All Forum Posts by: Wade Sikkink

I agree.  All our properties are in a small town of about the same size as yours that is about 15 min from a much larger city (250k).  There is high rental demand and low supply in our town as a lot of people want to "get out of the city."  Some small towns in the Midwest are dying as their employers shut down and leave, but for those that are bedroom communities for larger cities you should have no problem finding renters.

Good luck.

Do you have enough equity in your tri-plex to have a lender take a lien against it in lieu of a down payment?  If so, you could just get a standard mortgage for the 4 plex.

All of business is relationships.

There are a lot of people asking for what bank is being used, and a lot of PM's flying around based on this thread.  Just because Devin or someone else is doing this with a particular bank doesn't mean that you can call that bank up and say "I want the deal Devin is getting."  They will most likely tell you no.

You have to build a relationship with a lender to get to that point.  You have to show them that you are a good credit risk and that you make good financial decisions.  Once you have established a banking relationship and have a reputation for making good deals, other banks will start coming to you to offer you good deals.  I would guess that pretty much any bank, certainly the smaller local or regional ones, will do this kind of lending.  It's not about their willingness, it's about the relationship they have with the borrower.

@Joshua D.  What you described above is cash on cash return, not cap rate.

NOI over total investment is cash on cash return, which you could very well be getting a 50% return. That's not out of school.

Cap rate is used to value multi-family properties and is NOI over purchase price. A cap rate of 10 would be very good for most buyers.

That's why everyone is up in arms about your statement of a 50 cap rate.  What you are describing is a 50% cash on cash return, not a cap rate.

BTW, you can do much better than 50% cash on cash.  I have properties that I purchased with no cash investment on my part, so technically their cash on cash return is infinite.

Keep in mind that for this to work, you have to find good deals.  Just like any other time in buying real estate.  So far, the deals we've found cash flow nicely at 100% financing.  If they don't, then you have more risk as some above have pointed out.

When we refinanced the apartment building, the lean against our personal residence was released and we put that building on a straight 15 year fixed mortgage.  No refinance or rate risk.  Our personal residence was only "in the mix" for 3 years.  We will own that building outright in 14 years or less.

The second property used a lean against the apartment to secure the down payment requirement for 2nd property, but the loan was for 100% of the purchase price.  The 2nd property is on a 20 year loan with adjustments at 5 year points.  No risk of the bank not rolling over the loan.  It's a straight 20 year loan with 5 year adjustments.

We're looking at another 8 units right now to do this again on.  These units will cash flow nicely at 100% financing and we would structure the loan exactly as above.

Our situation is nice in that we don't need to pull any cash out of the REI business at this point, so we are plowing all the cash flow into paying down the mortgages.

Check with your attorney.  We've had similar situations in the past where it might be a little ambiguous if the tenant had really vacated or not.  Our attorney told us that if the tenant left keys on the kitchen counter, then they have vacated and you can proceed with the abandoned property rules.

Fortunately we've always found keys on the counter.  If there are no keys, then I'm not sure you could make the same assumption safely.

Good luck.

The Serviceman's Civil Relief Act stipulates that a military member can terminate a lease for orders requiring them to move or deploy for a long period of time.

Don't make a fuss.  Work with your tenant to ensure a smooth move out and thank them for their service.

We've done something similar.  3 1/2 years ago we used equity in our personal residence for a down payment on a small apartment building.  Using cash flow from the building we renovated a significant portion of it.  Last fall we refinanced it and it appraised about $150k above what we bought it for, plus we'd paid down the mortgage some in that time.  At that point, our personal residence was released by the bank since we had more than 25% equity in the apartment.

We bought a SFR a couple weeks ago and the bank used equity in the apartment against the down payment on the house. They didn't actually put a second mortgage against the apartment, they loaned us 100% of the purchase price for the SFR (which was below appraisal) and just put a lien against the apartment until we pay down the house enough to get to 20% equity. We have enough equity in the apartment to do this several more times if we can find deals (I too am investing in a relatively small community, so deals are fewer and further between).

Sounds very similar to what you're doing.  We have a very high rental demand in our market as well, so this strategy is good for getting into properties sooner than you might otherwise and get those tenants paying your mortgage down.  My plan is to never make a down payment on a property again and just do this to acquire more properties.

This may be an opportunity....

She wants to stay for now.  Sounds good, rent this place to her for a year.  Work out the possible renovations separately.  If she wants to pay for them, great, just make sure you get to approve the contractor so you don't end up with shoddy work.

10 months from now, contact her and tell her you would like to help her find her own place.  You buy the house and then lease option it to her.  This way she benefits from your experience and you get to make some more money from her while she eases her way into home ownership.  Might be a win-win.

Good luck.

Check with a lawyer to make sure you keep everything legal for your state.

Here in NE, if they don't have a written lease, then they are month to month.  You can terminate a tenants month to month tenancy at any time, without a reason.  Just like the tenant can leave at any time, you can ask them to leave at any time.  That's a 30 day notice, given before the 1st day of the rental period.  A 3 day pay our quit is only used in the instance of them not paying the rent.

Also, don't use the term "evict"  An eviction is done for some breach of the lease terms.  You are simply not renewing their month to month tenancy.  We did this to a tenant one time.  They got mad and asked why we were evicting them.  We simply stated that we are not evicting them, but rather are not renewing their month to month tenancy.  Took the wind out of their sails.

Good luck.