All Forum Posts by: Blake Dailey

Investment Info:

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

Purchase price: $110,000
Cash invested: $50,000

Contributors:
Logan Boesch

BRRRR pulling all cash out at the refinance of this duplex and holding for cash flow.

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

It was a single family house with a full 2/1 bottom unit.

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

I found this deal lingering on the MLS. I offered on it back in September of 2019 but the seller did not accept. At that time, I think I offered around $125k. After sitting on the market for 6 more months I came back and revisited the agent. This time I told him he could be a transactional agent (represent both sides and collect double commission). After a little back and forth we landed on $110k cash. A $15k discount from my first offer 6 months earlier!

How did you finance this deal?

I purchased this house cash with a partner.

How did you add value to the deal?

We rehabbed both units to include redoing drywall and insulation, refinishing hardwood floors and adding LTP flooring, adding a new bathroom vanity, replacing some fixtures, andredoing the front deck and adding the back deck for separate access to the back unit. We also added soffit and fascia and put new siding on the back of the property.

What was the outcome?

We invested around $40k into the rehab and after closing costs, holding costs, and some miscellaneous costs, we were all in for around $50k on the rehab. The result was two new units in a good neighborhood that will cash flow well.

Lessons learned? Challenges?

Write out your own scope of work. I talked over the scope of work with the contractor and ultimately let him draft it up. In doing some we missed some items that we had to go back and redo costing us a little bit of time. I dig more into the details and lessons learned on my website multifamilyjourney.com under the "deals" page.

Hey @Ryan Sargent I don't think you have to be right on the beach. Rental rates are higher right on the beach, or right across from it with a view. But that doesn't mean you can't do really well one block off the beach or even 10 blocks off the beach. I have 7 STRs that are all 20 minutes from the beach and I have consistent demand paired with lower purchase prices so the numbers work really well. Search on Airbnb and see what other properties are renting for off of the beach and how many nights they are occupied (look at their calendar availability) to help run your own numbers and make sure they work. You can also use airdna to aggregate STR data.

@Eric Johnson good addition! I think Freddie is currently at 6-9 months reserves depending on their loan product and Fannie is trailing at 9-12 months for reserves. Does that sound accurate with what you are seeing? This will be consideration for investors needing to bring more money to close but if the numbers still work then that added safety should be helpful. 

Learn about and educate yourself on buying foreclosures, in the next year there should be an influx with all of those currently in default. 

Also look into using private money. Tell everyone what you do. Provide an opportunity and be the expert and people will want to invest with you. Bill Allen did a Facebook challenge over the last several months about raising private money and that was a good resource for tips/tricks and the mindset shift that goes behind raising money.

I remain firm on my outlook that it’s a great time to buy. I will provide the caveat that I think it’s a great time to buy good deals. I think with the extended bull market and impressive real estate run we have seen, paired with the increasing amount of content coming out about how low-cost, and risk-free, and low-effort real estate is that people have a terrible idea of what a good deal is. It’s almost to a point where I would estimate that the general ‘real estate investor’ thinks a good deal is when the seller says “Yes”. I’ve seen C class properties marketed at 2% cap rates (cap rate measures the unleveraged return on investment) that have actually sold! Come on now. With the potential softening of prices and difficulty filling units I think we are headed for a small correction so conservative underwriting, to me, is key right now. And with all-time low interest rates, if you have a deal that works now is the time to buy and lock in the low rates as long as you consider the market forces at play.

Let’s talk about some key points that can help you prepare for success and avoid catching the falling knife if you are just getting started or looking to scale your multifamily business:

· To pick up on conservative underwriting, now would probably not be the time to maintain 2-3% rent growth in your pro forma. Collections are already becoming tough (and expected to get worse in coming months) paired with historically high unemployment. It suffices to say that if people can’t work, they can’t pay rent. I would be very cautious if a deal depends on rent growth to meet returns. I’m naturally conservative so I plan for worst case scenario and still like to see positive returns and always offer based on my conservative numbers. Don’t be the person that gives someone a great deal because you get foreclosed on or have to sell at a loss. Be smart up front, do your homework on your market, and run your numbers conservatively – especially if you are investing with other people’s money.

· Right around Labor Day the CDC announce that residential evictions are being put on hold until the end of this year for those affected by covid-19. All tenants have to do is show paper work documenting that they have been affected by the virus and it initiates their eviction force field. Many tenants are taking advantage of this, not to say there aren’t those who truly need it, but some landlords are really suffering. This is causing the number of those in forbearance (currently over 4 million) to rise. The tenants aren’t paying, so the landlords can’t pay, and so the lien holder can’t pay to those who back the loans, leaving trail of people affected due to gross nonpayment. As someone looking to purchase a property, this affects you because if you have tenants who can’t pay, you will be in a bind to execute your business plan. Plan ahead.

