All Forum Posts by: James Kojo

Thanks all for the recommendations! It looks like i'm going to have a busy few days. :)

@Derrick Wilson : you asked about a PM. I'm currently working with Equity Team. They will be managing my new properties that I'm closing, so I don't yet have experience with them as operators, but speaking with them, they seem like a quality outfit and I found them through another referral here on BP.

Hi, All.

I'm flying out to Cinci this week to do a walk on a MFR I'm working on. Would anyone be willing to provide a few recommendations on any the following?

1. Neighborhoods worth checking out in terms of investments (I like B-class neighborhoods.)
2. What's a great place to grab a bite? 
3. What's a great place to grab a drink and talk to locals?
4. This is my first time in Cincinnati. Any must-see things I need to checkout before I leave?

If anyone is up for grabbing a drink and talking shop, please let me know, as I love to do both. I'll buy the first round!

James

I'd be interested in hearing from both CPA's and Real Estate Investors on this topic.

I'm conducting a search for a personal CPA who specializes in REI. I live in California, and I invest in multiple states. What are the advantages and dis-advantages of using a CPA who is not in CA? How important is it to have someone with knowledge of my local state vs a generalist who may have a deep understanding of federal taxes?

Thanks!

James

@Pat Peri: I'm financing a 4-plex right now. Conventional residential financing is a pretty big win, almost anyway you slice it. 

The only drawback is, like you mentioned, you may be required to put down 30% (not 20-25 that you might get from a portfolio lender) because it's a quad and non-owner occupied.

On the plus side, you get a 30-year fully amortized, fixed-rate loan at rock-bottom rates, as opposed to a 10 year term with a 25 year amortization. And you don't have to call a bunch of lenders one-by-one. Just hop onto zillow mortgages, and search and sort to find the best one that day.

The issue with not being able to put the loan against an LLC is only kind-off an issue. If you will initially be purchasing it in your own name, you can finance it just fine with a residential loan. What many people do is transfer the property to an LLC after the loan is closed. Technically, the lender could "call" the loan due immediately, because it's technically a transfer, however i hear it's very rare, and I've never heard of it happening to anyone (that's probably worth a separate post to the forums just to make sure!)

The one other benefit that I didn't see anyone else mention is that conventional loans are usually non-recourse, whereas many portfolio lenders will only do recourse loans.

Hope that helps!

James

Aamir:

A couple of thoughts on your posts.

firstly, never put your "last nickel" into a deal. If you have 250K, then don't try and buy 1M in real estate. You'll need reserves, and depending on what you buy, rehab costs. If you have other liquid assets, or a high income to cover reserves, that's a different story, but in general, you don't want to have to default on your asset because you had a bad month in vacancies. :)

with regards to SFR vs MFR: I've done a bunch of SFR, and only a little MFR. My MFR experience is too early to draw any major conclusions from, but I will say this: breaking into commercial MFR (5+ units) is WAY harder than people make it sound.

Firstly is finding deals: brokers control all of the good inventory, and they don't share it with outsiders. You'll need to break your way into the inner circle, or you'll have to be content to pick through the left-overs on loopnet.  Being OOS, you probably can't drive for dollars. Not sure if a mail campaign would be cost effective or not, but it's still a lot of work.

2-4 plexes are easier: many of those go to the MLS, so you can still pick some up there.

Secondly, financing: for deals under $1.5M, you won't qualify for freddie (i.e. government-backed) loans. You'll need to find a lender yourself that lends on your type of deal to OOS investors. It will most likely end up being local banks, so either find and pay a broker to shop around for you, or try to source them directly by calling all of them up and getting someone on the phone.

If you go with 2-4 plexes or SFR, then you just go to zillow and search the mortgages, and choose the one you like best.

Thirdly: experience - you don't necessarily need experience to be a good operator just like you don't need experience to fix a car: it definitely helps, but if you have time, money and energy you can figure it out as you go. However, lenders will require you to have experience. They vet both the deal AND the sponsor (you.) 

Finally team: you need to put together a good team. This is actually not that hard, but it is time consuming.

I don't write all of this to discourage you, but to give you a realistic view if what you'll likely experience. I sincerely hope you have an easier time of it than I did, but I have heard of people who worked on it for a year before they landed a deal.

