All Forum Posts by: Andrew Postell

Investment Info:

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

Purchase price: $350,000
Cash invested: $83,334

Purchased this duplex through a 1031 Exchange. Leverage a lower valued home that had equity to purchase this property. Proceeds from that sale are tax deferred and it made buying up on an asset easier.

Why would I sell a property rather than just do a cash out refinance? The property that I sold was out of state. It was also in a HOA. It was also just a 2bedroom 2bath home. When I purchased that property it was the best deal I had in front of me.

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

Because the previous property was in an HOA, because it was only a 2 bedroom, it would never really be maximized on the rents or cashflow. So, I choose to sell it, take ALL the equity from it, to buy an BETTER rental property. This duplex isn't in an HOA. The duplex is also a 3bedroom, 2 bath on each side.

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

Since I used a 1031 Exchange I needed to work on finding a property within that 45 day window. I used a real estate agent to locate this property. Seller even provided concessions to help pay for some of the closing costs as well.

How did you finance this deal?

Traditional, conventional, 30 year fixed rate loan.

How did you add value to the deal?

No value add here. This was a "turn key" property.

What was the outcome?

Very happy with owning this home. The potential here is significantly higher and since the price point is higher, now my 5% appreciation is more as well. After 5 years, if I have 5% appreciation each year, this property will be worth $446,000. Then I can choose to leverage this property for more as well. Or just keep it. But this is how you leverage properties to upgrade your existing portfolio.

Lessons learned? Challenges?

Learned that the 45 day window on a 1031 Exchange goes quickly!

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

Yes, worked with John Steffen on this property.

Investment Info:

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

Purchase price: $350,000
Cash invested: $83,334

Purchased this duplex through a 1031 Exchange. Leverage a lower valued home that had equity to purchase this property. Proceeds from that sale are tax deferred and it made buying up on an asset easier.

Why would I sell a property rather than just do a cash out refinance? The property that I sold was out of state. It was also in a HOA. It was also just a 2bedroom 2bath home. When I purchased that property it was the best deal I had in front of me. But because it was in an HOA, because it was only a 2 bedroom, it would never really be maximized on the rents or cashflow. So, I choose to sell it, take ALL the equity from it, to buy an BETTER rental property. This duplex isn't in an HOA. The duplex is also a 3bedroom, 2 bath on each side. The potential here is significantly higher and since the price point is higher, now my 5% appreciation is more as well. After 5 years, if I have 5% appreciation each year, this property will be worth $446,000. Then I can choose to leverage this property for more as well. Or just keep it. But this is how you leverage properties to upgrade your existing portfolio.

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

Offloading a lower performing asset into a higher performing asset.

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

Since I used a 1031 Exchange I needed to work on finding a property within that 45 day window. I used a real estate agent to locate this property. Seller even provided concessions to help pay for some of the closing costs as well.

How did you finance this deal?

Traditional, conventional, 30 year fixed rate loan.

How did you add value to the deal?

No value add here. This was a "turn key" property.

What was the outcome?

Very happy with owning this home.

Lessons learned? Challenges?

Learned that the 45 day window on a 1031 Exchange goes quickly!

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

Yes, worked with John Steffen on this property.

@Shonda Rountree the best technique I can recommend is getting a referral from another real estate investor in your market.  Whether it be a plumber, electrician, title company, lender, or whatever...if we ask other real estate investors who they have used and would recommend it significantly helps in finding good people.  Nothing is foolproof of course, but if someone else has experience with them and feels good enough to recommend them because they have vetted that vendor - then that's a good place to start.

Visit some local real estate meetup groups. Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too. Even facebook might have some good local groups for you. But get connected locally and find out who other people are using consistently.  That's my suggestion.

@Abe Naroth thanks for the post.  Always great to hear from a fellow Texan.

When we are buying off market properties we are using some type of acquisition loan (usually Hard Money).  And if you are keeping the property, then you refinance.  If you are flipping, then you just sell.

Now, it sounds like you are talking about going to the auction block to buy properties.  And that would not be covered with normal lenders.  That doesn't mean you can't purchase off market properties though.  Usually, to buy from the courthouse steps you need lots of experience and good, established relationships to get funding.  But there are still TONS of other properties out there that you can get financing with, that aren't in an auction setting.  That's usually how most of us start.

