All Forum Posts by: David Edwards

@Solomon,

I didn't know rents were that high in Portage, ill have to start looking that way. if the numbers are what you are saying I'd strongly consider that one. What's your plan for getting the financing down the road? 

As far as the basements are concerned, make sure you can put bedrooms down there first. You will need egress from the room which typically means a window well from my experience with Michigan basements. If they aren't already set up for that it could be a little more costly.

Hey @Chris Fayling

I'm not local anymore but am currently investing in Kalamazoo from out of state. I'd be happy to share what I know at some point. 

Hello BP, 

I'm currently looking at a few deals that are showing potential to return in the low to mid 20% CoC. The problem is I'm tapped out on personal capital from picking up a duplex a month ago. I have an investor that has shown interest and we have initially discussed terms where they receive a 15% preferred return and then we split anything above that (I know this may not be the best terms on my end but I'm interested in the process and it could be a relationship builder, plus infinite return if I put nothing in). The sellers agent has indicated that seller financing may be an option with a balloon at the end of a 3 year period which would require getting traditional financing and paying the seller back.

My initial thought was that the way this deal could be worth it (aside from experience) on my end would be to pay back investor after a predetermined period (3-5 years) and holding onto the property. My question for you experienced OPM investors is this. How do I ensure that the deal is structured in a way where I can get them their capital back after the financing period, and is this something that's typically done? 

Aside from the worst case scenario of not being able to get financing for the deal and I guess having to give the place back to the seller, the second worst option that I'm seeing is having to pay the investor back myself as their funds will be tied up in the property.  

What are some of your strategies for managing this sort of thing?

Thanks in advance!

-Dave

P.S. I've already got the BP book on low and no money down on its way.

Welcome @Matthew Kimball, 

I’m also an architect in the area and it sounds like we have similar interests. I just picked up my first rental and my goals are to self develop some properties to hold as well to satisfy my architect and investor side. Would be interested in hearing what you have planned. 

@Karen Margrave As far as my investing is concerned I'm closing on a duplex this week and am in the research / outreach portion of my goals of self development. I'd love to get involved in the flipping world but have been trying to get this duplex squared away prior to exploring other avenues. Might not be a bad idea to get involved by being the architect for a few peoples projects on this site. If you have any lessons learned to share it would be much appreciated. 

@Karen Margrave I agree with @Jared W Smith that moving the roof line in almost any situation isn't the cheapest option as far as renovations are concerned, that being said if it makes an interior space that was previously used for storage into something more usable there may be value in the change. I've attached a quick sketch of what the new roof line might look like where a lower sloped shed (similar to the one on the other side) is added. This should open up the low side of the roof and the primary work will be extending the walls below to meet the new pitch after removing the existing portion of roof. Not stepping it and creating a second roof as shown on the existing side keeps you from having to add additional gutters and gives you better control of where the water is ultimately going. All of this would need to be looked at by a structural consultant but at first glance this seems like a pretty straightforward renovation.

Let me know if you have any questions,

Dave 

This is all great stuff and exactly why I posted in the forums!

@Omar Khan I've dug some more into IRR and its starting to make more sense, I'll be fussing around with excel to make sure I have my head wrapped around it over the next couple evenings. Does the IRR keep adjusting annually based on expected appreciation of the property as well or if not reinvesting the returns would you adjust the number the IRR is evaluated against? Your point about the smaller deals and steering things towards a partnership makes sense and since I'm looking primarily at small multifamily the most applicable. Both you and @Lane Kawaoka discussed straight splits and splits with with preferred returns. That portion of the math seems much more straightforward assuming you know the IRR and work backwards from there.

@Chris Seveney At a base level it makes sense to me to have the performance of the deal you brought to an investor determine how well you do. Do you have an example deal or just an example with numbers of that strategy you could share so I can get a better Idea of what that would look like?

Thanks again!

Thanks for breaking that down @Thomas Castelli I think I'm closer to wrapping my head around how I'd structure one of these. I'm going to break it down some numbers below if you will entertain me to make sure I'm following. 

So lets say I'm looking at a property (4plex) that has these numbers 

Purchase price: $175,000

Estimated Repairs: $15,000

Total cash needed: $60,500

Annual Income: $33,600

Annual Expenses: $26,606

Annual Cashflow: $6,994 or around 11.5%CoC

IRR after 10 years: 49% it seems the longer you hold the higher this goes? This number isnt taking rent increases into account.

Looks pretty ok on paper (unless I'm missing something and it doesn't)

The breakdown for your first example would have the sponsor (who I'm assuming is me in this scenario) receiving:

Acquisition fee: $1,750

Asset MGMT Fee: $672 

80/20 split when sold in 10 years: around 25K

And since this is a smaller deal a more basic approach of 

70/30: 4895/2098 or 8% back to investor annually

Does this seem to check out?

Interesting stuff. I can see how scaling this for larger deals could work out pretty well for all parties.

Thanks again 

Afternoon BP, 

I'm closing on my first small multifamily deal on the 30th of next month and am now sitting on a few deals with decent returns (on paper at least). When looking for funding how are the deals typically structured for private funding of small multifamily buy and hold properties? I see a lot of discussion on flipping splits and have my head around that but when I'm looking at buy and hold rental properties the splits aren't as cut and dry.

My second question is what kinds of numbers do you typically look for on deals that you are going to bring an equity partner in on? Obviously the higher return on a deal the better but there needs to be a cutoff somewhere on the low end. For example a 12 or 13% ROI looks great for an individual but a 40/60 split on that leaves the better half getting around 7% back. I imagine this is a case by case sort of thing but what are some weed out numbers to look for?

Thanks all for the read,

-Dave 

I second what @Cristobal G. said. If you re-frame the deal as owner occupied you can get that amount you need way down. If you aren't looking to live in the place then partnering up with someone who has the funds could get you started as well and on the path for saving that 20-25% for the next deal. Additionally there's a webinar almost every month strictly about investing with other peoples money that could be a way to get started and @Brandon Turner wrote a book on investing with no and low money down that could be a good resource.