In commercial MFR, acquisitions requires a big hill to climb initially with the hope of a payoff after you get over the hump. If you're looking for something truly passive, there's no such thing as a "turnkey apartment provider," or at least I haven't seen one. If your 250K deal is the last deal you ever want to do, then paying all of that upfront cost may not make sense.

With SFR, you just kinda pay as you go. :)

Hope that helps!

James

@Jake Walroth it's just east of Winton Woods Golf Course

Can anyone share their thoughts on the Greenhills neighborhood in Cincinnati?

What's the general quality of the neighborhood, distinctive features, and/or if it's good for investment?

Thanks!

James

@Kyle Steiner : Hey, fellow Californian!

I can't tell you what to do, but I can tell you what I did, as I'm in a very similar situation as you, but just scaled up slightly.

I began acquiring SFR in various CA markets around 2009, and like you, I ran up the score on appreciation.

We've had a pretty awesome run here in CA, but for my own reasons, I wanted to diversify out of NorCal. Within the last year, I sold 2 CA SFH in CA and traded them for 2 SFH's in Austin, and a 4-plex in OH. Since these are fairly recent trades, time will tell if they work out or not.

what I will say is that acquisitions OOS is not at all "passive", especially in this hot market. It's not just about writing checks and entertaining the notary at closing. You will mostly likely need to get on a plane, probably twice.

Even if you buy "turnkey," you're essentially trusting a random stranger that you probably met on the Internet to manage your 100K. That can go wrong on a lot of different levels from outright fraud to just run-of-the-mill incompetence. How do you know they aren't selling you a flaming pile of crap in the middle of a war-zone? You should be doing a bunch of background checks on the provider AND you should be getting on a plane to see what you're buying.

I should also mention that a 1031 puts you on a very tight timeline. If you aren't already familiar with them, then research that first.

Finally: I really wouldn't recommend trying to self-manage a property OOS. It can be done, and there are proponents of such tactics, but it is fraught with pitfalls and demogorgons. However, using a PM gives you a roughly 10% haircut. You should factor that into your ROI. If you still prefer DUI management, and you do go into Cincy, give Misty a call at CincyRents, and tell her I sent you. They have tiered services which may match your style.

Hope that's some valuable food for thought. Let me know if I can help otherwise.

James

I'm looking at a small MFR deal: 14 units, all 1/1. C+ property in a C+ area. However, there is a development (not re-development) plan  for the immediate neighborhood that it lies in, in which they are proposing zoning plans for each of the parcels in the area. Mind you, there's not a whole lot there now, and hence it doesn't appear to be  a RE-development plan.

From what I can tell, they want to turn this mostly under-utilized area into a bedroom community: there is a mixture of very-low to very-high density housing as well as a few mixed-use parcels and open-preserves. TBH, I'm not exactly sure what they mean by "mixed-use." It could be trendy hipster loft over a cafe, or it could be a taco-bell sharing a parking lot with a dentist.

I don't quite know what to think about this deal. On the one hand, it puts the prospective property "on the map" as it where. On the other hand, there's going to be a bunch of presumably new housing in the area. From what I hear is that in general most developers are preferring to build A-class properties just because land is tight and expenses are high. So I might find myself owning the ugly duckling C+ property with 1/1's surrounded by A's with 3/2's. Or I might be filing a niche for hipster millennials in the path of progress.

Anyone deal with this type of situation before and/or have some advice as to how I should think about the problem or how I should further investigate?

Thanks!

James

@Suresh Kannan : go to Tools -> File Place, and you'll find more than you ever wanted.

I personally don't use anyone else's spreadsheets, but I like to steal a bunch of ideas from many of them. The challenge with re-using other people's spreadsheet is that you have to adopt their mental model of how to layout information, and also how to show what's important.

For instance, I like to optimize for data-entry, and I want to know what numbers they gave me vs what I think they should be, so I have sections for "Marketing data" and a separate section for "adjustments" to that data. But everyone has slight variations on how they think about and decompose a problem, so you'll see a lot of people roll their own.

That said, I like the visualizations that come with the BP calculators (not spreadsheet), although I don't personally use them for deal analysis.

Hope that helps!

James