All Forum Posts by: Zachary Ware

When it comes to financing, the options vary based on the type of property:

Residential (1-4 units): Financing for residential properties typically includes conventional 30-year fixed debt or interest-only loans. Interest-only loans can provide greater cash flow in the early years, but the entire principal balance will need to be paid down later.

Smaller multifamily properties (up to 10 or 12 units): Financing options for these properties often include 30-year fixed debt or DSCR loans, which evaluate the property's income potential rather than focusing solely on personal income.

Larger multifamily properties: As properties grow in size, financing options shift towards banks or agencies specializing in multifamily loans. These loans often involve a balloon payment at the end of 5-10 years, requiring the principal balance to be paid in full.

It's important to keep in mind that options and terms may vary depending on factors such as property location, borrower qualifications, and market conditions. Working with a knowledgeable mortgage professional or loan officer is recommended to explore the most suitable financing options for your specific property and financial goals.

You have a lot of options when looking for a property of this size! 

1) Sourcing: This type of property can be sourced from the MLS, online searches, agents, other investors, and even some wholesalers. I would recommend that you reach out to investors and real estate groups in the area, and attend as many networking events as you can. Creating these relationships early on can prove invaluable in the long run.

2) Financing: This depends on whether you will be looking to owner-occupy or not. If you will be living in one of the units, conventional or FHA with low down payment options might be suitable. Keep in mind that these loans have more stringent guidelines and requirements.
If you are not living in one of the units or do not meet all the guidelines, a DSCR loan might be the right choice. DSCR loans typically require less documentation and focus on the income of the property rather than your personal income.

3) Growth: It's important to give yourself the time to learn and make mistakes as you start out. Each deal will provide valuable lessons for future investments. Building a reliable network of professionals is crucial. Your team may consist of a Real Estate Agent, Property Manager, Mortgage Lender, Real Estate Mentor/Coach, Real Estate Attorney, and Accountant/Bookkeeper. While you may require these roles at different stages of your journey, it's beneficial to start networking and connecting with people in the real estate industry early on

Goodluck! 

Glad to hear about your story and you are in a great place to ask questions. To briefly answer a few of yours: 

Down payment: If you do not already have one, an FHA loan can require you only bring 3.5% down. Now there are more costs involved and I would account for bringing at least 5% of the purchase price to closing. A quick way to estimate how much you can purchase is the % / fund you have. If you are going with an FHA loan(5%) and have $150k to bring to close, you are looking at a property up to $3,000,000. FHA loans can be more strict with their lending requirements and you need a high W2 salary to support such loan amount.

Another option would be a DSCR loan which is typically less stringent on lending requirements that an FHA or conventional loan. These types of loans will be based on the property's cash flow and not your income. With these, you can expect to bring 20% nonpayment plus fees and closing costs. If you are using $150k to invest, you should be looking at properties around $750k with this down payment.

With an FHA loan, you will be borrowing directly and not through an LLC while you can use almost any entity you want with a DSCR loan.

I hope this was helpful! 

I have heard that these numbers include full-time and part-time STR's. Those renting their house when they leave for the weekend are not going to get near to traffic that many professional STR owners will attract.

You can certainly find good reasons to hire a property manager for a small multifamily property. Whether to use a property manager on your property depends on your specific goals and preferences.

Here are a few factors to consider:

1. Time Commitment: Determine the level of involvement you desire in your investment. Managing a small multifamily property can be time-consuming, requiring tenant communication, property visits, and marketing efforts. Assess if you have the availability and willingness to handle these responsibilities yourself.

2. Profitability: If maximizing cash flow is a primary goal, self-management may be worth considering. Property managers typically charge fees based on the Effective Gross Income (EGI) of the property, which can impact your returns. Running the numbers and accounting for PM fees during the deal analysis stage is crucial to ensure the property remains profitable.

3. Scalability: If you plan to expand your real estate portfolio, having a property manager becomes essential to your team. They can ensure smooth operations, allowing you to focus on acquiring more properties and growing your portfolio. This is particularly important when investing out of state. 

Ultimately, the decision to hire a property manager depends on your individual circumstances and investment objectives. Assessing the time commitment, evaluating profitability with and without a property manager, and considering your future growth plans will help you determine if a property manager is necessary at your stage.

Great Insight! I recently listened to a podcast that went talked through some of these points and things to look at in the future that you might find insightful. The Fort- An entrepreneurship Podcast episode with Scott Everett.

This sounds like a great opportunity based on profitability potential, turnkey conditions, and strong market demand. 

