All Forum Posts by: Benjamin Aaker

Have a look at what the rents are in your area for similar units in quad plexes. Use that to compare to the cost to do the rehab. You'll want a certain return on your investment. In multifamily we look for 6-10%, meaning the rehab should take in a net gain in income (after expenses) of 6-10% of your rehab costs every year. 

My first thought is that that is a lot of work to do. You said you are converting to multifamily. The purchase price will need to reflect all the work you will need to do. I don't see how you can be responsible for the street's water, but the rest of them will be your responsibility unless you can get the municipality to waive some. Best do that before buying. It seems to me to be pretty risky for a newer investor, but I don't know your level of experience. 

Hi Nicholas,

Indeed, you would need to have a commercial loan if you put your property in an LLC. It sounds like you have the property in your own name right now. I have done a quitclaim deed before to move a rental from my name into my LLC's. The 'do on sale clause' is always a scary thing, but keep in mind, that it is not against the contract you have with the bank to do this. The clause gives the bank the ability to require you to pay back immediately if you deed to another entity. The bank wants to get all its money back plus interest over the life of the mortgage. If you can demonstrate that this will continue, they likely won't exercise the clause. Another detail is the type of loan you have right now. Some government-backed mortgages only allow them to be in a personal name. They audit banks from time to time and if they find that you have transferred into an LLC, you may be forced to pay back immediately. Again, the bank doesn't want a foreclosure as it will lose money. The bank will work with you to get the property back in your name with a mortage.

Medium and large multifamily are valued by the income approach. As the income (rents) goes up, the values go up. There has been a lot of stimulus money going into wallets in the last 2 years and so they can pay more for housing. Rents have been going up everywhere partly due to this. This makes the multifamily valuations go up. Buyers see all this money to be made by raising the rents and they have been willing to pay more for similar properties, which depresses cap rates, and increases the sales prices. It all comes together to make it more expensive to buy.

That's not to say 'don't buy', just look for the value-add.

A lot of places I know shoot for assessed values to be 70% of market value. If the appreciation in your target area is high, then the assessed values will lag the sale prices, so this is not something to get too concerned about. I'm going to assume that the property's NOI is 26k by your statement about the income. That gives you about a 10% cap rate, which is very nice, as long as there is not a lot of rehab work to do. Check with some property managers in the area to verify what is market rate as the seller's agent has a bias toward telling you that there is an upside. Seems like it is worth going further on, though. Good luck!

The expense ratio of 68% seems very high. Make sure you aren't putting expenses in there that aren't ordinary expenses (like cap ex and mortgage). That'll make your NOI higher. Your cap rate is ~4.5%. Depending on the location, that seems very low. If I'm syndicating this I will have a tough time selling it to the investors at a 4.5 cap. Maybe there are plenty of cash buyers in your area and the caps are depressed, so it might work - all depends on your market.

That's a problem. A good syndicator will lay out exactly what the strategy is for disposition of the property. Hopefully the syndicator told the investors that they would exit the deal on refinance. I would be skeptical of the fees you are reporting; they certainly don't seem like they should be paid by the investors. That being said, the subscription agreement that you signed when starting should outline what happens in the event of a refinance or sale. Have a read, or better yet, take it to your attorney.

Hi Tyler,
Send the tenants a letter that briefly discusses you being the new owner. I agree with Greg, don't give your contact information. They will be communicating with your property manager. 

If it doesn't cash flow without you living there, then you should find a different property. The only way this would work is if you can put in a sizable down payment or pay cash. But then the cash is tied up in the property.

It's hard to tell you if it is a good price as it varies between locations and type of building. I put gutters on a 2 story single-family house for about the price you stated so It doesn't seem too crazy. While the duplex doesn't have to have gutters immediately, they add to the aesthetics, keep the annoying drips away from doorways when it is raining, and help direct water away from the foundation.