All Forum Posts by: Matt Lefebvre

Thanks @Axel Ragnarsson!  Happy to help you out @Peter Plourde.  Sold lots of investment properties around southern NH!  Feel free to send me a message.

@Jonathan Bombaci properties will oftentimes have upfront capital expenditures that need to be taken care of that don't necessarily add a substantial amount to the bottomline.  You should be measuring this property by a few different metrics.  For example, you've already analyzed the cap rate difference from $320,000 to $420,000 because of the capital items you have to spend money on... this has compressed your cap rate from 15% to 9%.  

What is the difference in your cash-on-cash return? If you were initially pulling a $25,000 annual profit from the property based off of a $95,000 downpayment (or a $35,000 downpayment + $10,000 closing costs so a $45,000 cash-in because of the credit) then you were looking at a ROI of 55%. That's a fantastic number! However, because you have $100K of capital items looming, assume you fund your capital reserve by $100,000 in year one (for simple math). That means your upfront cash-in is now $145,000 rather than $45,000. Comparing this to your $25,000 annual cash flow, that means your ROI is now 17%; which is certainly not a bad number.

You don't have the cash in your bank account to invest $100K upfront though. Which means your "cash-in" costs might be $45,000, and the $25,000 profit needs to be invested into your capital reserve fund every single year. So your ROI drops to 0% for 4 years. Assuming all of these pending repairs can actually wait for up to 4 years without penalty or failure, that puts your breakeven point at the end of Year 6... which translates to an IRR of 13%... a little low considering the amount of time you have to wait to get your money back, but not the end of the world.

The above assumptions are also independent of the fact that in addition to spend $100,000 in capital items over the next 4 years, you still have other capital items that will creep up during that time.  You still have to fund your capital reserve account at a normal rate so you don't get stuck in this situation again 10 years down the road.

In summary, does this make sense?  That depends.  

If your target exit date is 5 years, absolutely not... you're still in the red.  

If your target exit date is 10 years?  Maybe... since you have recouped your investment and have had a few years of good profit... but you have to be okay knowing that you're doing a bunch of work for NO money for 5 years

If your target exit date is 20 years?  Still maybe... because you haven't defined the condition of any other capital items that will come up and what your desired return is.

You can't rely upon appreciation in Northern NH, so you might be stuck holding onto this one for the long term if you want to try and sell it for more than you bought it for plus all of the money you spent on it.  

@Kim Phillips I'm an investor-friendly Realtor that has never owned a property in my life.  You do NOT have to own properties or do deals yourself to be able to work with other investors.

Investors look for:

• market knowledge (Know your market better than anyone else!  Be an expert!  You can substitute experience for market knowledge by spouting off a bunch of accurate data about absorption rates, comparable sales in a neighborhood, finish levels of renovations, etc.  People respect knowledge.)
• experience (If you have a history of completing deals successfully, either for your clients or yourself, experience is very helpful to share.  Client testimonials are the BEST way to show your skills)
• shooting them straight (Don't tell people a deal is going to work if it won't.  Investors hate being sold to but love buying things that make them money.  I tell my clients 70% of the time a property is a bad deal, 20% of the time its okay, and 10% of the time they should pull the trigger)
• and the ability to bring deals to the table (Opportunities that no one else knows about are the lifeblood of a deal-making investor!  If you can give them a heads-up about properties you're listing or point them in the direction of off-market deals, you're going to stay in that investor's book!) 

I'm young enough to look like I'm in high school (just look at my profile picture!), have never owned a house... let alone an investment property, but have sold over 250 units in the last 12 months.  "I'll only work with someone who invests" is just an objection that people throw at you that can easily be overcome by any or all of the items above.  Best of luck being an "investor savvy Realtor"!  It can be a lot of work but is very rewarding!  

Unless you have a killer deal with some lender (if so... introduce us!), the financing numbers you have assumed are far too generous. More likely you have a 75% LTV with 25YR amortization at 5.25% interest rate over a 5YR term. Or possibly an 80% LTV with 20YR amortization at 5.25% interest rate over a 5YR term. Monthly P&I based on asking price is more likely to be ~$4,500/mo rather than ~$3,500/mo.

Also no expenses included for lawncare, snow removal, property management or water/sewer bill.  Vacancy should be factored in at least 5% in a very high demand rental market and 10% in a balanced market.  

