All Forum Posts by: Jarreau Jackson

@John Warren you are absolutely right and I agree. I was on the fence on getting an attorney’s review and decided to start with the forums to see if there is low hanging fruit pertaining to the strategy. 

Thanks for the input - getting the push and validation to go forward with the attorney review is very helpful advice and a more effective use of my time. 

Much appreciated!

Hello BP Community!

Strange request - I finished drafting a Lease Agreement (See Attached below) to rent out vacant rooms in my house and seek input on it.  I'd appreciate feedback and questions for clarification.  There are some nuances that I should mention:

1. I utilized 2-3 template agreements to individualize and curate this one for my needs

2. I was encouraged to use "Member" (vs. Tenant) and "Subscription" (vs. Rent) from a resource who shared a rent by the room agreement used in CA.

3. Property is a 4bd x 2ba SFH in Atlanta, GA (my primary)

4. This is my first house hack and I will be a first-time landlord

5. House has no furniture and I am seeking month-month (MTR) tenants

Questions:

- What should I include that I have not?

- What should I remove to better set me up for success?

- Are there negative implications of using Tenant and Rent vs. Member and Subscription? Or am I setting myself up well the way I have it?

- Is my strategy for handling utilities the best option?

Thanks for any input! Once it is buttoned up I'd be more than happy to share it with others.  I am also open to anyone sharing an agreement they currently have for the same purpose!

Thank you,

Jarreau

Great post and I welcome your hesitancy because you’re utilizing a great platform to offer multiple POV’s!

I have some suggestions/comments:

1. If you get started in this process, you will likely discover a clearer path

2. Find a lender (maybe start with BP’s search) or a dope agent (BP’s agent finder). 
3. Get pre-approved to help you refine your strategy 

4. Based on your liquid cash and pre approval amount, start experimenting with BP's mortgage Calc when viewing MLS listings to get comfortable with the inputs for monthly fixed costs. Add this exercise to your daily deal analysis practice.
5. setup subscriptions for small multi’s above 3,000sqft with Zillow etc to see what hits your inbox and keep running the numbers

6. Check out Craigslist as well

7. Drive to the neighborhoods where some of these deals are that you’re analyzing to test your appetite for “safety” or feel. Could you live in this hood for a year?

8. Continue to network with agents, wholesalers, and top property mgrs - you never know they may throw you some deals!

9.research lending programs like FHA to build your biz plan - talk to your lender about your options

10. Perhaps seller financing deals may better serve you

11. Visit sites like city-data to research market trends to refine your buy box

These steps are to build your confidence in analyzing deals and the market. Through this journey, you will start to build a realistic criteria/buy box and you’ll be jumping in taking action. Good luck!  

1) have you identified a property/subdivision yet? I say this because you could factor appreciation in your equation as I’m sure both of those markets have strong pockets of growth. 
2) as a first time home owner and investor, you may want to consider TCO (total cost of ownership). You eluded to it in your last sentence. Consider this, maintenance repair or capex expenses, into evaluating your exit strategies. 
3) property condition and new inventory are also things you may want to consider. You mentioned you have stable income. One thing I’ve done is made my first home purchased a new construction in a low inventory market in SC. Since the neighborhood is roughly 50% developed, there’s strong initial appreciation and desirability, while not being concerned about condition. As rents rise you may get marginal cash flow, but over 5 years I predict a great mix of cash flow and appreciation (as @DavidGreene reminds us). 
hope this helps, and remember to run your own market data analysis and property analysis, utilizes showings, property visits, and convos with your local team to validate your assumptions.  

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $326,100
Cash invested: $24,000

House hack purchase as a primary to rent out in the near future. Located at the NW section of ATL inside the perimeter.

What made you interested in investing in this type of deal?

Relocation from out of state for a promotion (W2) led me to take advantage of the market appreciation and low interest rates and purchase a home with the strategy to live in it then convert to a rental.

How did you find this deal and how did you negotiate it?

Worked with a local KW realtor as my agent.

How did you finance this deal?

30 year conventional primary residence loan at 5% down.

What was the outcome?

Closed on time.

Lessons learned? Challenges?

