All Forum Posts by: Tyler French

@Drew Sygit You're right i have not tapped into a large number of family/friend/colleague network. I suppose i feel always an inclination to find venues where i can source private partners that i may not know. 

@Ryan Tuttle I actually had a previous deal that was going to cross-collateralize one of those properties. That was a conventional commercial lender, 20% down, etc.  I have not yet asked whether two properties can be cross-collateralized at the same time. Also, you feel that cross-collateralization is still worth if even if the interest rate is going to increase for both properties?

I will definitely dig into some info on those partnerships. 

@Chris Seveney Thanks so much for the feedback. I have gone solo for all prior deals and am new to the partnership approach. Here are two things I feel I haven't yet learned enough about:

1. How common are partnerships where the more passive partner only provides capital and get a return after a given time period rather than % of cashflow permanently? Since I am handling all of the property management, finding the deal, etc I would prefer to be able to pay them out after value add work has been done, refinance, etc.

2. I unfortunately don't yet have anyone in my network that has the capital to partner on this. Are there any venues besides local RE chapters to do an all call for those interested?

Hi all,

I currently have 3 four family buildings, and have been saving and working through some financing options to scale to a larger 18+ multifamily. I would like to do so without selling the current 3 buildings.

There is a 24 unit for sale currently in my area that is value add listed for 1mm, after raising market rents and some cosmetic renovation worth 1.5mm. I have about 70k cash (not including reserves for properties), and probably about 120-140k in obtainable equity in the current buildings. However, I also do not want to refinance as they are very strong rates, and HELOCs are very hard to come by i've found for investment properties.

Wanted to get your thoughts on best approach to finance:

1.  I was offered about 140k in credit line. Could perhaps combine with my current cash  and let it season. Then see if i can get a conventional loan at 20% down, and pay down the credit line with the cash flow. (Property would cash flow to cover loan payment, credit line payment, etc until paid off or refinanced)

2.  I believe i can get a loan for the property at 10% down with an investor group since their is some cosmetic rehab. 

Any thoughts greatly appreciated!

Tyler

Appreciate all the insight!

@Sean Ross Good question in terms of plan. I have three 4 families (including my current i live in) and trying to close on another 8 family. I am looking to make the leap to a larger multifamily (16-18 unit) next so i am looking to build up as much capital as possible for the down payment.

@Conner Olsen Agreed- It would net some amount of cashflow. I think the wild card is that this current building is actually pretty good location to my work, etc. so I am having to decide if the risk of finding another multifamily that i'd feel comfortable living in is worth it. Before when i was projected to net 1000+ cashflow a month just to move out, it was worth it, now the numbers are not quite as persuasive. 

@Lorenzo Prieto @Caleb Brown Thanks for the suggestion. I had been trying to track down banks recently that would allow a HELOC on my other two 4-families as they have 100+k each in equity. Originally i was thinking a HELOC on this primary wouldn't get me enough compared to the rent I would get from vacating my current unit but it might be the best approach. If i could get one at 90% and a good appraisal it would close to the cash upfront saved from second 3.5% down payment.

I currently have an FHA on a 4 unit 3 bed, 2 bath unit that I have lived in for about a year and a half. My plan originally was to refinance to a conventional and begin looking for a new place to live & utilize the FHA again.

Here are some of the numbers I am working through thus far: 

1. The potential rent gained from vacating & renting out my current unit is about 1000/month.

2. Bought for 243k. Estimated value is around 320k. 

3. My rate currently is 2.875%. With current rates I would expect an increase of 3-400 in monthly payment even without attempting a cash out refinance. 

From a straight numbers perspective, it seems I probably would still end up ahead. I just don't have another property yet lined up, so it stings to take that kind of hit on cash flow in the near term. 

Would love your opinions on whether to get it refinanced and push for another FHA or to keep as is and double down on a few other strategies.

Thanks!

@Todd Dexheimer - The $550 is the total costs for water & sewer of quarter, about 180/month. 

Thank you @Adam Dahlberg! I am trying to walk that fine line between eagerness vs over-analysis.

