All Forum Posts by: Chad Clark

The Midwest in general is beyond silly in getting good deals. I run into properties with 300-400% ROI on a regular basis. I can't rehab them fast enough. You can't really look at the ones the realtors have since they overprice them hard trying to raise the value of stuff, but They are selling for a lot less than people think. Sub 100k is pretty common still. Rents are obscene in my area near Traverse City. 1br1ba's are pretty much a guaranteed 1k a month. I tend to go with 3b2ba's and I get about $1500 a month minimum. The fair market rents are crazy high. I hear Wisconsin is even better.

No problem, you'll really want to know since I ran into a couple of big ones.   First off, the biggest issue was I had been planning to do most of it myself.  When you go from a single family to a Duplex, it becomes "comercial" property and according to (Michigan) the local building dept, I had to hire contractors.  I was forced into hiring an electrician and plumber, the two things i was best at doing.  I tend to save the most money by being able to do my own stuff up to code.  Well, that cut my budget hard all of a sudden.  

Since it was a structural change, you need an architect or engineer to draw up plans that make sure the new changes are safe of course.  I removed a staircase so I needed to extend out the floor joists further.   Once the drywall was removed, I ended up having to strengthen the joists up to 10 inch joists as there were only 2x8's up there in between floors. 

 I also had to upgrade the fire protection between floors.  That included using Fire caulking or fire foam to seal off any air ways from the 1st floor to the second.   There needed to be fire blocking in my case as it was an old balloon frame and those have open spots in the stud cavities that go all the way up.  Any wiring that went up needed to be sealed.  Nothing you probably wouldn't do anyway, but it's a fire thing.  

Just from my own experience, if you were not going to separate the heat, electrical, or plumbing, I would do it anyway.  You won't get a better chance.  At the bare minimum, I'd run the pipes, wires, etc for later.   I ran air conditioner wiring even though this is Michigan because it would be a giant pain to ever go back and do it now.  It's not used, but it's there if I decide to use it.  I regret not remembering the upstairs apt had no washer outlet either.  I should have ran the plumbing for it even if I didn't plan to add it.  

So in all, no real tough spots other than normal aside from not knowing you were required to hire an electrician, but that's unusual anyway.   I just have worked with AC all my life so I expected to be able to save that money.  

Investment Info:

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

Purchase price: $125,000
Cash invested: $120,000

First try at turning a single family home into a duplex while going through the permit process for the first time. I see why people hate permits. There are an extreme amount of silly codes out there that obviously have nothing to do with safety. Red tape at it's best making things expensive.

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

Finding anything in the middle of COVID wasn't easy, it was the best I could find. At least the numbers work.

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

Another investor.

How did you finance this deal?

Cash

How did you add value to the deal?

Turning a single into 2 units.

Lessons learned? Challenges?

Don't get into permits unless you know what you are doing. It's a mess with commercial properties. Stick to the cosmetics. I would have set aside much more if i knew what a pain that would be.

Thanks so much for the answers.  That pretty much cleared up the majority of what I was wondering.  

Ok, I'm newish to the scene (4 single family, 1 multi) and have done the fix and flip to the point where I could build my own house at this point quite easily. I'd like to start branching off into the apartment building scene as it seems like the logical next step. I mainly have just been going the BRRR route so far.

So being new to this, I have a couple of questions since they fall into the commercial zone. 

1.   What's the top things to remember when buying one of these?   Square footage affecting price?  Utility that makes a huge difference when buying ie. sewer or something expensive if it's bad.     

2. Is there such a thing as DSCR loans or is that only smaller buildings. What type is usually used or do most people just cash buy these?

3.  Are sellers usually just trying to cash in or are they retiring?   I see no real good reason why anyone would want to sell one of these so I was curious mostly about that.   My area is a resort area so it's a concern.  

4.  Building vs buying existing?  Seems building would be pricey, but buying existing seems like it might land you in a position where the rents can't cover the new mortgage and costs due to what they want for them.  

5.  Can you 1031 duplexes into these or is it not enough of a "like" property?

6.  Better to just buy some storage units, RV park, or something like straight to pure commercial, strip mall etc.  

I'm pretty comfortable buying houses, but these fall under some different rules.  I'm just seeing what those rules are.   Any other thoughts are welcome.  

 The contract isn't complete obviously.   So I also wondered if it's just possible to re-write the contract despite the fact that it's recorded and make a new one.   Seems like that breaks some sort of law out there, but again, doesn't hurt to ask. 

 No, it's a single family home used as a rental.  Going from the sale of that to a Duplex.  

I was hoping that wasn't going to be the answer as I do not know any private investors or even where you'd look for that.   

I got a land contract during the COVID problem and the sales dried up making it so there's no compareables for an appraisal.   Of course, this in turn made it impossible to obtain a loan.   I wanted originally to use the property's income to be used via comparable rent schedule so my loan choices are limited.   I bought it as a giant fixer upper and have almost finished it, but now it's time to go get the loan, I can't do it due to the appraisal process being the stopper.   Any ideas?  I really don't want to walk away from it.    Especially when the profit margin is so high.     I'm considering selling another property to cover it, but I'll be hit hard with capitol gains since it will sell for almost exactly what I need.   Ugh....

I'm guessing the answer is no due to dissimilar properties and the land contract has been in place and recorded for almost a year as well, but doesn't hurt to ask.   Saves me ton of cash if I can.