All Forum Posts by: Benjamin Aaker

Hi James,

I highly recommend getting into multifamily for the economies of scale. You asked about drawbacks - the valuation is based on market value, so it will fluctuate with the other 4 plexes in the area. Larger multifamily properties use the income approach and it is easier to predict what you will be able to sell for with that method. Another drawback is that you will need a commercial loan unless you intend to house hack. Spouses sometimes are resistant to that :)

Hi @Baasil Khan, welcome to investing in Sioux Falls!

Make sure you check with the municipality about whether you can convert it into multi-units or add an ADU. If you aren't allowed to do that, you should find another place. If the property has lots of land, you could also ask the municipality about subdividing it and developing.

Sounds ambitious. There's something to be said about building something yourself. Do you have any construction experience? The GC seems to take this big 10% cut just to manage subcontractors, but the GC actually does a lot of extra work. He or she still does plenty of construction. Their benefit comes from doing volume deals with suppliers to get a lower price and to have first pick when the shipments come in. You won't have that. You also won't have leverage with the subs to get the job done with the promise of more jobs in the future. If you plan to GC then make sure you have some solid agreements about timing and condition with the subs. Good luck!

I agree a title search would give accurate data about the liens, however, you already know that some big combination of liens are there. It's not really worth spending the money on a title search if the sellers (I presume they are sellers) are not going to get those liens satisfied. If they are willing to credit the lien amount to the buyer, then get the title search. If they won't, I wouldn't do anything else because you won't be able to help them. Those liens will put them in a poor negotiating position, though. Better to get them paid now.

They can refuse to do the loan for anything. They are trying to tell you that they didn't reject the loan because of your personal ability to repay the loan, but because they didn't like something about the property. The loan officer that you use tries to "sell" the deal to the underwriters, who have no interaction with the lendee. They take their time and can reject it for any number of reasons. Pretty annoying to have this happen on the 11th hour. I suggest finding another bank.

Using private money is a problem here, but not the only one. That type of loan will only work if you are flipping the place or financing it in 12 months.

Consider finding a bank right now and cutting out the private money loan. If you are flipping, then the deal fails on the 70% rule (you have 250k in and only going to get 260k out, not counting holding and closing costs). If you are holding, then finding a bank is a good idea.

If the rehab is preventing you from using a bank, consider a bridge loan with them to get the repairs done. If the rental income is $2,000 a month then you have yourself a 0.8%-rule for a buy and hold. Even with a bank, this is break-even at best. Any way I look at it, this looks like a walk-away sort of deal.

I agree with @Colleen F.. You need to contact the municipality and ask. If it is not zoned how you need, you can work with them to get it changed in some cases. Getting the government on board is the first step. Next, call your utility company and ask about the possibility of splitting the meters. For a fee, they will usually do this.

I have a small 4 bedroom motel. In this market, banks are scared of investing in hotels. It can still be done, but I'd recommend finding a banker who agrees to finance first. You might find it difficult (but not impossible).