All Forum Posts by: Account Closed

Matt R. All but 2 units are long term regular rentals. Two are furnished.

Greg S. I have approximately $7 million of property value and $4.2 million of debt. That puts me capitalized with 60% debt which I think is pretty good. In the process of cashing out $400-500k in a few months on the most recently renovated property to take advantage of the value created thru renovations. With that cash out it will put me at 67% ltv which is pretty well optimized in my book. As previously mentioned, properties 2-4 were financed 100% with debt (new mortgages plus cash from cash out Refis or HELOCs).

Regarding expense ratios, I suspect (but I'm not entirely sure of this) that markets with higher rent will have lower expense ratios. Here's what I am thinking: on a 4000 sq foot 3 family I am going to pay the same for insurance whether I am in a top tier rental market (around $3000 per year) like Cambridge or Somerville or in a lower rental area like Worcester. The same can be said for utilities and maintenance. Rent is 3x higher in Somerville for the same type of unit than in Worcester. Taxes will be higher in the higher tier rental areas but not 100% correlated (rent is 3x higher but taxes are only 2x). Am I on to something here? Seems logical but let me know if I am off base.

Regarding liquidity - to the extent you can find a trusted family member (parent, uncle, grandparent, etc.) to provide a cash safety net in the short term, I'd highly recommend it. I leaned on my parents to cover a short term liquidity crunch for the first one (and paid them back with interest). To the extent the debt route wouldn't work for that person, you could offer a portion of on going income (equity partnership). Just a thought. Partners are super important.

Jeff Dulla PenFed offers HELOCs on investment properties up to 80% (or they did two years ago). I am working with a local commercial real estate lender now (Norwood Cooperative bank) and they put lines of credit on investment properties up to 75% ltv. Your big banks will not do HELOCs on investment properties. I dialed more than 30 lenders before I found PenFed. They are super slow but will finance up to 80% ltv which is awesome. There may be banks Local to your area that will do HELOCs on investment properties but they can't be in an LLC (have to be owned personally).

Mark Otto two of my units are furnished rentals where I pay utilities. Regarding maintenance, it is $1500 per building per year. I misspoke saying $1500 per unit. And yes - big stuff I just write a check for, but those items are few and far between as so much is done up front during the renovation (i.e. Plumbing, electrical, appliances, paint, flooring, etc.). A water heater could go, or you replace a window, replace some rotted wood, and for that stuff I just write a check out of savings. The budget posted above is pro forma and excludes "one-time" capex.

I would tread carefully though. At the end of the day, you can have a property manager or a management firm, but they won't care for it like your baby. My partners own a portfolio of almost 1,400 units with in-house management, but they still oversee the entire operation. While you are overseas, there are a few unknown variables that may affect the performance of the your property. For ex, a partner of mine bought a 12-unit property from an ex NBA player who was playing in South America. The property was a mess and barely breaking even even though it was cash flowing when the player purchased it. If it's a large 150+ unit building, you can definitely get away with it with frequent trips to monitor and check up. But to be absentee as you described on a small property, you'd probably depend on a property manager who is manages small properties. They tend to be hit or miss. And with you being oversees, replacing PMs will be tough. 

Thank you guys for the all the positivity. Love it. I will try to share more about my properties, the details and all that. Will answer the interesting questions as well. 

Hi Drew Markert Liquidity is most important. You need to make sure you have enough capital to afford a down payment, carry the mortgage during construction, and float the construction costs until the bank has a chance to review the work and release construction funds. That being said, you can create so much value (at least in the Boston market) by renovating. And value that is created can then be accessed for the next one via a HELOC or cash out refi. If you have the liquidity I'd by a piece of garbage with great size and location and renovate!

Some financing details for those interested... Property 1 was financed with a traditional 10/10/80 piggy back mortgage in 2007. Renovations were done with cash. Heloc through Sovereign Bank in 2013 (they did these on non-owner occupied buildings then, but not now) for $250k. Bought second building in Somerville in 2014 financed with the down payment from the HELOC. Financed renovation with HELOC. Rented that building out then put a $170k HELOC on it through Pentagon Federal Credit Union (PenFed). Did a cash out refi on the Cambridge property pulling out around $280k. This plus the 170k giving me $450k of dry powder. Bought property 3 in somerville and financed the construction with a construction loan. Renovations went around 80k over budget so I had to cover those costs with cash (not in bank provided renovation budget). Leased that up then took out another $200k through a cash out refi. Bought property number 4. Total gut. Way over budget as it was a historical building. Needed to finance $150k renovation with cash. It is beautiful now valued at $2.4-2.5 million. In the process of putting a $400-500k line of credit on that building to finance number 5. Of note, properties 3 and 4 were commercial construction loans. I am done dealing with residential lenders. Happy to answer more questions related to financing. I love financial engineering! Real estate is the greatest asset class in the world because you can leverage 75%-80% with debt.