All Forum Posts by: Tim Little

@Ellie Perlman, great article! I think I'm guilty of #2 (lowering rents). A tenant said their roommate was moving out when the lease was up in Nov, but she wanted to stay. She found a friend to rent with her but wanted to see if it could be reduced based on an old add she saw for the same unit. Given the uncertainty at the time, I agreed to lower the rent by $100/ month. I rationalized the discount to myself by saying it may be difficult to get a new renter in, but it still may have been a little premature. 

I do have a question for you on the CAP rate considerations. Understanding you can't really "know" what the CAP rate will be on exit (minus a crystal ball), what increase in CAP rate do you build into your underwriting to stay conservative in your numbers? Any good rule of thumb for that? Thanks!

- Tim

@Matt Skinner, I'm certainly trying to take advantage of the low rates. I have a triplex that I bought last year on a 20-year variable (every 4 years) at 5.2%. I wouldn't say I was swindled, but I was definitely misled on the terms but got too far into the deal to find a new lender. I'm in the process of refinancing into a regular 30 year fixed that will probably be closer to 3.8%. That lengthening of the term and lowering of the interest should improve my cashflow. 

Right now the thing I'm trying to figure out is there is a way to leverage these low rates for the multifamily syndication side of things. From what I'm hearing, lending is still tight on the commercial side and given the volatility with COVID, they are requiring syndicators to have more capital reserves. That means you have to raise more money from investors at a time when they might be in "wait and see" mode. A lot of challenges out there, but like you, I'm just as focused on finding the opportunities!

@Christopher Gable, I'm currently using Buildium to manage my triplex. The website and tools are very intuitive for me and the tenants. Each tenant gets a tenant portal that I can load documents into and see anytime I need to, and you also get a public-facing page for things like applications. I can text and send emails to one or all of the tenants through the platform and they can respond and submit service requests. I can basically do anything I need to do plus some stuff I haven't had a need to do yet. 

The bad side? Well, it's a little pricey. I justified by comparing the 10% I would be handing to a property manager for disappointing service. It also provides me the opportunity to scale since it supports up to 75 units before you have to pay more. BP Pros also get a discount, so that helped. To me, it was worth trying out for a year and then deciding if I would keep it from there. I like all the functionality, but my wife would like to cut what is a significant cost. Ironically, she was checking out Tenant Cloud and trying to sell me on it. It looks like I have some research to do, lol.

- Tim

@Brennan Utt, I certainly understand the desire to protect yourself, but as others have eluded to, you are likely putting yourself in a more dangerous legal position by using the alias on legal documents. I would say that if your business partner is part of your LLC and have authorities to conduct business on behalf of the LLC, you should be fine with having them sign (I'm not a lawyer).

I self-manage my triplex now and while I tried to play it off as if I was only the property manager, my tenants remembered me from when I did the inspection and put 2 and 2 together. My concern was that if they knew I was the owner, I could open my self up to frivolous lawsuits. Luckily, I have good tenants and I can't really see that being an issue. But I have also taken steps to mitigate some risks. 

So my personal address doesn't show up in legal paperwork, I have a UPS box that provides me with a real street address. That is the address associated with my LLC. I also recently purchased an umbrella insurance policy with coverage up to about $1 million. This should be more than enough to settle most issues, even frivolous lawsuits. It's also not as expensive as you might think since it's supplementary (only kicks in once the other insurances are exceeded). Hopefully, this give you a few ideas of what you can do to mitigate your risk.

- Tim

@Joe Ansley, a few of my favorites that haven't been mentioned yet are;

- Investing in the U.S.- An Aussie's Guide to U.S. Real Estate (Mostly focused on syndication with some other useful stuff sprinkled in)

- The Real Estate Guys Radio Show (Not always about multifamily, but when it is, they dive deep into the topics)

- Best Real Estate Advice Ever (Specifically recommend the "Syndication School" series. It's an amazing how-to series that pairs well with the "Best Ever Apartment Syndication Book")

Hope this helps!

- Tim

@Brandon M. and @Wayne Brooks,

Thank you for the reference. I've reached out to Dave and look forward to knocking out my 1st 1031 (and deferring a few thousand in taxes :)

- Tim

Hey BP, I am working on my first 1031 Exchange for a duplex I own in Richmond, VA. I understand it may not be necessary to work with a local qualified intermediary, because this is my first 1031, I would like to work with them face-to-face. I also know there are few requirements to actually become a QI and little oversight, so I want to make sure I conduct good due-diligence up front.

