All Forum Posts by: Axel Meierhoefer

Thanks for sharing the numbers. Here are a few things to consider, in my opinion:

1. Your investment makes relatively small cash flow and depending on how the numbers work out in reality might have negative cash flow.

2. You said you are willing to work with w third party PM for good reasons.

3. I believe your occupancy will fluctuate more and a 95% rate is too optimistic, if you ask me.

4. You are indicating that you are willing to put $105K - $130K into the deal.

5. I don't see the furnishing numbers anymore but I would assume $20K at least.

6. If it were me and I am willing to commit this amount of money I would apply (biased, I know) my OOSTK strategy. It stands for Out-of-State-Turnkey strategy. For $125k - $150K you can buy two properties with $300/month positive cash flow each, making $600/month on the same money, have them managed as LTR and no hope required about market movements.

If we are all here on BP are correct and interest rates will come down in the next 18-24 months, you could refi those two properties and increase cash flow even further.

I even have a way to get you up to three properties for the down payment you are willing to make if you are willing to reduce cash flow a little (still remaining positive)

In my opinion the ratio of rent to purchase price is not good enough in Austin to make it work, even as MTR and with 95% occupancy

@Jay Hinrichs, @Chris Seveney I hear you and I have not found lenders but when you don't ask you don't get an answer so I thought I ask 

@Collin Mitchell Can you describe what PML you are looking for?

I am searching myself but most lenders won't consider my deal. I offer 12% interest for an amortized loan for 60 months and a fixed amount for each deal of $40K.

@Thomas McNeil Good on you to ask here on BP

You left out a lot of important information to help you. I would love to learn what your goal is for this deal? Based on that goal it would be easier to tell you how well or not it might work.

1. you said you like to do a multi-family house hack. IS multifamily 2,3,4 units or more?

2. Do you have construction or renovation experience? If not, how do you plan to pay for the hacking?

3. How much $$ do you have beyond the 25% down payment and how is your calculation during the hacking time. Do you keep some units occupied and get rent to cover financing costs, insurance, property taxes, etc? 

4. Have you run a calculation of the end result of your hacking including the probably insane property tax and insurance costs when you refi to your after repair value?

5. Other aspects not mentioned so far, like post-hacking rent level expectations, type of renting (STR, MTR, LTR), etc.

Bottom line is the goal. If you were to say you re looking to generate passive income that is totally different than selling the renovated property for appreciation in value, or any other goal, so that's the main issue.

As soon as you describe your goal and answer the question above and more, you will get wonderful support here.

Overall it's a good time to invest if you can afford it and get into deals that work at the day of purchase. I always tell all my clients: "We only invest in deals that perform from day 1"

If values increase, interest rates come down, etc. those deals will only work even better.

@Gil Segev I don't think you are rationalizing a bad strategy.

What is missing is specificity.

Your $420K is for what? How big or small is the property? That also drives how much furnishings cost. The quality of furnishings and other little amenities that make life nicer (especially for MTR) have impact on your rent income.

To see if your deal is a good idea, I would suggest to show the price, down payment, financing terms, size, and if you can, historic data on MTR in that area (Assuming STR adn MTR is even allowed) and the property tax situation. In TX the latter is a huge issue and has kept me from investing there.

Assuming your prediction of increasing values is true, that will also increase your property taxes. 

You also did not mention if you plan to manage the property yourself and anything about your experience with getting MTR and STR clients.

To help you with reflections and suggestions on your post, it would be great if you were to provide more details. On first glance it appears to me that you have not gotten all the relevant data together to make an informed decision.

@Brandon Thurman I agree with the points made by @Joel Owens. In addition, it is true and mentioned on BP all the time, that a deal is made at purchase. You knew the rent role when you bought the property and should have calculated its viability based on that. Yes, having these long-term tenants paying less than market rate is not ideal but you have to weigh it versus vacancy. 

People often pretend that multi-unit properties are always 100% occupied while we all know that its not true.

Based on the post you already increased rents by about 40%. I would apply the idea to let the tenants agree to a steady annual increase of maybe $40/month.

One thing I have not seen in the comments is any word about the value of dependability. You said the tenants take great care of the property, are paying dependably on time and probably will not move in the foreseeable future.

If your numbers only work if you get 100% occupancy at full market rate, it was the wrong property to buy. On the other hand, if you put any value on 50% of your units being taken care of and always being paid, your updated rent might be just right and getting better over time.

I have multiple SFR with tenants that have been with me for 5 years. Every year we discuss how much upward adjustment they can handle. I accommodate them and they renew for a year. In some years we did not increase at all.

Some here call that running a charity. I made sure I had positive cash flow when I bought. Each year we do have increases. That means cash flow only gets better but the dependability has value to me and maximizing rent always has the risk of getting tenants that are unreliable, destroy the property, and move on a years later.

I way that risk and most years I rather keep my dependable tenants.

I started way too late to create my SFR portfolio. Now I am approaching retirement age and still have my investment properties laden with mortgages. I plan to work diligently to get rid of the mortgages of some of the properties to make my passive income more stable. My "exit strategy" is not to sell the properties but to modernize it. My current portfolio is mainly renovated houses and I will 1031 exchange into BTR. In the next 3-5 years I plan to convert to BTR, get them insured both on internal systems and rent, and then spend maybe 2 hours/month to manage my PMs.

Yes, that's true and the refi-option is great. Not many other countries allow that. One of the issues investors can run in though si qualification. I have not seen cost of living calculations getting adjusted (although they should) but anybody using traditional instruments like FHA might have issues keeping enough room to afford the mortgage at increased interest rates

 Thanks for sharing. Those are important points. I would add that the time horizon is equally critical. My tribe and I look at 8-10 years to reach the Time Freedom Point

 I agree Alex. I have always hoped to find deals like that or work with experts who have more of these deals than they can handle themselves and then offer them to my tribe and myself. Maybe a wish for 2023 :-)