All Forum Posts by: Joel Florek

@Elbert D. thanks! Looking forward to getting my next deal done. Got a few leads I am working on but nothing for sure yet. 

@Sarah Hill Thanks for reaching out! 

Down in Indiana I used Old National. Worked with Sandy Hagen on this one. She was fantastic! Keep in mind the financing is on the commercial side of their business. Best advice though is call call call. I usually talk to a dozen banks when preparing to make an offer or just get a property under contract. 

8 unit is just south of 20 by the fairgrounds. Very nice neighborhood in my opinion. Im excited to get more property in the area! 

Alert wise I like Realtor.com the best. 

 Happy to help Dan. Because I bought the property in cash I was able to pull a line of credit right away for 75% of the appraised value. I was pretty disappointed that the appraisal didn't come in higher, but each year the property will get reassessed and they will adjust the line accordingly. I need a 3 unit to sell at a higher price point so I can use that as a comp in the future. With that said my total closing costs for the line were only $1000 and it will cost $150 in fees each year. Much cheeper then if I went the route of getting a loan. What really hurt my appraisal is they decided to not account the income approach for valuation and only use square footage comps. Unfortunately with one of the units being in the basement they couldn't use any of that square footage for the comps calculation which killed where I thought I was going to get it appraised. 

Now many people aren't in markets where they can buy a property for cash that cheep. Typically this property would have gone for $80k to $100k in our area but given the sellers situation they priced it low to get it off the market and because I had cash I could close quickly. 

Let me know if you have any other questions! 

@Mindy Jensen Im ready to get on the podcast! Let @Brandon Turner and @Joshua Dorkin know! 

Deal 1: 4 unit for $125k purchased just 6 weeks after graduating from college. I borrowed $25k private money at 8% for my down payment on a commercial loan. 

Deal 2: 16 unit for $685k purchased with 80% bank financing at 4.85% 20 yrs, 16% seller financing at 2% 10yrs, prorations of 2%, personal loan from Wells Fargo for 1%, and I brought 1% cash to to table. 

Deal 3: 3 unit bought in cash for $56k. I then pulled a secured line of credit at 5.25% with interest only payments required. This way I have a line to pull from for future deals but could make a return on my cash in the meantime. 

Deal 4: 8 units for $345k. Used 80% bank financing at 4.5% 20yr, seller note 10% of purchase at 5% 20yr, prorations of 4%, and 6% cash that I used from my line of credit on Deal #3. 

In total, expected 2018 cashflow of $70k. Started in summer of 2015. 

Recent post on 3 and 8 unit deal. 

https://www.biggerpockets.com/forums/223/topics/50...

Post on 16 unit deal. 

https://www.biggerpockets.com/forums/223/topics/28...

BP Community! 

I just closed on an 8 unit this month putting only 6% down on the deal. I expect my cash on cash return to be over 90%. Ill detail the information below. Please reach out to me with questions as I love to connect and try to help those who are just getting started or connect with those that are looking to team up and go after bigger deals.

Some may have read my post in the past about hitting 20 units at 22 years old. You could say it took a long time to get an additional 11 units given I closed 20 units in just 10 months of getting started with my investing. But since that time I left my corporate job, moved states, my daughter was born and is now 6 months old, and I began investing in a new city. Needless to say a lot has happened since I closed my 16 unit a year and a half ago. If you want to check out that article here it is.

https://www.biggerpockets.com/forums/223/topics/28...

It has been a rough past 18 months trying to find another sweetheart deal like my 16 unit. I closed that property with less then 1% down of my own cash. I knew not to expect that in the future but was hoping to replicate some of that deal structure. With a competitive landscape for all types of real estate I had a very difficult time finding opportunities where the price and numbers looked good, and the seller was motivated enough to carry a note. So I sat on the sidelines being very impatient.

