850/mo, minus all non-mortgage expenses, which comes out to 731.67 net income per month. That comes out at 8780.04 annually, or a 7.02 cap at 125k purchase price. This, of course, is almost entirely eaten up by financing. If you don’t have a safety net / cap ex fund, you are running the risk of getting knocked out by even a minor expense early on. I probably would avoid this deal, especially if you have any question about one of the inherited tenants. A couple late/missed payments and/or an eviction could cripple the deal.