All Forum Posts by: Carl Millsap

@Sophie Scott a few things you can look into:

1. Check w/ a local bank about refinancing the deal. Hopefully you purchased with an ARV (After repair value) in it that you'd make money. Show them the work you've done, ask for a construction loan.

2. Bring on a partner. Again, hopefully there is enough meat on the bone to bring someone on and provide a return. Not an ideal situation but it gets you to your goal. 

3. Is it livable now or can be made livable without the additional $30K in work? If so live in it or rent it out until you can save the money to finish it.

4. Worst case scenario is you sell it as is. At least in my opinion.

@Michelle Yoder

1. If you were purchasing this house because it's in an appreciating market, and can afford to hold onto it until it doubled in value then it might be worth the look.

2. If you're buying for monthly cashflow then I'd move on. The projected cashflow of $200 per month is a best case scenario. One or two maintenance issues puts you in the negative. 

2. How long does it take you to recover your downpayment at $100 per month (50% of cashflow)?

3. What is your goal? Be very specific. Buy and Hold? Cashflow? Flip? Once you determine your goal then....

4. Determine your investment criteria.

5. Once you know your criteria for your investments then determine what criteria justifies a partnership.

Example: A partnership is justified when both of these criteria are met:

a. It's a deal I can't do on my own because of capital requirements, location etc.

b. The profit is enough to justify a partnership....$2k a month, $5k a month?

If both of these criteria aren't met then a partnership isn't justified. Just an example, but hopefully you get the ideal.

6. As a side note...if you're going to bring in partners that aren't a spouse put everything in writing BEFORE you invest together. 

Line out who is responsible for what, how profits / losses will be split etc. This will save you a lot of time, energy and potential headaches. 

@David Davis it depends on your goals, investment criteria, and market.

Multifamily operation isn't much different than single family, but the benefits far outweigh single family.

a. Loans can be non-recourse - essentially you don't have to personally guarantee it. Not that you plan to default but its a nice benefit. Non-recourse is usually for values over $1m.

b. You're not dependent on one tenant (SFH) to cover your expenses. The more tenants you have under one roof, the less likely you'll have to cover expenses. 

c. You determine the value based on how you operate the property. You can have 2 identical properties next to each other but have a $500k - $700k difference in value. This would apply more for 10 units and up in my experience. 

d. Your cash on cash return will increase with multifamily because cashflow is greater.

e. Your cost per unit is less. If you can buy a single family house for $50-$75k, you can probably buy a small multi for $35-$40k per door. 

f. You can scale faster.

The list goes on, but if you run the #s you'll see the benefit of multifamily is the better option, again, depends on your goals, investment criteria, and the market you want to be in. 

@Sean Gallagher multifamily is the way to go. You don't have to save for the downpayment. 

1. Research syndication....essentially it's raising money to buy a multifamily property. You have investors, you provide a return, you own and operate the property. 

2. A few podcast on multifamily / syndication:

    a. Best Real Estate Investing Advice Ever w/ Joe Fairless

    b. Multifamily Investing w/ Charles Dobens

    c. Real Estate Investing for Cashflow w/ Kevin Bupp

    d. Apartment Building Investing w/ Michael Blank

3. Multifamily operation isn't much different than single family. Benefits far outweigh single family.

   a. Loans can be non-recourse - essentially you don't have to personally guarantee it. Not that you plan to default but its a nice benefit.

b. You're not dependent on one tenant (SFH) to cover your expenses.

    c. You determine the value based on how you operate the property. You can have 2 identical properties next to each other but have a $500k - $700k difference in value.

4. It's not all rainbows and sunshine in multifamily, but neither is SFH investing. Just want to provide balance / relevance.

@Amar Singh I'm no expert but here are a few things to consider:

1. Are you paying for water, gas and/ or electric or is each unit separately metered for the tenants? 

2. Call your insurance agent and a few others to get a quote. 

 JT Lynch can provide a quote, his company deals with multifamily across the country- office # 940-382-9691.

3. Ensure you know your numbers. I can't stress this enough.

Verify the expenses i.e. what will the taxes be once you purchase? When will it be reassessed for taxes? Some places reassess every couple years, some reassess when a property is sold. Don't take the brokers proforma as the gospel.