While I looked for deals of 8 units or larger in Wisconsin, Michigan and Indiana I let my cash build up. With my automated alerts set up, a 3 unit came on the market in the town where I had already been investing. $69k for a 3 unit with gross rents of $2k a month and total expenses of $800 a month which included management and capX. Knowing the seller consisted of family members who inherited the property this year and had never actually seen it I offered $56k the same day it hit the market, cash, and close in 2 weeks. They accepted the offer and we closed the deal quickly so the family could move on from he property. Only $1k of work was needed right away to deal with deferred maintenance issues on the property.

Utilizing my relationship with a great local lender I started the process of getting a secured line of credit set up against the 3 unit so I could pull most of my money back out. I ended up closing the line at 5.25%, interest only payments for 80% of what I paid for the deal. Basically its a big credit card that I can now use for any business related purpose, in my case Ill use it to do more deals.

So here is where the 8 unit comes into play. Another one of my automatic alerts hit my inbox telling me the price on an 8 unit in South Bend IN dropped its price by $50k. I knew the numbers didn’t work at the old asking price, but now the property was priced at an 8.5% cap rate which I am happy with in my area.

I reached out to the listing broker and got a showing setup right away. After the showing we stood out on the street and talked through the deal. I was honest about my inability to do the deal with a normal 20% down(probably could have but didn’t want to) but if the seller could carry 10% I had enough cash ready and could close within 60 days. He asked me to put the offer in writing and get it over to him that evening so he could pass the info to the seller. The following day I got a small counter back and I accepted. We agreed on $345k with the seller carrying 10% on a 20 year note at 5% for 18 months.

Financing the deal went pretty smoothly, although a bit slower at first then I would have liked. I pushed the deal forward with multiple banks understanding that there was a good chance a banker would get pushback from underwriting later in the process. It happened to me on the 16 unit and it happened to me on this deal. But having multiple banks working the deal I had one pull through for me. We closed the bank financing at 80% LTV at 4.5% on a 20 year amortization and 5 year balloon. I thought it was interesting that I never even met with my banker until we got to the closing table. We had only worked together via phone and email for this deal.

After all prorations at closing, I was only responsible to bring 6% to the table. Not too bad in my opinion considering I pulled that money from my line of credit and didn’t have to tap into any of my current savings. I also still have 60% of my line available, along with current savings to do another deal.

With respect to paying off the seller note, I have been working with a number of people discussing private lending. My goal is to bump up rents and give the property a face lift over the next 18 months. I am confident that I will be able to refinance the remaining seller note principle with private money to allow me to hold off on putting more money in the deal. At my 5 year commercial balloon I will pay off the private money and have only one loan on the property at 70% LTV.

Here is how I expect the numbers to look for me.

Keep in mind, this return doesn't even include the principle pay down on the loans.

My biggest advice for people would be as follows.

1. Know why your in the real estate game, and why a specific niche. I have a goal of being able to spend time with my daughter and family. We want to be traveling and sailing throughout the year, not just when a job allows me to use my 10 days of vacation. Multi family has allowed this to become a reality. I started with no money 30 months ago with a 4 unit deal. I borrowed the $25k down payment from my parents at 8% and got the deal done. Since then I have focused on finding good deals and getting great financing to get stellar cash on cash returns.
2. I have clearly written out levels of of my dream life I want to achieve. This property has gotten me to level 1. I have now replaced my old corporate job income and expect to make over $70k cashflow off of my 31 unit portfolio while also having the time I want to be able to enjoy sailing, camping, hiking, and hunting. Next goal is $250k in income through my real estate and stepping away from the day to day management of the properties. Level 3 is $20m in real estate so I can retire with a 5% return for $1m a year. Long way to go, but making solid progress. The multi family niche makes this goal possible.
3. Keep pushing. In both my seller financed deals the primary bank I was betting on backed out. But I kept pushing to get more banks lined up and in each case needed them to close the deal. Now those backups are my primary banks and we have built great relationships. I also looked at hundreds of deals online and visited over a dozen properties before I landed on this 8 unit. It takes time, but patience and percipience will get you to the finish line.