This isn't a deal that makes money at face value... and even based off of your numbers that's a pretty low cap rate.  

Hi @Sean Maiden, I'd second what Frank said... Foreclosure auctions are not the way to buy your first investment property unless you have a lot of experience, a lot of capital, or both.  The number of foreclosures has been shrinking a lot since the 2009-2012 time period and we're seeing only a fraction of the inventory available.  Further, more people are confident now because the economy is doing well so they're more willing to pay higher prices to buy on speculation.  Low supply + high demand = tough to make money

Your first deal doesn't have to be a home-run, especially if its functioning as your primary residence.  As I mentioned above, unless you have good experience, lots of capital, or both... its going to be a challenge finding a good deal, or get one from a wholesaler, or try to source your own off-market deals.  I'd encourage you to look in an area that has properties with breakeven to slightly positive cash-flows, but strong appreciation because of the quality of the neighborhood.  In the long-run, those properties will be easier to maintain, perform better, and be easier to sell when you eventually choose to do so.

The only market I can speak with any experience about is Nashua.... not familiar with Lowell, Worcester, Pawtucket, or Providence to lend my opinion on those.  

@Ann Bellamy is THE hard money lender to call for NH!  Hard money lending is not your best choice for multifamily buy and holds.  Residential loans for smaller properties or commercial loans with a local bank for larger properties is your best choice.  Hard money lending is for deals where you need a large amount of money available and can turn around a quick profit by paying off the loan in less than 12 months.  AKA flipping houses :)

Good morning @Andrew Warde!  Apparently, both of my go-tos were already mentioned here... so I'll throw in recommendations for both @Aleah LeBlanc and Paul English (per my friend @Richard Dale-Mesaros)! They are fantastic to work with and have done and am actively doing business with both.  

I've worked with Aleah for quite a few residential investment transactions (in fact, she was the closing agent on the first two-family I ever sold a few years ago!).  She always provides top notch service, a really smooth process, and is a wealth of knowledge.  She's serving as the title company for a client of mine who is acquiring a two-family from Fannie Mae (which is no shortage of paperwork!).  

I've only had Paul close one deal for me before, but he has served as legal counsel on numerous deals I've worked on and is fantastic for particularly large and complex transactions.  He has an incredible amount of experience and really understands how to best help the client from a legal perspective.  He's currently serving as legal counsel on a multimillion dollar portfolio sale for a seller client of mine.  

My strong recommendations to both!  Reach out to me if you have any other questions or are looking for other recommendations!

@Frank Bonzai Look for something more realistic than a 10 cap.  50+ unit apartment buildings don't sell at 10 caps... at least not in my market.   All of my deals in that size range from a low 6 to a low 7... the only exception is a 76 unit deal I'm selling in an economically depressed town with very low property values, 150+ year old buildings, and this being a portfolio of 12 buildings spread out rather than just one (or a self-contained community).  I'm selling this at a "12 cap" but that's not factoring in the extremely high capital expenditures that come with maintaining (and improving from their current condition) 150 year old buildings.  

If you have a track record, brokers will call you back.  If you don't have a track record, you might have more challenges getting phone calls back... but start small and work your way up.  If you don't understand the basics of how these deals work, its probably best to avoid jumping into 50+ units to start.  

Don't miss this Wednesday's NHREIA meeting!

Ann Bellamy of Buy Now Hard Money will present:

How to Screw Up a Hard Money Deal

When you start out to flip houses, or build a portfolio, you immediately wonder how to fund all these purchases. Along your educational journey, you'll hear about hard money, and how expensive it is. But if your family isn't rolling in dough, you might try hard money for your first flip. And you are guaranteed to make some mistakes. After all, you're new at all this.

You will hear:

• The most common mistakes when funding a deal
• Suggestions for avoiding them
• The one solution to all of them
• And if that doesn't work, another solution

NHREIA Meeting

Speaker:  @Ann Bellamy

6:30 PM, Wednesday, February 13, 2019

Best Western Executive Court, 13500 South Willow St., Manchester

Cost: Members are free; $20 for not-yet-member

Keywords:  nh, new hampshire, ma, massachusetts, reia, hard money, 

@Matthew Ping is my go-to property management guy!