All Forum Posts by: JD Gunter

 Happy to help, man. Best of luck to you. 

You can independently verify the rents on Rentometer if you would like. Try to find as close a comp as possible on one of your units. A local agent can be great for rental rates, but the agent you are buying from is biased to sell you something. For my clients, I always send them the source of my information so they don't have to take my word for it. 

It is interesting, and unusual in my market, that they are all empty. Hopefully there is a good explanation for that and it's not that they couldn't find tenants. 

If you are under contract, you should be able to get the past leases, rent roll, and utility bills now. I would be curious how recently the units were rented and for how much, compared to your target. Theoretical market rent and tenants actively paying rent are two very different things.

Your upfront costs are going to be substantially higher with no tenants. You need to factor for advertising, lease signing, background/credit checks, etc. If you are going to manage it yourself, plan on time for interviewing tenants and doing walkthroughs. 

If you are going to rehab the property before you lease it, you need to plan on carrying costs for the time it takes you to rehab. Normally, I would recommend rehabbing units as the leases expire, but you won't have that luxury. You may want to consider getting at least some tenants as quickly as possible so you don't get buried in rehab costs and carrying costs simultaneously. 

Regarding the calculations, I guess my point was that you should shift from running numbers hypothetically for calculation purposes and start using real numbers so you can see what you are getting into. I have clients that have a hard time making this switch. As investors doing research, we spend so much time running hypothetical numbers that it can be hard to realize we have real numbers that we can use. At this point, you want the cold, hard truth. 

Right now, you don't have any cashflow. 

I think $1,000/month cashflow on a $600k unit could be great, but you have a long way to go to get there. Right now you are walking into a 100% net monthly loss. 

I'm not trying to scare you, it could be a great deal, just know what you are walking into. Your cap rate and cash-on-cash return are currently negative, until you get three tenants and start collecting some rents

Congratulations on your investment! So many people never take that first step toward actually buying an investment. That's the scariest and hardest part. Well done. 

These are a few things that struck me when I read your post:

While it's good to be careful and analytical when running your numbers, the specific details you gave above regarding cap rate, etc. aren't accurate. I'm glad you are analyzing them and becoming familiar with how one factor impacts another, but at this point you need to start using the actual, hard numbers. 

Get a copy of the rent rolls and leases. Plug into the calculator what people are actually paying. Get a copy of the utility bills and other expenses and plug in what you are actually going to pay. 

If you are going to live in it, you need to throw out the rent for one unit. Do all of your calculations with the actual rent for the other three units. Are they all currently occupied with some significant time left on the lease (6+ months)? If so, that makes life easier in terms of predicting cashflow. Make sure you spend time carefully reading the leases for the other units. Have your property manager help. 

Get a handle on your rehab costs. If you are using the BP Cashflow Calculator, you want to put as accurate a number as possible in the "estimated repair cost" category. You need to spend some time with your inspectors and contractors to find out what the property needs on day one. 

If you are going to back out of the contract, it will be for something they find in the inspections. Go over the place with a fine-tooth comb. They will definitely find problems on the property, but not everything is a deal killer. You just want to know what you are getting into. Also consider how you are going to repair occupied units, if necessary.

Finally, it's not necessarily bad to pay asking price. Some of my best deals have been for asking price, and some of my worst have been for less than asking price. The question is if the deal itself makes sense. You have no control over what someone chose to list it for. 

I hope this helps! It's tough to switch gears from analyzing a theoretical property to actually writing a prospectus for a real investment. Let me know if there are any other questions I can help with and good luck!

I've done some wholesaling. It can be a challenging way to get started, but it can work well in the right market. I would say there are probably easier ways to get started. 

The biggest challenge is finding motivated sellers. The most successful wholesalers in my market spend a ton of money on marketing. People just starting out will sometimes go knock on doors from pre-foreclosures. 

Buying a primary residence with an eye toward investment is what I usually recommend for first-time investors, but there are many paths to success in this industry. 

What is it about wholesaling that caught your attention? 

You should start the conversation with the lender as soon as possible. HMLs tend to be more relationship driven than traditional lenders for the most part. They'll want to see your financial situation, but also look at you as a professional. 

Just starting out, you will be considered higher risk, so they may want you to jump through a few extra hoops. You'll also have higher fees the first few times, so you'll need to buy something with better margins. After you have a HML willing to work with you, they can give you guidelines for actually writing an offer. It is a little bit like having the pre-approval on a traditional deal.

I definitely wouldn't recommend writing an offer before you have your financing sorted out.

Good luck!

You will need some cash on hand no matter what you do. You can minimize the down payment by living in the investment property, utilizing your skills to build value, then rolling your equity into your next investment.

Monthly debt vs. monthly obligation is your DTI. Your overall debt is also a consideration. In order to get any type of loan, your lender will look at everything about you and the property.

Your partner can go on the loan with you. If so, they will look at you both. Keep good records, minimize your debt, and try to clean up your finances before you apply.

Most lenders are looking at the black and white numbers. You don't have to "impress" them when you are starting out. Eventually, if you are trying to get hard money or a credit line, this becomes much more of a factor. If you are trying to buy a residence that's a fixer upper so you can get started, you don't need to do anything but get your credit and finances in order, then they'll give you the loan. They don't like to lend on heavily distressed properties, so don't try one on your first attempt. 

Your comment that the town you are in is a gold mine waiting to happen is a concern. You shouldn't invest hoping values will shoot up. Look at what the home is worth today if it were in good condition. You can find what similar homes recently sold for on Zillow. Find one that is selling well below today's market value that needs a little work that you can do confidently. 

Good luck!

House hack typically means you live in one portion of the property and rent out the rest. After you've done some strategic improvements and built the tenant stability, you can sell the property and roll the equity into another with no out-of-pocket down payment. If you can do this once every two or three years, you'll be well on your way to building some significant capital. 

I haven't had a bank or finance company distinguish between "business credit" and personal credit. Especially in the beginning, you will personally guarantee everything, so your own personal credit is very important.

I'm not sure how to use credit cards for down payments, but I don't think the banks would appreciate that. You want to build a long-term relationship with your finance company, so you don't want to burn them in the beginning. Normally you have to bring a cashiers check to close, or wire money from another account. 

Lenders will look at your balance sheet, normally requiring a personal financial statement which includes all of your assets and liabilities. They will also look at your experience to determine how many deals you've done. A lender I spoke to recently considers three flips within the last five years as "experienced," but every lender is a little different. If you've done a number of successful investments, you'll be viewed more favorably. If you can show significant assets in the form of cash or real estate, that is also helpful. 

I always tell clients that if a bank is throwing up a red flag over some issue relevant to you as the investor, or over the deal itself, then there is real risk that should at least give you pause. If a bank considers no money down investors as high risk, it's because it is high risk. You really shouldn't attempt to get into investing on credit cards. 

A great way to get started with lower money down is buying a primary residence with an eye toward investing. There are programs for helping first time buyers buy a home, and if you live there for two years, you'll get preferential tax treatment when you sell it. Lot's of great investors have gotten started this way. 

Good luck!

 I’m glad! Happy to help. 

 Great response Mike