All Forum Posts by: Greg Kasmer

Elmer - Josh wrote a good article to help you think through your options. Not knowing details on your current mortgage with your first SFR my guess is that the interest rate is significantly lower than today's rates if you financed two years ago. This would drive me to think about getting a home equity loan or HELOC on the property and using the cash for your next purchase. However, it's very hard (from my experience) to find a lender willing to offer a home equity loan or line on an investment property (in second position). Therefore, you may have to explore a loan/line on your personal home or consider using private money or hard money on a short term basis if you plan on using the BRRRR strategy. Good Luck!

Nicholas - I agree with what Trevor and Anaim mentioned. A residential agent can get you access to the MLS, but if you're looking to establish a better connection with commercial brokers I would first go on loopnet and look at those agents that have listings. Typically there is contact information provided for the broker - I would use that to contact the broker and speak with them. You can call them and say "I saw you listing for 1,2,3 main street on loopnet, but I'm really looking for blah, blah, blah." That is a good way to have an introductory conversation with them. Good Luck!

Cindy - If you're planning on remodeling the bathroom (Taking out tile, etc...) then I don't think it matters as it would come out in the demo. However, since you're asking the question I assume you're trying to save the tile to some degree. I would get another opinion from an expert/company and have them stop by and evaluate. If it's going to be a rental or a flip you'll want the documentation from them anyway showing that mold doesn't exist. Good Luck!

Pete - I've refinanced a few (3) single families at a time and the lender used a comparable approach, but not sure if that would have changed if I would have had others to refinance (I was comfortable with the mortgage on my other properties). I think the most accurate way to determine the approach would be to ask your lender based on your specific situation - number of properties, etc... My thought is that when you refinance 5+ properties (multifamily size) that may trigger more of an NOI/Cap rate approach with a lender. Good Luck!

Katherine - Personally, I think you should think about this from an ownership standpoint. If this property was owned by an entity (LLC) the entity would pay for both repairs/maintenance as well as capital improvements and the cost would be split among the ownership structure according to their percent owned. In the end I think you have to clarify IF the amount they paid represents their ownership in the property. If so, I would say that repairs/maintenance, capital improvements, and proceeds (If their was a sale) should be split 80/20 accordingly. Seems as though the sticky part here is how they occupy the space relative vs. ownership % vs. payment for purchase. I would also think that the individual who has the 80% ownership would make the decisions for capital improvements (i.e. installing new kitchen) as they would be paying the majority of the project. Repair/Maintenance should be limited to fixing existing items and should be a "just do it" irrespective of what unit it occurs. The person who owns 80% can't be upset if Person B's unit needs a new faucet - it should be replaced and paid for 80/20.

Steve - For a 4 unit I would look at it both ways, either 12% of gross as well as $700-$800 per unit and see how they compare. Hopefully it's somewhat close, but for a 4 unit you might be between the two.  Good Luck!

Trevor - I'd like to learn more. Would you be willing to have a conversation?

Steve - To me, it varies whether you use an "overall number" or % of income depending upon the expense item. 

My general "rule of thumbs" for single families and multis are:

- Property management: 7-10% for single family (based on my market) or 4-6% for larger multifamily.

- Insurance: .75-1% of value of the property for single family (Better to get an actual quote); multifamily I use previous owners estimate or get new estimate.

- Taxes: Varies too much. I typically look up on the county website and get the actual number. 

- Maintenance/Repairs: 7% of income for single family; $400-$500 per unit/year for multifamily

- Reserves/Cap Ex: 5% for single family or $300 per year per unit for multifamily

For multifamily I also include a "releasing/unit turn" expense in the expense base. That typically assumes that 1/3 of the units "turn" in a given year and then I guestimate expenses to "turn" a unit, which might include painting and other minor repairs.

In total I see smaller multifamily property expenses in the 35-45% range, and larger multifamily in the 40-50% range., 

One of the best books to understand expenses for multifamily is Brian Burke's book, "The Hands Off Investor."

Good Luck!

Corri - Cap Rates are a "moving target" nowadays with interest rates changing and price points changing as buyers and sellers negotiate the value of properties. The most ideal would be to look at recent sales in your target market and imput the cap rate by looking at the NOI and sales price of properties within the last 3-6 months. However, without a database/software (CoStar, etc..) to provide information it will be difficult. Alternatively, you can look properties that are "on market" and see what the asking values are compared to in-place NOI to guage cap rates, but of course, this would be based on the marketing/listing/OM information and not the actual sold value. Also, the cap rate at purchase will also be influenced by the amount of "value add" opportunity there is in the building. With more potential/upside the sellers will try and push a lower cap rate. In the areas I target now, I would look for a cap rate of 7-9% in a Class C area. However, given how dynamic the market is in right now, you might find a lot of variability, so someone might be willing to sell for a higher cap rate now if they think we are in/moving into a distressed higher interest rate environment. Good Luck!

Blake - I've targeted opportunities in Chester County, so if you ever have opportunities further east, perhaps we can talk. Let me know. Thanks!