All Forum Posts by: Tobias Falzone

@Jordan Butz

If it is a small project - door, windows, and carpets, you probably don't need a GC.  You will save yourself about 20% without a GC but you will have to make time to oversee the project.  I agree there is no wrong way to do it.  It is just a balance of time and money

As for properties I won't touch.  I always say anything is a good deal at the right price.  As long as the seller is psychologically willing to factor in the repairs into the sale and the rest of the numbers make sense on the property then I would go for it.  Just make sure you pad the repair costs a bit.  There is always more risk buying a distressed property, and you should take that into account on your offer.

I would recommend taking precautions, ideally having someone sleep there at the property during the renovation if people breaking into the property is a concern and it is safe to do so.  There are also portable security systems that can help with vandalism while you are working to get tenants back in the property.

I would look at another bank.  If you have an offer letter, that is usually enough for residential financing.  Banks will also usually not refinance a loan that is less than 6 months old, and a hard money loan counts.  

It would be cheaper and less risky to try to offer a few percent (non-refundable) upfront for an option contract on the property.  You can write the contract so that all or a portion of the money you put down upfront can be applied to the purchase of the property.  Good Luck!

It MIGHT be possible to get a tax benefit if the property is being sold at a discount to fair market value, the difference between the sale price and fair market value could be considered a donation if it is to a tax exempt organization. I ran into a similar situation with a piece of personal property being sold at a discount to a tax exempt group, but I'm not 100% sure if it can be applied to real estate. Your burden of proof would be pretty high I'm sure, so run it by a professional before taking any steps.

Hi Jordan,

This 4-plex does look interesting, and you certainly are using conservative numbers, though the vacancy rate might be low even at 10% for Huntsville.  15% for repairs and 8% for capex are probably high if you are putting 20-25k into repairing the property upfront.  

I have been looking at the Huntsville area for some time, and am on the lookout for a boots-on-the-ground partner in Huntsville. I've been looking at some slightly larger complexes of 10+ units in the 300k range in Huntsville that have more income potential than the small multi-families like the one you posted about. Personally, I would like to jump right to commercial properties, but I also know of several folks using the BRRR strategy successfully on SFHs in the area too.

I have heard a good way get your foot in the door as a sellers agent is to buy and then sell a property of a type that you would be interested in working with using your own money.  You don't have to make money on that deal, but you can use the contacts you get from that experience to help start the snowball.  Good Luck!

From my Research, smaller helocs often have no closing costs from smaller banks.  Mine said over 150k I would have to pay closing costs.  Larger ones may also be more difficult to obtain.

Regional Banks and Small Credit Unions are the best resource for these types of loan. 

I would NOT use a HELOC for Buy & Hold strategies. They are really awesome tools for fix & flip projects where you take out the money and then pay it back. They are considered revolving credit accounts, and are variable interest rate loans. If you used the whole limit, it will make it look like you have $500,000 worth of credit card debt on your credit report and your credit score will drop dramatically. 

 I would instead suggest looking as a cash out second mortgage for buy and hold (or a cash out refinance of the whole property), which can be written as a fixed rate and will be looked at like a regular mortgage payment.  Another important issue is that the variable rates in helocs also have a very high upper limit unlike mortgages, which generally can only go up 5% maximum.  I believe the maximum heloc rate I saw last was 20%  The last thing you want is your heloc interest to jump 5-10% and lose your investment.  For buy and hold, seek out fixed rate financing first.

My one caveat is if you use the Heloc to acquire the property with the intention of refinancing it or selling it later.  You can leverage cash offers to get great deals and then shore up financing later.  I just would not want a heloc as a long term financing option for my properties

If you own other properties, you can run the travel expenses through the business entity you have set up there or file with a Schedule C in a new business entity.  I Keep a written daily mileage log in a bound book in pen if driving, and then keep all the other receipts and itemize them into the correct travel categories when I file.  I track all expenses for business related trips.  Most of the time I am able to deduct them.

I am concerned about appreciation levels in some areas of California.  We certainly have seen significant appreciation in a lot of areas, and those days of massive double digit appreciation growth are behind us, especially considering the headwinds of rising interest rates going forward.  That said, housing still looks more affordable on a relative basis compared to the peak of the last cycle, mortgage underwriting is much more grounded than it was.  However, real estate prices tend to be a lot stickier than other asset classes because people don't want to take a loss on them and tend to hold out to at least break even.  When a stock market crashes, it loses 10+% in a day.  When a real estate market "Crashes" prices do down 10% a year.  I just bought my personal house and locked in a low fixed interest rate since I plan to stick around a very long time.   Once I account for Tax benefits, I'm only paying $1250 per month in real costs on a house that would cost $2750 per month to rent.  My effective return on my down payment ends up being about 18%.  That and I'm locking in a fixed housing payment for 30 years that won't go up with appreciation.  Since I'm betting that interest rates and rental rates will rise long term, purchasing a home can be a excellent return on your money even ignoring appreciation, which is likely in the long term in CA.  Any appreciation that might happen can then be leveraged at better rates than you would be able to get on a Non owner occupied property.  I'd suggest crunching the numbers that you would get now vs what would happen if prices and interest rates change and you put that money into investments for a set period of time.  Having those in front of me helps me make decisions and shows me what I'm giving up for each decision.  

Sacramento is growing significantly, and is expected to add 30% to the population over the next 25 years, which is among the highest for any metro area in the state.  It also benefits from the stability of state govt. jobs.  It is relatively affordable for a major metro area, especially compared to the nearby Bay Area, and I feel that affordability will continue to attract people like me out of the Bay area.  The LA area in comparison is expected to grow by about 10% in population, Texas population growth potential is quite a bit higher, but I see a whole lot more construction going on there, which may help to keep prices down relative to CA.  The lens I look through when I look for future appreciation potential is 1) population growth, 2) lack of available area to build more housing or govt. red tape limiting development, and 3) relative affordability which allows for higher appreciation compared to areas that are already considered expensive.  

 It depends how your strategy balances cash flow & appreciation potential, something I am still thinking about as well.  However, you have the informational advantage about neighborhoods in Sacramento since you lived there, and you can probably leverage that to identify areas within the cities for future appreciation better than you can in Texas if you haven't spent much time there.  

@Becca Cross - It sounds like screening is not being taken seriously by the PM, and your turnover costs look way too high as well for 600 sqft apartments that aren't being upgraded on turnover.  I would grill the PM about the work, but I wouldn't be afraid to fire them, and quickly.  I've heard too many horror stories about bad managers and it sounds like they are not managing the property well, to say the least.  However, It sounds like from your description you are well positioned in terms of location and with proper management and upgrades the property can probably be turned around.  I don't live too far from you or the property.  If you want a second set of eyes on this project, I'd love to help you out.