All Forum Posts by: Brian Alfaro

Florence,

This is just my opinion, but this doesn’t sound like a good deal is it stands with the info you’ve shared. Here’s my opinion on why..

Sub2 deals are great when you're getting an asset with little cash out of pocket and lots of equity and ideally appreciation long term. This one has the equity spread, but it sounds like you're in line to pay about $25k-30k out of pocket as the deal stands - $15k to seller, $5k in repairs, arrears payment to mortgage company, closing cost, and attorney fees to draw up your Sub2 documents if you don't already have them. That's a lot for a house with a $115k ARV. If you're gonna drop $25-30k on a house I'd spend it on one with less hoops to jump through or with a much higher ARV.

If I was negotiating this deal I wouldn’t offer the seller anything near $15k if it was a Buy & Hold. They’re about to lose the home, so they don’t have the leverage to ask for that much. If they’re 4 months in arrears they’re likely to go into foreclosure anyways. Your pitch is you’re solving their problem and preventing them from losing the home for nothing. Offer them $2-3k and maybe to pay for moving cost. You’re already going to have to come out of pocket $10k or more it sounds like to do repairs, close, draw up documents, and catch up on payments. If this was a flip maybe you could structure it differently and offer to pay them off when you sell after renovations  

I would advise you to speak to a real estate attorney on the subject matter that can better explain the recourses of doing a Sub2. I have a couple of contacts I've spoken to in the past. Message me and I can share the firm names. There are a few big players in the Sub2 space I can point you in the direction of, but I don't know them personally (they offer courses on the ins/outs and how to structure Sub2 Deals).

@Khang Pham

Keep showing up to those meetings! Don't be afraid to put yourself out there and talk to people. It's the only way to break fear. 

I am a licensed realtor, and I can tell you that if you and I have a Buyer's Agreement in place that I am going to represent you in a transaction, you don't need a non-compete. I am representing you and legally cannot compete against you (i.e make an offer). My job is to represent you and that is how I earn my commission. Why you are interested in having a realtor who is representing you sign a non-compete? Are you afraid they are going to steal the deal from you? 

I can tell you that a realtor is not going to sign a document you present them without first consulting their broker and an attorney. It's unlikely their broker advises the realtor to sign it without also consulting an attorney. Being a realtor myself, I personally wouldn't be interested in working with an investor who had no experience if they asked me to sign a non-compete. What are you bringing to the table that gives me motivation to sign it since you have no deals under your belt, no properties, and no experience? If you were an active, experienced investor buying/selling multiple properties a month, then I would consider going through the legal obstacles to get your non-compete analyzed by an attorney because we are going to bring value to each other. Therefore, to answer your question my opinion is that it is uncommon to ask for that. 

At this point in your journey where you are in the learning phase before you take action, I would advise you not to worry about things like "non-compete" agreements. You have way more things to worry about like how to analyze a property, how to find deals, how to rehab them, how to finance them, etc.. 

@Khang Pham Welcome! 

As I mention in several other forums. I highly suggest you attend local Real Estate Investor Meetings. Houston is such a big city with so many active investors, there are literally investor meetups 5-7 days a week. You could go to one every day if you tried hard enough. Find 2-3 you like and attend them regularly to network and grow your education. You'll meet lots of people just getting started, but you'll also meet lots of people already investing and lots of great contacts (lenders, contractors, title companies, insurance companies, etc). 

I have an account on the website you mentioned. It's pretty nifty, but I have access to the MLS as a Realtor, so I can see most of the same info. I always caution to be very careful about a "one stop shop" for investment deals. A website that shows you everything you need to know that has 100% accurate data does not exist. This one is cool that it allows you to customize some really important data like holding costs. Just be weary that the website is attempting to get you to submit an offer. I would advise against doing that (especially if it's your first deal) without using a Realtor. You need someone that can guide you if you've never bought a home (or an investment property) before. As a buyer, a Realtor is free to you, so why not use them?

I don't think I've had the pleasure of meeting you yet, @Kevin Wood. Looking forward to attending this! 

@Mark Sewell. For sure! Come check it out one day if you get some free time - great place to hang out on the weekend. I'll shoot you a message on FB so we can chat more about starting a meetup and catch up. 

I agree with everyone on here - keep looking! It is very common to find negative cash flowing properties with a negative CoCr if you aren't following some simple guidelines like the 1% rule. If you're analyzing a property that is worth $100k and not renting out for at least $1000 per month (1%), you can probably just move along. If you are using any type of leverage (debt) and not paying cash, you are not going to cash flow and your CoCr is going to be negative. Almost every time. It isn't a rock solid rule, but it certain helps you filter through properties quickly instead of burning many many minutes analyzing a property for a rental. When I see a home up North that has a $250k ARV but the market only rents for $1,700, if I'm looking at it as a rental I stop looking. Maybe it's a flip instead if the numbers are good. You can't be a one trick pony because you may be looking at a good flip through the eyes of a rental and pass on a good deal or vice versa.

@Mark Sewell hit the nail on the head! Him and I have had the pleasure of meeting in person. Go to local meetups. Message other investors in the market and see what they're up to. There are literally investor meetings somewhere in the city almost every day, so pick the ones close to you that you think will have a positive impact in your growth and get out there and network! 

Does anyone have any pocket listings of any small multi-family properties in Houston? Ideally they would be $1mil or less and have value add opportunities. 

Please reach out if you have anything to discuss! 

Corie,

I'm in Houston and I can tell you what you described is very common. This is something builders don't always clearly tell homeowners when they buy new construction. Your first year property taxes are simply based on the land value. Then for year two, BOOM. You get hit with land + improvements (the home) which are usually assessed at a value close to your purchase price + land with maybe even then some if the area has been rapidly appreciating. Happens in areas around Houston in the suburbs all the time. I've talked to a few people that got in tough situations because of this. 

I'd love to talk to you more about this property - I will send you a message. I can't imagine you're cash flowing anything once you account for PITI (Principal, Interest, Taxes & Insurance), CapEx, OpEx, Vacancy, Etc.. Not at less than 1% of your appraised value unless you put a huge down payment on the house and have a ton of equity where your mortgage is significantly lower. The question now becomes can you afford to hold this property when it does not cash flow if there was an issue (roof repair, A/C, etc.)? If yes, some investors would still keep it and hold it while it goes up in value. Some buy for cash flow only, some buy for appreciation only and a tax shelter, it's recommended you buy for both.

Hope this helps. I'll send you a message to discuss.

@Jesse McMullen I will send you a private message. If you have agents sending you listings off the MLS and saying "this looks like a good flip" who aren't investors themselves, you're not likely to find good opportunities. You don't "find deals" in this market - you make them.

I'm wrapping up a rehab this week that'll cash flow between $350-$450 after all expenses and CapEx in South Houston. It's possible!