· Another topic to touch on for those operating multifamily properties is the vacancy factor. This one isn’t all doom and gloom but it is important to touch on. The multifamily market has seen both positive and negative forces with regards to vacancy. Bad news first. Vacancies are taking longer to fill. I have seen this myself in my portfolio. Rental listings are sitting longer and the time on market has grown. This could be because people don’t have the lease up costs like first month’s rent and security deposit available or because people are beginning to move back with mom or someone else. The number of millennials moving back in with parents since the pandemic is already in the millions and expected to grow. This is concerning because millennials have been expected to be one of the driving demographics in multifamily apartment rent growth (as are baby boomers). But on the flip side, people are staying in their units longer as time of occupancy is increasing. This could be due to the uncertainty of where to go or the associated risks with moving and becoming more exposed to the virus. Either way people are staying put which helps to keep vacancy and turnover costs down.

· On a high note (depending on how you look at it) the number of renters is expected to rise. Forbearance continues to rise and the number of people facing eviction is predicted to be 40 million – 40 MILLION! What is to come is a lot of people who may lose their homes and enter the rental market. And current housing demand is not predicted to be met until 2030! That means throughout this whole next market cycle there will be a shortage of supply and an influx of potential new renters (unless everyone displaced moves in with mom and dad or grandma). There will be big opportunity for those who can deliver affordable housing in the coming years. This is maybe the number one reason why I believe now is a great time to buy, but pair that will all time low interest rates and easy access to capital… go find a good deal.

So what does all of this mean for you? It means there is going to be massive opportunity but there are some definite landmines you will need to learn how to navigate and become a prepared and informed buyer before taking the leap. I think action is the most important aspect, however, don’t go in blind guns a-blazing and be the next person on the forbearance list. Take this list as a starting point to begin your journey. Data driven decisions with some guts to act make the best investments – go make it happen!

Thanks @Al Williamson I'll definitely check it out. I'm working on putting some Air Force folks in there over the winter months to keep vacancies filled. Long term guests kept me performing well through the covid outbreak so it's shifting focus of mine, especially in low season. 

I second on David's above comment. I think a good first step would to be find a good VA lender and then can walk you through the process. I have found a really good lender that I like working with, and they are also a veteran. If you want DM me and I'll connect you.

Then find an investor friendly agent with experience closing VA loans who will help you find the right small-multifamily property. You have a great opportunity to get in for 0% down so I'm glad you found this strategy. It's how I started too.

@Charles Seaman great additions! 100% agree. non-recourse debt is a big perk.

There are many reasons to invest in multifamily real estate as opposed to single family; primarily the fact that you can save yourself a lot of headaches. It’s scalable, it has efficiencies that single family investing lacks, and you can achieve your goals with less deals and less work. I am not against investing in single family homes – that’s how I got my start – but I have come to realize over the course of my journey that I can make a much bigger financial impact in a shorter amount of time by investing in multifamily.

1. - Multifamily is more scalable.

With one large commercial multifamily deal you can build in the systems to run your portfolio from the start. You can have onsite property managers and full-time maintenance staff from day one. 

1. - Multifamily is more efficient.

Imagine a 100-unit apartment complex. This apartment building (ideally) has the same HVAC units and the same hot water heaters for each unit, as well as one roof covering all of those units. The full-time maintenance staff knows how to fix each item because they are all the same and each repair is done onsite with no travel time. On top of that, they can store extra parts and equipment on-site. This is economies of scale at place – the more units, the less cost per unit to maintain.

1. - It takes less time and effort to build up your portfolio.

By applying the same time and effort that you would to close a SFR, you could close a multifamily property. The vast difference is going to be the impact of the purchase. You are going to get much more by closing the multifamily property. You can reach you passive income goals, number of units goal, or network goal by acting in multifamily closing less deals but bigger deals.

Investing in multifamily properties can set you on your way to financial freedom because its scalable, efficient, and you can achieve bigger results faster. Now is the time to get started because interest rates are so low, private equity is abundant, and there is increased opportunity with less competition from big time buyers. This is the asset class you want to be in for true passivity, and there is no better time than now. Don’t hesitate, be brave, and surround yourself with the right people to make it happen because when you look back in 20 years you will be glad you did.

Focus on multifamily or short term rentals. Short term rentals will be easy to acquire because you will have a bigger pool of potential properties (depending on your market). I have acquired 7 STRs in just the last year that put out $800-1000/month cash flow each. 

You could also achieve this on one big multifamily property as well though, which is where my focus is. It just depends on what you like more. But definitely spend some time learning the asset class before jumping in.