Second Fourplex - 14 days after our first property.

Second Fourplex - 14 days after our first property.

Rental Property Investor · Rockford, IL · Member since 2018 · 84 posts · 140 votes

Investment Info:

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

Purchase price: $240,000
Cash invested: $63,500

Contributors:
Tara Shedden

Self-managed fourplex; landlord pays water, sewer, trash, landscaping, snow removal.

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

This was the second property we purchased; closing just 14 days after our first property.

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

It was listed at $250,000 and the owners were selling another fourplex on the same street. We offered $240,000 each for both.

How did you finance this deal?

5-year loan with a balloon payment at 5.555%, 25% down.

How did you add value to the deal?

It was our first deal and has cashed-flowed since day one. It is also gave us experience with property management.

What was the outcome?

We are still cash-flowing and looking to scale our business.

Lessons learned? Challenges?

We attempted to renovate a vacant unit. But it took too long and cost too much. We would have been better off just renting as is and getting a bit less in rent. However, it was an invaluable learning experience. I would love to post that everything went awesome... but that wouldn't really benefit anybody.

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

We worked with the owner of Key Realty, John Murray on this deal. He was instrumental in getting us to jump into real estate investing.

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Crystal Lake, IL · Member since 2014 · 5 posts · 30 votes
7y

Why a 5 year balloon loan?  What's your plan down the road?

See this reply in the discussion

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  • Rental Property Investor · Lafayette, LA · Member since 2019 · 40 posts · 42 votes
    7y

    What a great start. I started investing 18 yrs ago and now have over 80 rentals. The first deals I did were marginal based on what I’m doing now but you gotta get your feet wet sometime. I tell people the hardest one to buy is your first one . Stick with it and learn from your mistakes and you will be fine 

  • Troy BaileyPro Member
    clayton, NC · Member since 2017 · 99 posts · 38 votes
    7y

    @congratulations! I made the same mistake as you wanting to renovate vs rent right out the gate. Now I just fix and renovate while the tenant is in place. It’s a win win the tenant thinks they are getting super service and I’m not loosing any rent. I did a convention 30 year fixed at 5.35. That’s a great rate for a commercial loan I can never find rates that low so all my deals have been convention with a substantial umbrella insurance policy. PM me is you would like to discuss strategies to lower vacancy. I purchased my 4 unit last year and I’m currently looking for my 2nd one. 

  • Rental Property Investor · Rockford, IL · Member since 2018 · 84 posts · 140 votes
    7y
    Originally posted by @Luis Rivera:

    What is the downside of the balloon payment after 5 years? I'm new so I assume that they'll refinance after the 5th year having a little more than 25% equity. 

    The obvious downside is that, in the event we cannot refinance, we will have a huge balloon payment due. This is unlikely, but it is a possibility. I can't predict the future, but I am optimistic that I will continue to cash flow this property...

  • Member since 2018 · 36 posts · 11 votes
    7y

    Great that you got going. Congrats. As other members suggested, would you mind sharing what type of cashflow are you getting? Therefore, disclosing CoC, which is ALWAYS interesting...

  • Greenville, SC · Member since 2018 · 45 posts · 17 votes
    7y

    @Robert Shedden

    I learned the same lesson on a rehab. Too long, too much money. Should have kept the current renter. I did refinance but broke even. It was my first property, and I learned a lot which I hold on to as being more valuable than the money. No more rehabs for me but rather update and maintain over time.

  • Investor · Thousand Oaks, CA · Member since 2017 · 302 posts · 123 votes
    7y

    Congrats! good Job!

  • Member since 2018 · 1 post · 2 votes
    7y

    Sounds like it was a great opportunity with or without the balloon.  But there are alot of people, including myself who would not have that kind of cash to pay down on a property.  I would love to do something similiar to that minus such a big downpayment.

  • Rental Property Investor · Member since 2018 · 20 posts · 5 votes
    7y

    Congratulations . Starting is huge! 

  • Member since 2019 · 7 posts · 2 votes
    7y

    Robert.. congrats on your purchase. I aint going to comment on the loan strategy. Just want to pick your brains on whats your strategy and action plan to keep all the 4plex 100% occupied and worry free (= no tenant phone calls) respectively . 

  • Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    7y

    @Nik Moushon

    I'd like to hear where these great loans are that you speak of. Non owner occupied, less than 5%, 30 year amortization, purchased in an LLC. I'm looking and will gladly take such offers.

  • Nicole FlakesPro Member
    Investor · Houston, TX · Member since 2014 · 23 posts · 22 votes
    7y
    I want to hear the answer to this too. LLC loans with ideal terms are slim to none. What's the name of the lender with these ideal LLC loans?

    Originally posted by @Anthony Wick:

    @Nik Moushon

    I'd like to hear where these great loans are that you speak of. Non owner occupied, less than 5%, 30 year amortization, purchased in an LLC. I'm looking and will gladly take such offers.

  • Michael WeakleyPro Member
    Rental Property Investor · Wheat Ridge, CO · Member since 2018 · 1 post · 2 votes
    7y

    @Robert Shedden

    Congrats Robert on diving in! 

  • Santa Fe, NM · Member since 2013 · 41 posts · 18 votes
    7y

    I am a telemark skier, when I was learning I read a lot of forums about "the form".  One of the best quotes I read went "a turn is a turn", meaning it doesn't matter how your turn looked, as long as you executed it when you wanted, like you wanted.  You did a great job, your investment is making money, which is the goal.  You had enough risk margin to absorb a loan that may not be optimal, and you have already learned a few lessons.  Things should only go up from here.  Congratulations!

  • Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    7y
    Originally posted by @Anthony Wick:

    @Nik Moushon

    I'd like to hear where these great loans are that you speak of. Non owner occupied, less than 5%, 30 year amortization, purchased in an LLC. I'm looking and will gladly take such offers.

    I don't think the LLC part of the equation came out til later. Obviously one could do better with a resi property in their own name.

    My last commercial loan inside an LLC was a 5/5/15 @ 5.75%. Similar conventional rates to today. Local community bank. They would've done 20yrs but I chose 15.

    The big difference was mine was callable and adjustable at year 5, not a balloon.  I'd have a hard time with that.  During the great recession lenders just didn't have an appetite for commercial.  Not sure if a resi inside a commercial enterprise would be the same but it certainly could be.  5 years goes fast and  refi's are not guaranteed.  

    Anyway- congrats on your deal, Robert! 

  • Chicago, IL · Member since 2017 · 14 posts · 1 vote
    7y

    love your story it help me ask im looking to get start soon thank you 

  • Member since 2018 · 2 posts · 0 votes
    7y
    @Nik Moushon would love to know where you can get a 30 y fixed loan for under 5% if purchased and borrowing through his LLC. I’ve struggled to find better than 5.5 amortized to 30 year in a commercial loan product
  • Member since 2018 · 2 posts · 0 votes
    7y
    @Anthony Wick I’m in the same boat. Would love to know where you can get this kind of financing on a commercial product and at 30 amortization
  • Member since 2018 · 2 posts · 2 votes
    7y

    I say a 1031 exchange in about 5 years when the balloon pops. How that the interest rates provide a great cash on cash return. I recommend that you hire a seasoned property manager so that your marriage is free from stress. Good luck my friend. Matthew, Diligent Asset Network, LLC.

  • Architect · Wenatchee, WA · Member since 2018 · 843 posts · 907 votes
    7y

    @Anthony Wick
    @Nicole Flakes
    @Matthew Brown

    When I was first commenting in this thread neither him buying it through an LLC or him being forced to use a commercial loan (bc of the LLC) had been mentioned. So when someone brings up that they have a 5.5% 5yr balloon loan on a 2-4 plex....ya that brings up suspions as to why. Because a 2-4plex still fits under a tradtional loan definition. Him buying it through an LLC doesnt allow that BUT, again, when I first brought it up that was my thinking. I was never trying to compare a commercial loan to a tradtional residential loan.

  • Rental Property Investor · Los Angeles, CA · Member since 2016 · 4 posts · 5 votes
    7y

    Given that the properties were purchased through an LLC, the lending is typically required to go through the commercial channel. There are some drawbacks to this (ie shorter terms & higher rates); however there can also be an upside when it comes to qualifying for the loan. Commercial underwriting does not call for a personal DTI calculation but rather looks at the property to cash flow. Refinancing after the 5 yr term shouldn't be an issue as long as the rental income remains stable. You may also be able to refi-cash out to repay the initial down payment or jump into the next deal. Although residential lending is more favorable for the buy & hold strategy, all deals are different. The most important thing is that you pulled the trigger. Congrats on taking action and building wealth.

  • Nicole FlakesPro Member
    Investor · Houston, TX · Member since 2014 · 23 posts · 22 votes
    7y
    Originally posted by @Nik Moushon:

    @Anthony Wick
    @Nicole Flakes
    @Matthew Brown

    When I was first commenting in this thread neither him buying it through an LLC or him being forced to use a commercial loan (bc of the LLC) had been mentioned. So when someone brings up that they have a 5.5% 5yr balloon loan on a 2-4 plex....ya that brings up suspions as to why. Because a 2-4plex still fits under a tradtional loan definition. Him buying it through an LLC doesnt allow that BUT, again, when I first brought it up that was my thinking. I was never trying to compare a commercial loan to a tradtional residential loan.

    As an investor that has seen this type of financing again and again, I automatically knew that it was a commercial loan. The 25% down was the biggest indicator as well as the OP signature line states that he represents an LLC. For me it's not that you asked the question but the negative tone toward the OP, especially without having all of the facts. On these forums we need to build each other up or people will be hesitant to share their stories.

  • Member since 2018 · 5 posts · 2 votes
    7y

    Congrats to you and your jumping right in. It does not matter how you did it, but you DID IT!!! Much respect for you. I am about to get my first one this year once I have some more money put aside. 4 units are it for me. Keep going forward!!!!

  • Real Estate Agent · Milwaukee, WI · Member since 2017 · 48 posts · 35 votes
    7y

    Way to go Robert! You shouldn't have an issue refinancing before the balloon. 

    I took a different route to get started. I used my personal credit to get better rates (4%, 4.25% and 5%) on my initial properties. I liked the fact that I got 2 - 30 year fixed mortgages and 2 - 5/1 ARMs. 

    I am now looking to get into larger properties (my portfolio is duplexes and SFH) so I can utilize the commercial loan side. I want to start building that relationship with a portfolio lender to grow my business.

    Sorry to digress. Bottom line. Way to go on taking action! 

  • Rental Property Investor · Mims, FL · Member since 2018 · 3 posts · 3 votes
    7y

    Do you mind sharing the exact numbers... rents collected, taxes etc. ? Thanks for the great post.

  • Westchester County, NY · Member since 2019 · 19 posts · 28 votes
    7y

    Wow Jeremy Sharp. Thanks to your post this is the first thing I've learned new today! Muchos Gracias

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