4. Walk the units, look for consistent problems it could be an indication of a larger problem. Since it's a value add there is probably a lot of deferred maintenance. Again, know your numbers, what will it take to renovate each unit?

5. Call surrounding apartment communities to see what they're renting for and occupancy rate. 

  a. Does the current owner have a low income housing tax credit agreement in place?

  b. Did the owner sign an agreement w/ the County / City to make the place low income housing in exchange for a low interest / forgive-able loan? 

We looked at a place where the owner got $400k from the City in exchange for keeping rents at a certain level.  The agreement was for 15 years; paying the $400k back wouldn't negate the agreement making it near impossible to cash flow.

6. Don't leave a stone unturned. Verify everything. As you do your due diligence keep an open mind, ask questions because that will generate more questions. 

If the numbers work, and there aren't any red flags close the deal.

Good luck!  

@Mai Dao did you know of their disability? Are you discriminating against them?

1. Ask the Housing Rights Center to provide you the specific claim.

2. Look up the violation they are accusing you of.

3. Consult an attorney if you don't think you can resolve the issue with the Housing people.

Sometimes claims are made that have absolutely no merit. You'll find that the Housing Rights office will contact you just to appease the tenant so they feel like something was done. 

Again, consult an attorney if you don't think its something you can solve.

@Danni Green congratulations. Things don't always go as planned, when opportunity presents itself take it.

1. The benefit of your deal is you'll be into a property for less than it's worth. Once you complete the renovations refinance it for 80% of the value which is $48k. 

a. You'll get back your initial investment $20K and the money for your renovations $25k. Now you're into the deal for no money.

b. Take the $48K from the refinance, invest in the multi-family you want to house hack.

2. I imagine you'll have a positive cashflow of a couple hundred dollars once the place is renovated and rented. Again, not a bad thing to have. Put it away for maintenance issues. 

3. Thank the people who recommended you jump on this opportunity. You are the average of the 5 people you spend the most time with, sounds like you have a good group.

4. Rinse and repeat this process. 

Good Luck!

@Cindy Gonzalez you're welcome happy to help. 

I think 10% is a good number to use, in some cases I've used 15-20% in my underwriting just to be conservative.

I also use 50% for expenses as a boilerplate # until I can verify insurance and tax numbers. I run 4 different scenarios with different CAP numbers to get a range on value, and comparison against the proforma the broker provides.

Do you have the rent rolls and / or T-12?

The brokers are generally going to give the best case scenario. If they list it as an 5-6 CAP, I'll look at it as a 8-9 CAP.

Ultimately if the numbers work then I'll move forward. 

There was a "deal" with an ask price of $2.5m. I ran the #s 20 different ways and couldn't justify the price. The property eventually went to auction. I'm not sure what it sold for but I doubt it went anywhere close to the ask. 

Trust your numbers. If you are a couple hundred grand off but feel comfortable with how you arrived at that number talk to your broker and the selling broker. The worst they can say is no that number won't work, and sometimes they'll say yes it will and ask you to submit an offer. You never know until you ask. 

Good luck.

@Cindy Gonzalez we've run into similar situations where our underwriting didn't support the purchase price.

We reached out to the buyers to see what they saw, but we didn't.  Here is how we've adjusted with some success:

1. Review the market rents compared to the subject property. Is there room to increase the rent and make the ask price or something closer to it work within reason?

2. What can you do to reduce the expenses and make the numbers work?

3. Get a loan amortized over 25 or 30 years vs. 15 or 20. The lower payment will support an increased purchase price.

4. Ask the seller to carry back a portion of the loan until you can reposition the property.

5. Make your offer with an explanation of how you arrived at your #. Ask the broker what the "whisper" price is. This may still be higher than your underwriting supports but may be lower than ask price and not much more than your #.

Our broker said "If the numbers make sense then the deal will make $. If the numbers don't work, move on to the next deal." Don't try to make it work for the sake of getting a deal done. 

@Josh Todd a few ways this may work:

1. Have someone co-sign the loan. Check w/ the lender to see if they'll allow a co-signer for 12-24 months or whatever period they determine and will allow the co-signer to be released from the loan w/o refinancing. Ensure it's in writing.

2. Find an owner financed deal. Set the terms for a 3-5 year balloon which should allow you to meet a banks requirements.

3. Partner w/ someone who can get the financing.