I hope this makes sense how I am describing it but feel free to ask anything else.

@Jake Harrington thanks for the post here.  Always great to hear from a fellow Texan.

The main question I would pose here is - what are your options?

I say this because we usually execute with Hard Money because our other loan options aren't good enough.  

I don't think Hard Money is risky at all. It's one of the most consistent forms of acquisition money out there for us as investors.  Now, I'm saying this because the Hard Money lenders I use on my own properties I know, like, and trust.  It is risky to use anyone blindly...and there are entire discussions on how to vet vendors and it usually starts with leaning on other investors in your market.  But I'm off target a little here.

Hard Money allows us to come out of pocket next to $0 on a property. Just because it's possible doesn't mean it's easy to do. It is common to purchase a property with about $10k-$15k out of pocket. But with DSCR or conventional loans I need 20% down or so. I have millions of dollars of real estate. There's no way for me to acquire that much real estate with traditional lending. Which is why the BRRRR Method or Sub To or Assumptions or all of these other strategies are important. All of those help me purchase a property with as little out of pocket as possible and we usually execute with Hard Money.

Hope all of that makes sense but feel free to ask anything additional.  Thanks!

@Mary Parsek you are pretty close with this forum but I would suggest posting this in the "Mortgage Notes" forums.  Or maybe even the "Commercial Real Estate" forum.  This is more for residential stuff here.

@Neno D. how much experience do you have at flips of this size?

@Christopher Sweeney ok, no problem.  This is why Bigger Pockets is a great place.  You can keep learning here.

Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.  These loan don't let you close in your company name because they are based on you.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. Sometimes called "DSCR" loans. DSCR stands for Debt Service Coverage Ratio - basically it means that the income of the property is what qualifies the loan. If the debt is covered by the rent, then you are approved. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and often they will have a prepayment penalty...or some other feature that may not be as good as "conventional" but since they are more flexible, they fill in the needs of where a "conventional" loan is lacking. These will absolutely lend to your company.

Now, how do we know where to find these lenders and which ones are any good?

I wrote an entire post on this, including what questions to ask lenders, that you can find HERE.  The most consistent way is to speak with other investors in your market to know who they use.  You can meet with other investors at some local real estate meetup groups. Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too. Even facebook might have some good local groups for you. But post locally for this. That’s the best bet.

@Stevie Nosekabel ok, if your properties are located in Ohio then we should speak with some local Ohio people.  

Here's my 2 suggestions:

1. Visit your local REI groups. There are many groups that meet across the country. Some post here on the Bigger Pockets Marketplace. Many post on meetup.com. Even facebook will have some. Networking is always a great practice and you never know who you might meet there and what good information they have to share. Would certainly recommend visiting if one is close to you.
2. Calling - and then there's this option. Which is what I had to do. I had to call about 200 lenders (no exaggeration) to learn of 4 lenders who did this and I have some tips. First, when calling banks target the smallest most community based banks you can first. If you have never heard of them, and they have one location - that's a good candidate. No big, national, publicly traded banks will do this loan type. Second, try to ask for "LINES OF CREDIT" instead of "HELOC". I know it sounds like I'm splitting hairs but some banks write HELOCs in their residential department....which won't write Investment Properties. And that residential department will often not speak to the commercial department. So they'll just say "sorry, we don't do it"....not even knowing that they really do! So if you ask for a "line of credit on an investment property" that should get you to the COMMERCIAL division. That's the section of the bank we want. Now, most of these smaller banks may only have 12 employees or so. So don't get frustrated if they don't return your call or aren't in the office. Just call back and be friendly. Maybe play dumb a little "I don't know if I'm in the right place..." "I'm sorry to disturb you, you may not be the right person for this....", etc. Maybe someone can get you to the right person. Again, be prepared to call A LOT.

Hope all of that makes sense.

@Edgar Ortiz agree with the above.  Wholesalers have been the best method for me to find deals and I would always recommend to try this in your local market first.  Get connected with some real estate groups locally as well.  There are lots of them out there.   Some post here on the Bigger Pockets Marketplace. Many post on meetup.com. Even facebook is a great tool for this.  Networking is always a great practice and you never know who you might meet there and what good information they have to share. Would certainly recommend visiting if one is close to you.