All Forum Posts by: Joseph P Finkelstein

Hi Lilly,

What part of CA are you from? There are a lot of local investor networking groups, you might have some success meeting someone that can mentor you there. 

If you are in the So Cal region, I can give you some recommendations. 

Let's face it, rising interest rates can make it difficult for deals to pencil for some investors. Though there are continued predictions of federal interest rate hikes throughout 2023, there are still opportunities to be captured, especially with less buyers in the market! That is why we want to tackle the issue of financing head on by empowering investors with knowledge about creative options. In this meeting we will be reviewing risks and benefits associated with options such as:

• Seller Financing
• Home Equity Line Of Credit
• Cash-Out Refinancing

We are excited to share our knowledge with like minded investors, novice and experienced. We hope to see you at our seminar!

Please register at:

https://www.meetup.com/south-b...

Hey Marek, 

From the other posts that you added to the chain, it sounds like you have your future locked up from an equity perspective. You have a high family income, you're maxing out your 401k, and you are going to get a pretty substantial pension. 

From that perspective, it sounds like you are going to be just fine, so if you don't want the hassle of owning property by all means just park it in the stock market and watch it grow. However, if you look at it from a risk-reward perspective, you have a very solid future seemingly locked up, and real estate can be your pathway to "F U money". 

I think some other commenters have already run the math and proved that the actual return you got on capital put into the property was significantly higher than what you got in the market. If anything the only problem your current properties sound like they have is that they are deleveraged. Could be time to do a cash out with a 30yr fixed, or consolidate into a larger building where you can have property management. 

Plus if you really wanted, if you did the cash-out refi and were dead set on stocks, you could use the extra proceeds for equities while holding onto your properties. That's the beauty of real estate when it works right?

Hi Alexis. We are in the So Cal market, and the general rule of thumb we tell clients is that you need about $50k to get started.

Even with $40k (saving 10k for closing costs) and a 5% down payment, you're looking at an $800k purchase price. You can go as low as 3.5% down if your income is high enough. However, in today's interest environment FHA, low down payment loans are horrendous once you add PMI to them.

If you were dead set on getting started, I would do a lot of research and try to find a friend or family member willing to partner up. I don't know your savings rate, but if you could save $1k/month, you would have over half of the necessary capital by the end of the year. 

Then as rates drop or your position increases, be ready to try and take down the largest duplex (by square ft.) that you can find in a position where there is some spread between current and market rental rates. 

Of the 4 elements of return in real estate investing, tax implications can be the most misunderstood, and also a major tool for investors when used properly. Join us on December 3rd for a discussion about tax benefits in real estate investing with Sam Alherech, a real estate agent, investor, and licensed CPA. 

We will be going over:

• 1031 Exchanges
• Cost-Segregation Studies
• Standard Depreciation, Accelerated Depreciation, & Bonus Depreciation

Whether you are an aspiring, a novice, or an experienced investor, all are welcome. Looking forward to seeing you in class!

**We are providing general tax information for educational purposes only. Please contact your tax professional for details on these topics.**

@Nate Wiger When we purchased, it was during the pandemic, so rates were dirt cheap. We still got about 25 basis points off the 3.5% I underwrote going in, but I couldnt tell you technically how that happened. Perhaps its because my sister and I had strong credit, but that was the rate that our mortgage broker was able to quote us going in at the 5year fixed term. 

As far as vacancies, we got extremely lucky and the tenants just chose to find a new building. Perhaps they knew what was coming. I know from other colleagues and clients, getting tenants out hasn't been too much of a challange (minus a few exeptions).  "Cash for keys" negotiations have been pretty successful. Average is between $5k and 7k, but probably safe to budget $10k going in just incase.  It is a bit of an annoying extra expense, but its nice that in Long Beach you aren't starting negotiatons at $8300 like in LA and there isn't a lot of doctrine regarding the negotiation

My sister and I own a cashflowing building in So Cal, and it took about 27% down to do so. As Bruce said, every building should cash flow as long as your NOI covers your debt service. That means that in some areas like expensive CA, on average, you have to leave more equity in the property and thus the power of your leverage is worse.

Also, cashflow is not a static equation. Some units are below market, but they just need some fixing up to get higher rents and more cashflow. Some areas have pretty steady rental growth year over year, so that will change your cash flow year over year. You definitely make your money when you buy, but that doesn't mean that the building is locked the way it is once you own it. 

Another aside, it is true that a lot of areas are tough to cashflow in CA, but be careful with how you run your pro formas. I know on bigger pockets they like to use a 10% vacancy expectation, and that is a great rule of thumb across the board, however, in our market (Los Angeles) the average vacancy is more like 5%, so if we used 10% there would never be a purchase that made sense. 

Investment Info:

Large multi-family (5+ units) buy & hold investment in Long Beach.

Purchase price: $1,195,000
Cash invested: $315,000

A 6 unit 1960's build. All 1 bed 1 bath units. At the time of purchase it was roughly 12.5 x gross rents, however shortly after purchase we had two vacancies and were able to get it to 11.5x gross.

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

I got my real estate license in order to invest in real estate, but quickly learned getting licensed teaches you nothing. By luck I was introduced to my brokerage that specializes in investing education, and figured my biggest competitive advantage was executing on what was being taugh to me.

I also specifically needed to purcase a 5+ unit deal in order to work around my limited income history to qualify for a loan.

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

I found this deal on the MLS and negotiated in with the help of my broker and myself.

How did you finance this deal?

5yr fixed, 3.25% commercial loan. In hindsight, I should have negotiated the interest only option to boost cashflow.

How did you add value to the deal?

By increasing rents the state allowed amount, as well as renovating vacant units and advertising for top of makret rent

What was the outcome?

Immediately we got 2 vacancies and were able to bring 2 units up to market. The other two we were able to bring within market with rental increases.

Lessons learned? Challenges?

As this was my first deal, I made the mistake of oversharing. I verbaly said we were excited by the deal and thought we could do a full price offer. This led to a weak negotiating position.

I've now learned to never verbally state a number and work off of your offers and counter offers.

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

I could not have done this without the help of my brokerage and my broker Cody Charnell. He guided us throught the process. We also used the brokers network of David Guevarra at momenta capital and Borba property management in Long Beach, whom without we could not get the deal done.

Please join us with fellow agent and licensed CPA, Sam Alherech, for a more granular view into multi-family investing.

We will be covering:

- How to analyze a multifamily deal

- Understanding the metrics of a deal

- How to analyze the exit on a value add

- Tax implications related to investment real estate

https://www.meetup.com/south-b...

If I were going to move everything, I would try and start renting now both for your own property and your personal living. If you do that for 2 yrs then you can qualify the property as an income property and do a 1031 exchange. 

It's a bit slow, but you have great debt on the property and the extra equity over time would give you a nice chunk of cash that you could then plug into the 5+ (or comercially financed) multifamily space. 

What makes the 5+ space great is the loans require you to cashflow by default, and propertys trade more on a metric basis. That means if you are able to find a situation where you can improve the building and raise rents, you have a mores stable idea of what valuation might be. Then sit, wait, collect, 1031 rinse  and repeat.