All Forum Posts by: Jeff Kehl

I have a similar issue with a 20 unit building. My initial plan was to put in electric heat in the units. Some of them already had window mounted electric heat and air. But the building was built in the 30s so the electric won't support much more load. To upgrade I'd be looking at completely rewiring.

So instead we just raised the rents. On all new tenants coming in we tacked on $70/month for utilities. It worked well. Most of the tenants have turned over and we're back to 100% occupancy.

Hi Ryan,

What city is your property in? If it's in NW Georgia I have some people I can put you in touch with.

Jeff

Are you in Lexington, KY where the University of Kentucky is? I would think that would be a great place to invest in multifamily.

From loopnet:

http://www.loopnet.com/xNet/MainSite/Listing/Search/SearchResults.aspx#/Lexington,KY/Multifamily/For-Sale/c!ARUAAAE

I think it depends on who your target renter is. I have a 20 unit all 1 bedrooms but it is in our downtown area walking distance to bars/restaurants. It appeals to young singles and couples and college students that want that kind of lifestyle.

I get premium rents for it for the size of units and don't have any problems finding renters.

If I had the same building in a suburban neighborhood I think I'd have trouble finding people because all the units out there are all 2-1,2-2,3-2.

Interesting discussion. It brings up many points I debate with myself internally. Up until last year I had not done any NMD deals. I generally put 20-30% down and additional money into the rehab so I have a pretty healthy equity position in everything I bought prior to 2014. Last year I had my reserves (held in both cash AND lines of credit) down fairly low so I wasn't buying much.

Several deals came my way that allowed me to buy with NMD. One was a small portfolio another investor was losing to foreclosure. I approached the owner and the bank and said I would purchase the properties for the amount of foreclosure if the bank would issue me a note for 100% of the amount. They did that because they know me and I have done a lot of business with them and they also secured it with a couple of other properties I have.

The other two situations were financed with an 80% bank loan and a 20% second note from the seller.

The way I looked at these deals is that they add to my portfolio with no cash required on my part but I don't think I would do many more like this in the short run because they have eaten quite a bit of my cashflow. The 20% seconds are only a 5 year note so the payments are pretty high but on the other hand, they will be paid off in 5 years.

All of these properties are rented currently and they all pretty much break even or are slightly cash flow positive operationally, but on the portfolio specifically I have run into a lot of deferred maintenance costs.

I will probably do additional NMD deals but very slowly as I'm just too conservative to take that much risk. If I was young and had nothing to lose I would take as many as I could find :)

These all seem like fairly happy stories of inexpensive houses... I suspect there are way more unhappy stories but those are not the ones that get told so here's a few.

I bought a house at tax sale for $400 thinking I would hold it and try a rehab of it in a few years. The next year the city cited me for 2 dozen code violations. They dropped the case when I spent $5k to have it torn down. I still own the lot but can't build in that area profitably.

I spent about $7k total at tax sale for two abandoned/failing down houses I thought I could rehab. Although my lawyer says there is a legal right-of-way to access the property, the two neighbors dispute it. I would likely have to take them to court to establish my rights and there's not enough profit there to even start the process.

I bought a duplex for about $2500 at tax sale. When we got into the rehab we found that just about everything needed to be replaced, roof, electrical, plumbing, hvac and there was a lot of framing that was bad. Total rehab cost around $40k. It rents for a total of $700 so not too bad but I had it appraised to pull cash out and the appraisal only came in at $20k because of the neighborhood it's in.

These properties were all cheap for a good reason and I would have been much better off saving my money for a downpayment on the nice properties I normally buy. 

Hi Tim,

Welcome to BP. I'm not too far from you over in Rome. While the deals are a lot more scarce I'm still finding a few here and there. I think this is because we're far enough away from Atlanta to not get caught up in that market. So if your willing to travel a bit maybe try looking in some of the smaller towns a bit further out.

Depends what your goals are but if you're looking to build long-term wealth with real estate, selling is not a great idea. You'd have to pay capital gains tax as well as all the transaction fees of selling which would eat into your equity.

Buying your primary residence with an eye toward renting it out in a few years as you move on is a great strategy with good financing like VA.

So I'd be a fan of option B.

Welcome Josh!

Good to see another Roman on here.

Jeff

Thanks for posting the details of this. I'm in a similar position with a piece of land I purchased at auction in early 2013. It's 25 remaining duplex lots in an established subdivision which went under in 2007.

They're fairly high end for this area, 3br 2ba 1500 sq feet per side on a single level, 4 sided brick. I think the target market is like you describe, retiring baby-boomers looking to downsize but that still want a nice place

I'm not a builder and have no ground-up construction experience unless you count a few extreme rehabs.

So I have been trying to sell the lots off individually.  I had some interest in early summer but none of them turned into closings so I've been playing around with the idea of building one myself.

Couple of questions for you. How did you measure demand? The economy still seems pretty soft in my area so I'm worried about building it and getting stuck with it.

How do you estimate construction costs? The individual units were selling around $110k new in 2007. I don't see how that works because if I figure $80/foot construction cost they would cost $120k per side to build.

What is the premium for a new build versus existing older units in your area? I ask this because the last comp in this subdivision went for 80k so I'm wondering if I could still build one new and ask $110k for it.