Debating purchase of 6 cottages on 1 property

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Debating purchase of 6 cottages on 1 property

Ken Cyr
Member since 2019 · 4 posts · 0 votes

Hello, my name is Ken Cyr, and after months of listening to podcasts, and a webinar, I decided to join the community to help pave my path! 

A little about me; I am a licensed plumber, and just launched my own company 6 months ago, and have been doing exceptionally well. I owned a single family home for 3 years, slowly remodeling every single room in the entire house, as well as a beautiful addition with a full bathroom, and turned a great profit on it. 

I've always known that I wanted to purchase rental property,  and now that I have the capital to do so, I'm ready to start looking for a great deal, but I have alot of questions, and need some guidance.

My wife and I are debt free, with no mortgage or car payments, and perfect credit scores.  We have our eye on an interesting property, and are seeking some guidance on an appropriate offer.  The property consists of a main house, that has been gutted and reframed, and needs to be finished,  as well as 5 small cottages, mostly around 800 square feet, that need complete remodeling. 

The property is 2 blocks from a beautiful beach, in an up and coming area. 

Anyone willing to help us on this? 

What types of questions should I ask? 

What steps should I take to submit an accurate offer? 

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Brian G.
Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
7y

@Ken Cyr welcome to BP. Are you working with a realtor? Mortgage lender? PM company? Contractor? This is your "A-Team" at a moment like this. To answer your question, you need to do a full evaluation of all the expenses on the property to "back in" to your offer so you know what your return is potentially and whether or not that is acceptable to you. Expenses include: mortgage (P/I), taxes, insurance, maintenance/repair, Capex for those future big expenses (roof, hvac, etc.), lawn care, property management, vacancy rate, turnover costs, etc. In addition, you want to know exactly what they will rent at (a property manager is the best person to answer this authoritatively). If the property is 2 blocks from the beach then I'm sure this property is desirable. In the end, the most important consideration in my mind in a buy/hold property, is buying a property in a great location that people will want to live in. It sounds like you might even be able to rent 1 or 2 of those cottages as short term rentals (ie air bob, etc.) since it is so close to the beach (ie if city ordinances allow). There are calculators on this site under the "Tools" tab that you can use for free with limited frequency. Or simply post all the numbers including purchase price, expenses, etc. and the BP community will weigh in (don't include the address since this property is for sale). The trickiest part seems to me to be on the lending side. It may be challenging to get a loan on this property if all the units need rehab (ie are they currently occupied?), so you may need to be a cash buyer if you are not experienced or possibly negotiate owner financing. @Chris Mason what are his loan options given the situation (presumably he needs a portfolio lender)? Ken, I'm not the most savvy or experienced investor for sure, but if you ever want to talk let me know. Nothing to sell, no angle here. Again, if you simply post the deal details (don't include the address) the BP community will definitely weigh in (we're an opinionated bunch!).  

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  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    @Ken Cyr welcome to BP. Are you working with a realtor? Mortgage lender? PM company? Contractor? This is your "A-Team" at a moment like this. To answer your question, you need to do a full evaluation of all the expenses on the property to "back in" to your offer so you know what your return is potentially and whether or not that is acceptable to you. Expenses include: mortgage (P/I), taxes, insurance, maintenance/repair, Capex for those future big expenses (roof, hvac, etc.), lawn care, property management, vacancy rate, turnover costs, etc. In addition, you want to know exactly what they will rent at (a property manager is the best person to answer this authoritatively). If the property is 2 blocks from the beach then I'm sure this property is desirable. In the end, the most important consideration in my mind in a buy/hold property, is buying a property in a great location that people will want to live in. It sounds like you might even be able to rent 1 or 2 of those cottages as short term rentals (ie air bob, etc.) since it is so close to the beach (ie if city ordinances allow). There are calculators on this site under the "Tools" tab that you can use for free with limited frequency. Or simply post all the numbers including purchase price, expenses, etc. and the BP community will weigh in (don't include the address since this property is for sale). The trickiest part seems to me to be on the lending side. It may be challenging to get a loan on this property if all the units need rehab (ie are they currently occupied?), so you may need to be a cash buyer if you are not experienced or possibly negotiate owner financing. @Chris Mason what are his loan options given the situation (presumably he needs a portfolio lender)? Ken, I'm not the most savvy or experienced investor for sure, but if you ever want to talk let me know. Nothing to sell, no angle here. Again, if you simply post the deal details (don't include the address) the BP community will definitely weigh in (we're an opinionated bunch!).  

