All Forum Posts by: Brandon Johnson

Thanks @John Matthews you are very knowledgeable on finance and you definitely know Ben!  I would say this is a pretty decent deal to start.  It's no steal, but if I could get into with very little of my own cash then it becomes a great deal due to the cash flow it will produce and the resulting cash on cash return.  It is in a decent area of town that isn't great, but it also isn't terrible.  So based on his willingness to work with me on the financing and the fact that I don't yet have any competition that I know of, it is an attractive deal for me.

Another thing to note is that this lead resulted from taking some really good advice I learned on Bigger Pockets to tell everyone I know what my intentions are in real estate investing.  Just spreading the word about my desire to buy rental properties helped this deal find me.

I found a deal in my local market here in Baton Rouge where a seller is willing to sell his duplex, that is not currently on the market and he is open to possibilities of carrying a note for a small portion of the purchase price that would reduce my down payment.  This would be in addition to the primary mortgage for the 75%-85% of the sale price that I imagine would come from a small local bank.

His asking price is $125,000 for a duplex that rents for $875 & $895 on two 3BR/2Bath units totaling 3000 SF.  Not exactly the 2% rule, but my analysis shows I should cashflow at least $500/month under 100% financing under several scenarios I evaluated.  Coming up with down payment funds is my biggest roadblock which is why this deal appeals to me even though it is not a 2% rule type steal of a purchase price.  He cannot owner finance the entire deal because he currently has an outstanding mortgage on the property that must be settled in the sale.

The seller and I have not discussed yet what the terms of the seller financed portion would be because my biggest uncertainty is the question of how do I present this to the bank?  Are there banks open to providing a new mortgage for a property where the seller is providing a large portion of my down payment in the form of a note to me?  Is this only done on commercial transactions?  Does anyone have any recent experience structuring a deal like this? I know @Ben Leybovich is the creative finance expert and I would be grateful to have his input here.

Also is Lending Club a good option to get my down payment money?  Would a bank have a problem with me getting my down payment funds that way?

Thanks in advance to the Bigger Pockets community.

Brandon Johnson

And to answer the question of whether I think you are being lazy or got ripped off, no I do not.  I am just getting started as a new investor and I juggle the decisions of do I trade my time to save a little money and do the work myself or do I treat this like a business as is my goal and pay someone to do the work? 

I lead a very busy life with a full time job, part time lawn service and a full time family, so I usually default to paying to have the work done as I build the real estate business.  In this particular case the cost saving were so big and came at a time when I have recently spent a lot of money on two properties so I decided to attempt the repair myself.  It is always rewarding to me when I am a bit intimidated by a job like this because I have never done it before, then I tackle it successfully and feel accomplished afterward.

I just bought a house in Baton Rouge that I ended up having to replace the water heater the second night I was in it.  Turns out the existing one was 25 years old.  The salesman at Coburn's told me my water heater went out just in time because in about 1-2 weeks now new federal regulations go in effect that require manufacturers to add a minimum of 1" insulation built into the shell of all water heaters.  This will add 2" in diameter and will make most water heaters no longer fit through most attic access doors in your house.  He told me that plumbing companies are buying up water heaters by the hundreds as fast as manufacturers can produce them to have stock on hand and prolong dealing with this problem a little longer.

I got quotes from three different independent plumbers and eventually decided to tackle it on my own.  The prices I received were $375, $500 and $550 flat installation rates regardless of how simple or complex the install was.  Mine turned out to be pretty easy because I had flex connections in place already and it was as easy as disconnecting the old electric heater and re-connecting the new one in its place.  It did require three men to lower the old one and raise the new one into the attic.

@Andy M. I just subscribed to your Youtube channel and watched several more of your videos.  You really do have some high quality videos and provide great content. 

@Ivory Hammond

 Where exactly do you live? Just trying to understand how far you are from New Roads.  I looked at the 4plex a while back and while it is priced ok, I decided I did not want to make the drive from Baton Rouge every time I had an issue collecting rents or needed to take care of the lawn which I would do myself.  There is a local broker in town named Ken Major Realty and he would be willing to manage them for you if you wanted to go that route.  I believe it is his friend selling the two duplexes because I spoke to him a few months ago when he was considering selling and they weren't on the market yet.  I am just getting started and one of my mentors insists that I need to self manage rather than start out with a property manager which is another reason I decided to pass this one up.

The fourplex has been posting to Craigslist recently as a motivated seller, so you may be able to swoop in and get a great deal on it.  Let us know how it turns out if you decide to offer on it.

Awesome video. Thanks for sharing! 

@Ivory Hammond

There is a reason that building in New Roads hasn't sold yet. I have been by there and that neighborhood looks very different than the remaining 98% of the community. You can likely cash flow on that building if you got it for the right price and were willing to deal with any headaches that come from the quality of tenant you are likely to experience there. I have talked to two other investors that own buildings in that small development and neither of them have problems keeping them occupied. 

You will not have much potential for raising the rents there though because you will always be limited by the surrounding properties and their rents. I was told the rents have been the same for years there and that market really doesn't support raising them. There is a duplex across from the four plex that the owner is ready to sell also. I don't know if it is on the market yet. 

@Glenn Willeford 

Thanks for asking. I lost both this property and another I offered on. Both were REO duplexes in my desired area of town and just others here suggested both went to "cleaner" offers that were cash offers higher than mine and well above list price. I am new to this and I am learning that REO multi-family here is a tough market for a newbie to enter.

These likely more experienced investors knew how much they could offer because they likely knew better than me how to estimate repair costs.  That's ok though because I have since located another seller with a duplex that is not on the market and I may be able to get into it on some very favorable terms as he is willing to carry a note on a portion of the purchase price that will greatly reduce my down payment amount.  If this deal works out I will be glad I lost the other two and have been patient. 

Welcome @Robert Lockwood

I just sent you a colleague request and look forward to meeting you at the next RING meeting.