All Forum Posts by: Charles Soper

This strikes me as a “friends and family” deal if you have no experience.  I don’t know any private lenders that would work with a rookie who brings nothing to the game but sweat equity, gotta have some skin in the game.  

I struggled with this at first too but eventually saved enough cash to do a deal, it sucks but without getting creative in your financing you may struggle.

You might consider things like seller financing or starting a wholesaling business to get the cash rolling in. That said money is cheap right now, with a little searching you can find HML's that will do 80-90% of purchase and 100% of rehab if there's enough room in the deal, Patch of Land comes to mind

Happy to be a sounding board, I'd parrot @Chase Louderback, be proactive and go direct to seller instead of waiting for the crumbs that land on the MLS. Alternatively grow your wholesaler network and comb through their offerings, you find a nugget occasionally.

Congrats @Ismael Reyes, will be following this with much interest!

Zillow is about the last place you're going to find a good deal unless you are in the middle of nowhere.  You are on the right track starting to drive for dollars and thinking about reaching out to owners.

I'd suggest just doing what you're thinking about, you don't know what situation the property is in or the owner is in until you ask.  ASSUME NOTHING!  Maybe the owner has passed away and the heirs are just trying to keep on running the business, or maybe the property has too much deferred maintenance and the owner doesn't want to pay to update it or list it out of embarrassment.

Get out there and get uncomfortable, you'll find something with enough persistence.  Oh, and if somebody doesn't appreciate you asking, move on to the next quickly, failures are lessons about how to improve, not how to quit.

I agree with @Omar Khan regarding each investor's urgency and available resources. Much of that battle would be in finding like-minded investors who can all agree on a common goal. After that the need to structure a legal entity that would work could prove to be problematic. JV's are dangerous!

As for meetups, again i agree they tend to fizzle pretty quick without some form of accountability such as mastermind groups with steep pay-to-play fees.

So I know the market is hot right now which makes finding a good deal even tougher. At $209k ask with ARV being $230k and needing 50k in repairs this makes for a very thin deal. Add to that that rents don't meet the 1% rule and for me at least it's a walk away and "call me when you want to sell it."

The numbers don’t lie and in this case aren’t very forgiving.  Unless this is a buy and hold forever and you’re banking on appreciation it might be a non-starter.

I’m not trying to discourage you but from your profile it looks like you’ve done a few deals and so unerstand the math...herd the numbers ;)

As for having the seller carry a 2nd most real estate attorney’s can draft something for a minimal amount.

So repairs according to your list that’s roughly $50k.  To maintain some form of good faith in the negotiation process you ask for a seller’s credit for $20k-$30k, citing deferred maintenance issues (toilet) for part and tenant retention concerns for the rest.

Optionally, if they won’t budge and you don’t want to pay for it maybe this isn’t the deal to be chasing

So that looks better from a cash flow perspective but I still question where you are going to get a bank loan for sub 5% on an investment property and only 15% down.  Is this quote from a local bank?  My rationale behind 30 years is basically, I don't care how long the loan is or how much interest I'm paying the bank because my tenants are paying down the loan.  I invest for cash flow and not appreciation (equity) so as long as it's cash flowing and putting money in my pocket each month I could give a rip about how long the loan is.  Additionally, with every loan payment you are hopefully gaining equity, but that equity is just sitting there locked up in the property, so why accumulate more of it faster just to add to your paper net worth?

I don't think there is a direct 1:1 correlation between capital in vs. ARV. Unless you are buying turnkey or almost turnkey (which this deal seems to be) then you should be realizing a discount on the purchase price so you CAN put some cash in to improve the property and thus improve the ARV. You are smart in immediately accounting for some sort of reserve just in case but I don't think you need to account for it in your underwriting unless it's truely cash you are putting in a reserve account not to be touched.

I don't know what your market looks like but if you think it's going to sell for close to the asking price you might be stuck here but every dollar you invest in capital expenses or repairs you should be able to justify as an investment that gets an additional return (usually in higher rents).

Personally, I like to be value-add properties for well under ARV that I can flip or BRRRR. Example, I'm just getting ready to close on a duplex I picked up for $89k, I've put $65k in rehab and selling for $190k. Ideally I would have liked to hold this one long term but I need the capital back out so I can do it again. I originally estimated $40k in rehab, missed it by a bit :)

At first glance I’m scratching my head a bit.

As financed at a 20 year term/am you aren’t hitting the 1% rule, im guessing this isn’t a bank loan based on the interest rate and down payment, family loan?

Additionally if you look at the 50% rule you are negative cash flow.

Is there a reason you’re doing 20 instead of 30 year mortgage?  I’d encourage you to rework the numbers with a 30 year mortgage, I think you’re numbers would work a little better.

A few more things:

1. Insurance seems low, is that a quote or a guess?

2. You said you will self-manage but you should still plan conservatively and hold out 10% ish for PM.

3. What are the comps in the area? If you're buying for $390k and putting cash but the ARV is still $390k something is off there, check your numbers.

Hope that helps

So they've come down $25k, and you've come up $20k and agreed to deal with the tenants, seems like you've negotiated pretty well so far. What's the ARV one rehabbed and tenants are back in at new rents?

I would make sure you are focusing on solving their problem(s), not yours.  A strong negotiator absolutely makes or breaks a deal so be strong while being a fair and compassionate as possible.

Some ideas:

Will they carry a 10k 2nd until you can rehab and refi?

Do they need to close quick?  If so maybe you can offer a super quick close in exchange for the lower price.