    1Reply
  • Ken Cyr
    OP
    Member since 2019 · 4 posts · 0 votes
    7y

    Thanks for the reply! I do have an agent, lender, and attorney. I know many contractors, a few of which I'm good friends with. 

    I have been offered owner financing, at 75% purchase price for 24 months. The big expenses should be covered since I will be completely remodeling all 6 units. They are asking around 700k, and they bought it for that same price 2 years ago and haven't done any work. Younger couple,  plans to re-model, getting divorced. 

    The septic system was replaced in 98, and inspected when they bought it 2 years ago. Taxes will be 11k for this year. The driveway is shared with a house behind the property, who the owner of takes care of the snow and lawn. 

    Comparable units are renting for anywhere from 1800-2200 monthly,  with summer time short terms about 200/300 per night. 

    I'm a licensed master plumber, so I'll be doing most of the work, aside from finish carpentry, some electrical, and isonyne insulation.

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  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    @Ken Cyr congratulations, this sounds very promising. That's amazing to find an owner financed deal in close proximity to the ocean. You just need to track down one more key team member, a property manager (ie PM), unless of course you plan to occupy the main house and self-manage. Ask your agent, lender and attorney for the best PM they know. In addition, I would try and find someone in the local area who is experienced with STR (ie air bnb, vrbo, etc). While STR are very labor intensive due to the frequent turns, they can also be very profitable. Find a rockstar PM and a rockstar STR manager/consultant and you are well on your way. Very cool. I'm curious, how did you find this deal?

    1Reply
  • Matt Nusbaum
    Rental Property Investor · Annapolis, MD · Member since 2011 · 232 posts · 170 votes
    7y

    @Ken Cyr Awesome to hear you're debt free. Sounds like you are coming from a very strong financial foundation (HUGE achievement in itself). Also sounds like you have a great short term rental deal. @Brian G. gave a very detailed response. Get some more details locked down by talking to a few other key team members and I think you'll be well on your way to a great first investment. 

    1Reply
  • Ken Cyr
    OP
    Member since 2019 · 4 posts · 0 votes
    7y

    Hey all, so a little more news. I am able to do the owner financing at 75% of the purchase price for 24 months, which leaves me to put 25% down. This would literally drain every dollar we have, with nothing left for renovations. Will a conventional lender be able to give me some sort of rehab loan to cover the rest? 

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  • Account Closed
    Real Estate Agent · Austin · Member since 2019 · 100 posts · 28 votes
    7y
    Originally posted by @Ken Cyr:

    Hey all, so a little more news. I am able to do the owner financing at 75% of the purchase price for 24 months, which leaves me to put 25% down. This would literally drain every dollar we have, with nothing left for renovations. Will a conventional lender be able to give me some sort of rehab loan to cover the rest? 

     They should be able to, but it depends on the credit score. Is this in Florida?

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    Have the current owners used the cottage as rentals?  If so, you should look at the rental history.

    0Reply
  • Ken Cyr
    OP
    Member since 2019 · 4 posts · 0 votes
    7y

    My wife and I have perfect credit, we are in the northeast, and yes it does have rental history

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    If they are renting and the numbers look good, then go for it. You can slowly renovate the cottages and increase the rent as you complete the renovations on that unit. If you are not living on the property and own your current home, can you do a HELOC with that?

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