All Forum Posts by: Joshua Christensen

Hey Cory,

I second @Greg Kasmer's comment.  Reach out to local PM's that specialize in the area.  With you being out of town, you'll more than likely need a local PM anyways.  Start interviewing and get some reports from them on the market.

Check Zillow to see how many listings there are and get a feel for how long they are on the market.  Check Apts.com if they have anything in that market.  

Call local apartment complexes and ask them how many units they have and how many are available in their complexes.  If the larger communities are struggling for occupancy, what will that mean for you?  How far below market will you need to set your rent to gain residents?

Is the market a growth or a yield market?  Are rents rising?  What is the expected population in the coming 3-5 years?  

If the building is near the college, you may have an easier time keeping it rented.  You'll have periods of vacancy during summers and winter breaks, so factor that in.  

Best wishes.

Hey @Omar Ferrer reach out to @LaMancha Sims - He's a private lender and is more open to these scenarios.  He requires a 680+ FICO and has good terms for the fix/flip projects.

I have to agree with @Nathan Gesner and @David M.as the post is a bit vague as to what type of real estate we're talking about.  

That being the case I'll hit tow things.

1. REAL ESTATE BROKERS - In my experience, brokers get their license because they like houses and want to help people.  Unfortunately, they don't realize the challenges of building a consistent pipeline of clients and new business.  They find a client, get under contract, stop looking for new clients for 60 days to close the one they're working on, then start over.  Without consistent steady flow of clients, income is sporatic at best.  It is the hardest part time job you'll ever have.  Too many brokers treat it as such.

2. REAL ESTATE INVESTING - People read a few books or attend a seminar and are suddenly dubbed "Real Estate Investor".  They quickly jump into transactions without any idea how to build a sustainable cash flow machine. Without regular cash flow, businesses die.  The expectations are wrong and the work that goes into the portfolio is wrong.

Just like working out, it may take months or years of steady and consistent work to see lasting results. Our fast food, microwave, AI world demands instant results, yet, that's not what REI is about.

The Failure Rate is from people's head space more than anything else.  They are not conditioned to work and do the things it takes for success which is often boring tedious work repeated frequently.

@Ben Jones, @Nathan Gesner couldn't be more correct.  

Before you jump into this, it sounds like you're at the education point of the program.  Mistakes in real estate cost real money and lead to a lot of problems, sometimes legal.  Yes, getting real life experience is important and that will come.  It sounds like you're struggling with the basics.

The best advice I ever received from a 75 year old mentor, was "Make your mistakes on paper.  It doesn't cost you anything."  He was referring to a building boom that some builders were headed for disaster in their development.

The same applies here.  Get educated before you lose more than you can afford to lose right now as you're getting started.  

 Same applies.  Make sure it is something your tenants want and will pay extra for.  What's the return on your investment including the Private money costs.  

A couple of things I'd consider...

1. ROI - what's the cost and will it improve your rents? Will it affect the ability to rent the units?

2. LA heat in the summer is fun.  Having centralized AC could be a big benefit to your tenant base which could improve rent.  

Make sure to do a good cost analysis and break even to see how long to recoup the cost.  

You're currently getting just under $600 per unit per month in positive cash after mortgage (PITI?)(you didn't indicate if this is free cash flow or expenses still deducted).

1. Are they in an area that an STR play could boost your monthly revenue?

2. A refi may or may not help the cash flow depending on current rates vs. new loans.

3. Pulling Equity will affect CF in the short term, but may allow you to leverage into additional units adding cash flow & equity over time. (Be careful not to overleverage yourself or your portfolio)

4. With $3500 per month in cash flow, I'd save it to buy the next one.

5. The LO is a fantastic way to arbitrage with lower upfront costs and higher ROI. You're just dealing with the owners sometimes depending on their involvement. Find more of those deals. Be sure to lock in your sales price upfront so you build upside while i arbitrage mode. During the last 12 month period, convert it to owner financing and refi with no cash out of pocket. Example: My option has a sales price, a monthly option fee credit, a 3-5 year timeline, and add the last year a Owner Finance option to convert to a refinancable note for to complete the acquisition.

I agree with Shawn, there are multiple variables to this very generic question.  Your CPA is a good place too discuss possible strategies if they are Strategic CPAs and not just a tax accountant.  They need to know real estate.

I agree with @Nicholas L..  Real estate is a long term play.  If you don't need to sell, don't get hooked by a terrible offer like this.  You're giving up years of upside that you don't need to give up.

However, I do love Owner Finance from a selling standpoint.  This offer you received is not a good offer from a selling standpoint.  You have no positive cash flow, no upside equity, and virtually no downpayment after closing costs.  What's in it for you other than risk?  

Things to consider when becoming the bank.  

1. banks ask for a down payment to shift their risk to the buyer.  Higher the down payment, less risk to the bank.

2. Arbitrage.  Always make sure you're earning more than you're paying.  It's the idea of compounding interest.

3. Interest Only.  I love this option.  Get a 10-20% down payment so you have walking cash. The buyer only pays interest so it's all straight profit while your underlying loan is amortized and reducing over time (another pillar of profit).  Then they still have to pay you the balance owed when they refi after they created a nice spread on your now lower mortgage.

4. 30% increase on your profit.  On the price point you're talking about you'll earn approximately 30% more over a 5 year period (6% annually) than a straight sale.

5. No management - truly passive income.  

6. Notes are portable and can be sold on the market.  Typically at a discount off the face value.  If you need cash you can still sell the note.

 Yes.  It's frowned upon by brokers and owners.  The reality is that the residents are usually there and willing to share all kinds of things.  I tell them I'm doing inspections for the new owners (no need to tell them I'm the guy...)

I ask things like

1. how long have you lived here?

2. Do you like the area?

3. Most think you're there for the current owner and start asking for things to be repaired that haven't been addressed in awhile.

4. Who are the tenants to be aware of?

5. Why do you like living here?

MOstly, generic open ended questions.  They will share a lot of info.  Most throw their landlords under the bus without hesitation.  Take it all with a grain of salt.

I lived in the LA/Ontario area for a few years and personally would only buy speculation out there.  Fix n flip.  There is too much risk involved in tenant friendly laws and no cash flow to cover damages and non-payment.  Evictions are tough.  There are plenty of other places that have cash flow and better landlord support.  

In ABQ, we do deals with ok cash flow initially, and much better by year 2 and beyond.  Prices are still somewhat affordable around 90-150k per door depending on the area of town.  

We look at the longer term 5 years and beyond in our UW to make sure the deal will cover expenses in year 1 and create residuals after that.  It helps offset the expenses of the property.  

I don't typically look at anything smaller than a 4unit due to the challenges with cost vs rent ratios.  4 and above do better for us.  

Based on the limited info - back of the napkin says not to go any further on the duplex you're looking at unless you have deep pockets to carry it while you wait for the capital gain.