All Forum Posts by: Dan K.

I was going to chime in with exactly @Tom S.'s point -- you need to keep in mind that this entire property will be considered commercial from a lending perspective.

A lender's underwriting process will be difference, and your due diligence should also be different.

The advise in this post about tenants for the residential units is on point, but you really need to analyze the general store. 

I spent time living on the NH/VT border (Hanover, NH) and I know these types of general stores. Although they might be loved by the community, and their bulletin boards are more active than Craigslist, profitability can be difficult. Additionally, finding new owners or a new generation of family ownership that wants to live and work in the area can be a challenge. If that store goes dark you might have a vacant retail space for year. 

In my opinion, you really need to understand the financial viability of the general store. Being close to a gas station is a major plus; however, many general stores are starting to offer more customized experiences and products that customers can't get via Amazon.

I completely agree with @Lien Vuong. If there isn't an appetite for multi families in the area, building one is a poor strategy.

Additionally, if you are going to try to sell them as condos, buyers and realtors might not be interested.

I'm not trying to start a debate on turnkeys, but this is my opinion. Personally I think the numbers are too tight with turnkey -- if you need a new dishwasher for example, between the costs of the machine, cost for maintenance and cost for management, you may wipe out your year's profits.

In addition, with turnkeys I'm concerned about the turnkey operator's motivation. If they are the original buyer, flipper and then manager, they are wearing a variety of hats that don't coincide with your goals. Of course as a flipper, they want to maximize the sale price. And even as a manager, they get more money if things go wrong. I am personally not comfortable with a relationship where the motivations are so potentially unaligned.

That being said, of course turnkey is a huge market where people do well.

@Alan McDonald -- If you are getting the property for under fair market value, you can look at it this way -- worst case scenario you put it on the market and sell it. 

One thing to keep in mind -- will the family be upset if you sell the property in 6 months, 6 years?

Perhaps the owner is willing to give you some owner financing to help make the deal happen.

Personally, I think this is a great opportunity.

I think it all comes down to what your goals are.

As @Nick Mess points out, you can great cash on cash returns in Southern NH. However, appreciation might be around inflation.

As @Russell Brazil and @Justin Rank point out, the expensive areas are highly desirable. My units in Cambridge are extremely desirable. Rental agents and prospective tenants are continually contacting me hoping I have available units. Of course appreciation is a risk, and you can't bank on it, but the highly desirable areas with growing populations and more and more businesses relocating, are more likely to appreciate. In addition, in highly desirable areas, you also have the ability to force large amounts of appreciation through capital investments and then pull money out of the property.

My 2 cents on parking -- depending on the town/city, they may require one spot per a unit. I know it's ridiculous since the majority of buildings are grandfathered in and don't meet that requirement, but zoning often requires a 1:1 ratio. It's especially frustrating in areas where tenants don't own vehicles.

Hi @Alan McDonald -- If you're listening through the BP you'll stumble upon a concept of an "unfair advantage." Getting in on this closely owned multi family in the Boston area is your unfair advantage. In addition, you'll probably have some insight into what needs to be fixed and rehabbed.

In my experience in Cambridge, MA, you will need a contractor. If it's a 5-unit I don't think you'll get a lot of slack from the building department.

If you have a relationship with a contractor, you might be able to do some or most of the work under his or her license.

Note: You do not need a GC that is licensed to do new construction, somebody with a restricted license is enough.

@Mike Lock -- In my opinion, another key to making BRRR work is to lock into a long-term loan as an owner occupant. For residential mortgages there are rarely early payment penalties, so I prefer a 30-year for ultimate flexibility. Once you no longer occupy a property, if you refinance, you will be looking at less favorable rates.

Hard money can certainly be more flexible and the underwriting process is very different compared to a traditional product, but for the most part you will pay more for hard money.

Hi @Mike Lock -- I'm doing the BRRR right now in Cambridge, MA. That being said, we got a good deal and the numbers have been ugly (we knew they would be) over the last few years as we've addressed deferred maintenance, almost gutted units and added an additional apartment. We have run the full gamut, from exterior pain, to residing portions of the house to going through the zoning board to do the development. As you can guess, all of these activities are highly capital intensive.

We bought when interest rates were lower than today. Something that is not talked about often, is that the BRRR method presumes that interest rates stay steady. When you are dealing with very expensive properties, a new mortgage that is a quarter point more expensive can really change your evaluation.

In my opinion, if budget is a concern, look outside of the immediate Boston area. Despite the fact that Boston is expensive, it area becomes more affordable quite quickly as you move out of the city. The south shore still has a many deals. @Charlie MacPherson often chimes in with info regarding the south shore.

The bottom line -- in Boston and Cambridge you're not going to get rich quick. You will have a wonderful pool of extremely high quality tenants.