All Forum Posts by: Alan Verde

I think I am looking for validation of my understanding of the status quo. My intended market is central-south NJ, which is pretty competitive and can be high dollar real estate. 

I've been looking on Zillow/Redfin and came to the conclusion that any of the listings there are "too late". Seems like too many middlemen are on the deal by the time it hits the MLS. Like stock pickers on CNBC - too late. While I've found some deals that appear do-able, the numbers never make sense. Often times I even see destroyed homes (perfect for a flip) that sell almost as much as remodeled homes. Impossible to find any sort of margin. Best case, maybe 1-2% CoC.

As I learn, I am coming to the conclusion that all the good flip deals are done through private sales. I signed up for PropStream and learned about skip tracing. Slowly starting to realize that this how it all happens. Like all these properties I see only where people sell a property for $700k which was purchased for $300k just 6 months prior. Text/call/email 1,000 property owners and hope to find one that will give in and take cash to just exit no questions asked. That this is really knocking on doors and selling type of business. 

Is that the real game here? Am I seeing things clearly? Is there room for a person like me who likes building and working in spreadsheets? 

How bad of a headache? Would you do it again?

Quote from @Robert Rixer:

Banks will typically want to see 12 months of seasoning at stabilized rents before cashing out. Class A you're more at the winds of the market rather than being able to force appreciation like a true value-add deal.

Thanks. I am reworking my plan as far as the class of property I should be looking at.

I spoke to a bank today, and they offered me delayed financing (as an existing purchase) within a year to get 60% cash out, but after a year I am looking at only 50% cash out max. Seems low to me. 

Quote from @Nicholas L.:

@Alan Verde

a couple things:

2-4 units are typically valued on comps.  so raising the rents might be the smart thing to do but it won't increase the value.

on the cash thing - no, nothing to do with the renovation.  you just mentioned buying in all cash using savings.  my point was, don't invest all of your savings into anything - you need to keep liquid cash on hand for other opportunities, for emergencies, etc.  that's why having all your cash stuck in one property is high risk.

and - most of us use leverage to get higher returns.

I am hoping to increase the value with some improvements. Maybe as renters move out, I upgrade the kitchen over time. Or landscaping on the property to make it feel higher end.

Got it. My expectation is to a cash-out refi using DSCR after 6 months. I would still have a reserve in my savings, but it would definitely be a large portion of it to do the cash buy initially. I am OK waiting 6 months to get that cash back out. 

Thanks, @Nicholas L.

I am expecting 2-4 units to start.

Noted on your point on going to premium and no cash flow. I will work that into my searches.

Could you clarify "recommend not ever putting all of your cash into something as that can actually be high risk as well". Do you mean going too low in quality? I am not experienced enough to do a full flip, but I can do minor improvements. 

My goal is to diversity into multifamily real estate. I already have one investment SFH, but it would be my first time getting into MFH. I still consider myself a newbie, but I've been reading a lot. Here's what I am thinking about. Could use any constructive advice from this wonderful community!

1. Find Class A-ish multifamily property, ideally with existing tenants. Lower margin, but lower risk since it's my first time.

2. Buy it with cash using either my savings or potentially get a PAL temporarily if I need more cash (or both). Ideally, use the all cash purchase to negotiate a better sale price.

3. Depending on the property and my budget, do some minor upgrades (ex. common area, landscaping) to increase property value.

4. Do a cash-out refi using DSCR after 6 months. I'd weight the interest payments if using a PAL vs just straight cash from my account. I suppose the risk is the variable interest rate for the PAL during those 6 months.

5. Try to raise rents after 1 year to improve cash flow.

6. Repeat with a new property.

What am I missing? Thanks in advance!