I look forward to connecting more with the BP community. You all have been paramount to my success thus far. By no means am I a millionaire or did I get rich quick and quit my day job right away. But here I am, full time after 30 months and loving every minute of it!

Joel

Should have no issue getting a loan on these terms given you are expecting a balloon payment at 5 or 7 years. 

I am closing an 8 unit on Wednesday with 10% down(bank lending 80% and seller carrying 10%), and my commercial loan terms are 4.5% on a 20yr amortization, 5 year balloon, with $1200 bank closing costs. Appraisal is what killed me which ran $2k on this one.... super frustrated on the appraisal cost but the bank wouldnt give me any other options to close within my timeframe. 

@Andrew Michaud By the numbers this does look like a very good deal to me. A few minor notes. 

With respect to the cap rate calculation. Cap rates are determined based on the purchase price and Net Operating Income(NOI). The NOI calculation is income - operating expenses. Operating expenses do not include financing costs so you would not include your debt servicing. However, you would have to allocate a management fee of at least 5%(Others may show 7% or 10% for this figure) and a capital expense budget. Make sure repairs, management, and vacancy reflect the class of property you are purchasing. Based on a cap rate you would clearly be much better then what you are showing.

These deals are out there and it depends on your market. I just bought a 3 unit for $56k that cashflows $1200 a month for me. Needless to say based on a cap rate I bought a 25cap property... stupid.. but I am very happy with it. 

@Greg M. I am not sure if anyone has recommended this, but you should talk to a lawyer....haha

Regardless it is a tough situation. I had a similar situation(yours is still far worse) but was able to talk through a compromise with our issue. My two cents are as follows. 

- Like every other person, talk with a lawyer and see what they say. I wouldn't open my wallet up to let them deal with it though. I would start with a 20min conversation to get the basics figured out as to how they might remedy the situation.

- Buying their place would be great but sounds like that isnt an option

- Maybe there is something the neighbors want, in return for not calling the police. Could you buy them a TV, stereo, or something else for $500 or less to get a handshake that says they wont mess with your tenants or call the police for nuisance things. Have the deal be they always call you as opposed to the police.  Worst case they say great deal and then dont follow it and your out some time and $500 or so. 

- Sell your property. Almost everywhere the market is very hot right now especially for multi family. Hopefully you can get a better price for the property then what you bought it for. Sounds like this has been a recurring pain in your ***. Rentals dont have to be. Your happiness and sanity are more important then a few hundred our thousand dollars each month. But hopefully you can turn your cash around to buy another property that does just as well if not better then what this one is doing for you and you wont have neighbors from hell. 

Im sorry I dont have any silver bullets for you but I would like to think of this as either a bump in the road, or a divine push to get you to make some sort of adjustment or change in your investing that will be for the better. 

@Nick C. The issue is the number of structures. From my experience they will write in each structure(in this case two buildings) and then typically they can pull them into one policy(depending on if they are the same or separate parcels and how the agency is allowed to structure it). Ultimately though, you are correct, shop it shop it shop it. On every deal I have done I have gotten my insurance rates cut in at least half when compared to the previous owner. This is saving me about $6k a year compared to the previous owners. I go high deductibles since I dont want to ever use my insurance except in a disaster. But with the savings, over a 10 year period, I will have put $60k in my pocket because I am ok with paying $10k as deductible as opposed to the $2k the other guys wanted to have. 

@Tariq B. I just ran into this with an 8 unit I am closing on Wednesday. It is 4 duplexes and each one is its own tax ID. They had to run it as 4 separate policies wrapped together, couldn't find an option around it. Luckily I shopped and got it down to $500 a dueplex but it is disaster insurance so I have a $10k deductible(although all my policies are structured with the highest deductible so its no different then I do on my other three properties). Its all wrapped together though so it wont be a $10k deductible on each building if a tornado comes through and wipes them all out. Prior to I was getting quotes of $1200 a building though so it took calling around to a number of places.