I am considering a $100,000 offer. It would only be a 6-7% ROI based on the expenses estimates above, but would be almost 15% without property management. The thought being I could make that ROI while we learn the property management maybe the first year, and work towards bumping up the rent, finding expense savings, or additional income (there is a 4 person garage that could be used as additional rented space.)

@Todd Dexheimer - Thanks for the heads up. I hadn't considered the replacement reserve. 

@Mike McCarthy - My apologies I may have made the reference to rent too vague. The property is at $1870 total gross rent (4 units @ $468).

@Jordan Moorhead - I'm glad you brought that up, as that is actually what I had considered as well. I agree I would like to learn & my father previously did that sort of work, so he has offered to help. With that, the return looks good. I just wasn't sure if I was "fudging" the numbers since my eventual goal after learning would be a more passive &  pay for property management.

@Jordan Moorhead - Thanks for the reply. You're right, this is my first investment. We thought that water & sewer was fairly high as well. We were given $550 per quarter for water/sewer both. 

Where I struggle is in two considerations:

1. Deciding  if & what type of offer on this property would make:

In playing with the numbers, changing the offer amount does little to make the ROI worth it, unless I am offering an extreme lowball such as $80,000. The only two feasible options are to find a way to improve the expense assumptions by maybe having tenants pay heat, or plan on raising rent (it might be able to be raised by $50/unit). However the idea of making a deal that hinges on those future changes worries me. Or is that normal?

2. How this affects options in my overall search criteria:

Thus far I have seen most properties in my criteria go between maybe $90,000-$125000 with about the same rent. Meaning even if I pass on an offer for this property, with these type of expenses I feel i will always run into this same issue. The only time I would find an acceptable deal would be one need of heavy repair, much higher rent, or tenant pays heat.

I hope my rambling makes sense!

Please be patient with me as I am new to posting. If I have forgotten needed info for your input let me know.  After all the reading/practice I can muster, I have begun my first search for a multifamily in Cincinnati Ohio. 

Below is an example of a property I recently have looked into. The initial screening utilizing the 50% rule put this as a fairly solid prospect, and in getting a tour there were no red flags (brick, good condition, B or C neighborhood). However this was the first time I moved into the next step of working on a more detailed expense analysis, & after doing so the estimated expenses were far more than I expected, at almost 70-75%% of gross income.

The high expense ratio & the fact that this property looks far from a good investment surprised me a bit, and my concern is that besides perhaps the owner having to pay heat, the property's numbers are pretty typical.  The question being, am I misunderstanding something on my  approach to expenses or perhaps too conservative, potentially scaring me off from solid properties? Or is perhaps 70% expense ratio just a reality of the area I should expect? 

Thank you!

Tyler

@Jay Helms Your post was very helpful.  Before reading i actually didn't realize some investors do have their agent analyze potential properties beforehand. Your point about "batting practice" is what hit home for me, as the most valuable thing about this first purchase (besides the investment) has been simply learning to analyze properties myself. 

@Charlie MacPherson - I've been struggling to understand that happy medium in terms of offers but your explanation makes perfect sense regarding understanding the market. In the few properties I have reviewed I have seen it looks like they have been going 10% below list price. From my research, I was planning on always offering 20% below list price again assuming list price is close to market value. If that leads to 500 offers rejected because it is so far out of ballpark for the market it will be not worth my agent's time. I should find a % that still sits well with my investment strategy but close enough to the average to make the effort reasonable for them as well.

Here are the responsibilities i have my agent currently involved with:

1. Set up MLS listing: I think fairly low effort/easily maintained as it has only been changed as our search criteria becomes more refined.

2. Establish value through comps: Where the debate originated. I had been asking for comps prior to a showing to apply the 20% below ARV to my analysis & develop an offer price that could be immediate ready afterwards. I think this may be a new approach for them as they are used to showing and digging deeper afterwards.

3. Setup showings: This is one area I am most concerned with in terms of how diminishing returns from an agent perspective. Granted of the 50 or so I've reviewed we've only visited a few properties thus far. But this seems to be where I would take up the most amount of an agents time besides the offers themselves. 

4. Writing offers: I am going to make sure I review the average % of list price and have a discussion on our approach going forward.