The biggest challenge was mapping out key locations, cross referencing potential rents, and bidding aggressively. I submitted atleast a dozen offers and visited almost 50 homes until I closed.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Lowell "Champ" Crawford, Keller Williams realtor
Nelson Garcia, Moreira Team lending

@Michael Paling, @Tim Herman, and @Nathan Murith - Gentlemen, I am quite humbled by the authentic, timely, and constructive replies!

You have all paused me to think about a response, so I will try and compact it into 1 post.  Having this on the forums may help others (I have not taken a course or owner-financing.  I have been self-learning in conjunction with input from a an experienced investor I keep in touch with).  Overall, I think I am getting closer to understanding.

Key Points/Background:
- The property has been remodeled
- The 3rd bedroom was removed, and the master suite expanded so now it is a 2/1

Michael - I need to rethink the valuation given that is has a reduced bedroom count, though remodeled. I think it will appraise within 5% of listing. Great point.  Your correct that I need to be realistic on the interest rate and the vacancy rate.  Much appreciated.
Tim - Your message really helps me be much more purposeful and wise with the analysis.  Perhaps I am over-bullish on the remodel and not conservative/realistic. I will adapt your guidelines for budgeting to help me out on maintenance and capex (new target combined - $250/mo.).  Your challenge on the vacancy, and how you breakdown that analysis, though unfamiliar to me, I really like! Being a numbers guy translating an arbitrary % to "occupied months" is shifting my paradigm.My dumb question: what math/inputs are you using to translate 3% vacancy to 333 1/3 occupied months? My interpretation was to estimate length of weeks before a tenant vacates, and divide that by 12 weeks vacancy (3 month turnover).  Am I thinking about this the right way.
Nathan - I am requesting help in determining if the numbers work/how to make the numbers work, in addition to determining attractiveness to a seller.  So, I would be proposing terms.  What you made me think about relationship building which had not crossed my mind at all!

Much of what you gentlemen are telling sounds fundamental and basic to me, so I really want to fully understand this in order to advance my REI career.

>>> After reanalyzing, the numbers are showing me that this will not cash flow.  Inputs:
> Price ($130k)
> Income (+$1,100/mo.)
> Cash-to-close ($2600 in fees + $3250 DP = $5850)
> Loan Terms ($126,750 @ 5% over 30 yrs = P&I = $680.42/mo.)...Balloon at 5 years for $117,073.46 (Cumulative Principal: $10,162.32, Cumulative Interest: $29,982.46) resulting to a total cumulative payout of $157,218.24 ($20.94% over asking).
>> Variable Costs (Vacancy @ 4%, Repairs/Maintenance @ 4.5%, CapEx @ 7%, Mgmnt. Fees @ 10% = $280.50/mo)
>> Fixed Costs ($879.42 => 80% of income/mo)
>>> Net Cash Flow (-$59.92/mo.) << Yikes.
Updated Rental Analysis SFR Owner Financed

Thank you again for taking to the time to help me!

View report

Hello BP Fam! -- How often are sellers entertaining owner-financed deals in your market?

I'm looking to place my first owner-financed deal/offer and was looking for some input/feedback (I have not yet contacted owner):

1. Deal Structure for this vacant, free & clear SFR (I desire $250/mo. free cash flow):
> Asking: $130k (2bd/1ba)
> Estimated value: $105k
> Estimated repairs: $0
> Down Payment (3 mos. rents): $3,300
> Seller Financed loan amount: $126,700 @ 2% interest, over 25 years
-----> I am considering balloon payment in 5 years, if need be, of $106,692.78 (Cumulative Principal: $126,700; Cumulative Interest: $11,676.96)

2. Viability for owner financing in Florence, SC in 2022 (yes even here in a small town the market is stable and healthy!) --- 3.95% house value appreciation, YOY over the last 20 years for this census block.

3. Red flags and blind spots when approaching sellers when you as the buyer are only interested in owner-financing a property (I'm focusing a majority of my capital in other ventures).

The goal is to maximize free cash flow, close on a win-win deal, and hold this property as a LTR for > 10 yrs.

Am I approaching this realistically? I welcome any and all feedback (I have tough skin ;).

Thank you!

*This link comes directly from our calculators, based on information input by the member who posted.

@Lisa Hsu Great question, I am in the same boat.  Any luck finding the spreadsheet or the #BPInsights web page?

Thank you sir! Signing the contracts and preparing to propose funding this week.  My Investment Proposal book is just about finished. 

Fantastic! I will follow up thank you sir.