1. Profitability Potential: The property's location in James Island, close to MUSC, Folly Beach, and in an X flood zone, presents opportunities for attractive rental income. The proximity to popular destinations can make the units desirable for furnished mid-term rentals, which can yield higher rental rates. Unfortunately, some lenders can be uncomfortable with mid-term rentals. 

2. Turnkey Condition: The property's turnkey condition, with newer features including updated windows, HVAC units, and flooring, enhances its appeal to potential tenants. A well-maintained property reduces the likelihood of significant maintenance or repair expenses, which is favorable from a cash flow perspective.

3. Strong Market Demand: The property's location in Charleston, SC, known for its vibrant real estate market, can attract a steady demand for rental properties. This strong market demand is favorable for maintaining high occupancy rates and minimizing vacancy periods.

Considering these factors, a DSCR loan would assess the property's income-generating potential and evaluate its ability to cover the mortgage payments. The property's desirable features, location, and potential for attractive rental income make it a promising candidate for DSCR lending, as the loan terms would focus on the property's profitability rather than relying solely on the borrower's personal finances. There are some great options provided by BiggerPockets here https://www.biggerpockets.com/...

I agree with the comments shared here. Establishing partnerships with sponsors for real estate deals requires a significant level of trust, which is typically fostered through experience and time. I encourage you to persist in reaching out to potential sponsors and actively cultivate strong relationships with them. As you develop these relationships, take the opportunity to understand what sponsors are looking for. Knowing their investment incentives can provide valuable insights for future capital-raising endeavors.

There are indeed various methods to source profitable real estate deals, with off-market undervalued opportunities often being a fruitful approach. In today's market, finding cash flow can be challenging, and it heavily depends on the specific market you are targeting. However, exploring creative financing options has become increasingly popular among investors.

By focusing on off-market deals, you can potentially discover properties that are not actively listed on the market. This may involve networking with local real estate professionals, building relationships with wholesalers or property owners, or utilizing online platforms and databases that cater to off-market properties. These strategies can provide access to undervalued properties with greater potential for generating cash flow.

Additionally, creative financing techniques can be employed to structure deals in a way that improves cash flow. This might include methods like seller financing, lease options, partnerships, or utilizing private lenders who offer more flexible terms. These alternative financing approaches can help overcome the challenges of finding cash-flowing properties in a competitive market.

Alternatively, you could look at more cash-flow-friendly areas. Combining investments in cash-flow-friendly areas with financing options that prioritize the property's profitability, such as DSCR loans, can significantly enhance your potential for building a successful real estate portfolio. By strategically selecting markets with strong rental demand and sustainable rental rates, you can increase the likelihood of achieving positive cash flow. DSCR loans offer an advantage by assessing the property's income-generating potential rather than relying heavily on the borrower's personal finances, enabling investors to leverage the property's cash flow for financing.

Hope this helps and good luck on your journey! 

The responsibilities of property managers can vary depending on the specific needs and requirements of the property. However, I think there are five key responsibilities that generally fall under the property managers responsibility:

1. Tenant Management: Property managers play a crucial role in tenant management. This includes advertising and marketing available units, screening prospective tenants, handling lease agreements, collecting rent, and addressing tenant concerns and inquiries. They ensure smooth communication and maintain positive relationships with tenants.

2. Maintenance and Repairs: Property managers are responsible for overseeing the maintenance and repairs of the property. They coordinate and schedule regular maintenance tasks, handle repair requests from tenants, and promptly address any issues that arise. This includes managing contracts with vendors, conducting inspections, and ensuring the property remains in good condition. Looking ahead and conducting preventive maintenance is a huge benefit of an experienced property manager.

3. Financial Management: Property managers handle financial aspects such as rent collection, budgeting, and financial reporting. They ensure that rent is collected on time, manage expenses, and provide regular financial statements to property owners. They may also assist in determining rental rates and implementing strategies to maximize the property's profitability.

4. Legal and Regulatory Compliance: Property managers must stay up-to-date with relevant laws, regulations, and local housing codes. They ensure that the property is compliant with all applicable regulations, including safety standards, fair housing laws, and eviction procedures. They also handle lease renewals, lease terminations, and possibly tenant disputes in accordance with legal requirements.

5. Property Marketing and Vacancy Management: Property managers are responsible for minimizing vacancies and maximizing occupancy rates. They develop and execute effective marketing strategies to attract qualified tenants. This may include advertising the property, conducting property showings, and implementing tenant retention initiatives to encourage lease renewals