Any recommendations for QIs you have worked with on completing a 1031 exchange, especially in the Tampa Bay area would be greatly appreciated. Thanks in advance BP community!

Respectfully,

Tim

@Obi I., right now I'm not necessarily trying to buy again in Richmond. If I did, I wouldn't buy in the same area which is a low income. I would like to move into something that is more like a B neighborhood so I don't have the same headaches with tenants. Also, many of the homes in the North Richmond area are pushing 100 years old, so maintenance is a gamble. There are certainly some nice A/B areas closer to downtown and the University, but obviously prices rise along with that. 

I've certainly seen some appreciation on my property which is one reason why I'm looking to sell. Right now I'm working with a realtor to better determine an asking price, but because the fact that there are fewer multifamilies on the market and there's still good demand, is going to work in my favor. As mentioned, I bought it for $85k in 2014 and we will likely list it in the next few weeks for about $130k. I'm happy with that considering I was also getting consistent cashflow since I've had it. Because it's been a few years since I studied the market, I'm certainly not an expert on the area, but I can recommend a great realtor in the area.

Hi @Ron Gallagher, thanks for your comments and apologies for the lack of detail. I was in a bit of a rush and tried to stick to the key points. To answer your question, here are some of the numbers.

Asking price: $90k

Price offered and accepted: $85k (appraised at $92k compared to comps)

Occupancy: 100% 

- Unit 1: $700/month

- Unit 2: $695/month

Annual Insurance Premium: $1847

Mortgage at 4.5% for 30 years: $625

Utilities (paid by owner): Approx $165/month

Monthly Cashflow: Approx $400/month (after 10% property management)

Using the Bigger Pockets Deal Analyzer back in 2014, these are the numbers I came up with. It was pretty accurate in retrospect, although I did overestimate the rent increases over time and underestimated the property appreciation looking back over the projections.

Regarding the 25% being painful, that was really just a matter of where I was at the time. I was still looking at $90k plus grad school loans and so it was difficult to set a lot of money aside since I was trying to pay my loans as aggressively as possible. Ironically, I was able to completely wipe out all my school debt based on the sale of my house in DC which had appreciated dramatically over a 4 year period. I lived in SE where others weren't willing to venture a few years ago. Hope that helps. Let me know if you have any other questions. 

Respectfully,

Tim

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Richmond.

Purchase price: $85,000
Cash invested: $25,000

Fully rented duplex in northern Richmond, VA which I purchased for $85k in 2014. There was already property management in place, but I soon realized they were not meeting my needs and I was forced to fire them and evict a tenant who stopped paying and eventually just left all their stuff and skipped town. This was my first purely investment property and there were some hard lessons learned, but despite the challenges, this property has provided me consistent cash flow.

What made you interested in investing in this type of deal?

At the time I was living in Washington, DC and the cost of investing there was prohibitive. I went to Richmond seeking both a lower cost of entry, but also the to scale up with multifamily.

How did you find this deal and how did you negotiate it?

I was able to find a great realtor in the Richmond area right here on bigger pockets. Jon Deavers knew the market and was able to have several properties lined up for me when I came for a weekend visit. As I was investing from a distance, this kind of efficiency local expertise was critical.

How did you finance this deal?

Financing was done with a very painful 25% down and the rest through a traditional mortgage. The rates were reasonable (4.5% for 30yrs) but the 25% was required by the lender since it was a multifamily investment property.

How did you add value to the deal?

Most of the investment to the property has been cosmetic and done as part of regular turnover costs. I think this highlights the importance of a very good property inspection, especially on older properties.

What was the outcome?

I certainly have no regrets considering the consistent cashflow I have been getting out of the property, but I would like to scale up in either number of units or quality of neighborhood/tenants. I am considering selling or 1030 exchanging the property in the next year or so.

Lessons learned? Challenges?

Be more critical of tenants you will potentially inherit. While having the rent from the start will be nice, it can cause more problems in the long run. Luckily in this instance there was at least the security deposit to fall back on when they left the place a mess, but it didn't cover all the costs. While it may be easy to just run with the existing property manager, again, conduct your due diligence on them as well.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Again, would definitely recommend Jon Deavers if anyone is looking for a home or investment property in the Richmond area.