All Forum Posts by: Joshua Christensen

Quote from @Sean Craigg:

Thanks KC and Joshua,

Seller financing is interesting but seems complicated.

Total loss on sales would materialize ~90K after transaction fees, value decrease etc.

3,5k includes mortgage,tax, insurance, maintenance. 

I'm unfamiliar with a land contract in TX. Let me look into this.

Trying to see if it's worth holding on to it in case the housing market recovers.

Reach out to a Title / Escrow company for information on Land contracts in TX.  I think they are very similar to ABQ.  Honestly, they sound more difficult than they actually are.  Banks are difficult.  

Once they are all set up, the only thing you have to do as a seller is collect a check each month.  Once you've done your first one, you'll wonder where they've been all your life.  lol.  

Actually, there can be risks that you need to be aware of when you have an underlying note.

1. Due on Sale Clause in underlying mortgage - We have attorneys draw ours up here to make sure we are legit - Ask about this in TX and how it works in the land contracts.

2.  Buyer misses a payment - If the escrow company is making your mortgage payment, you want to always be sure your payments are made so pay a month or 2 in advance or keep it in reserves to make sure you always cover your underlying interest as your credit it tied to it.  If the buyer does miss a payment, find out the foreclosure process in TX.  Here in NM, the buyers sign a deed back to us that is held in escrow.  If they are deliquent more than 30 days, we can ask the escrow to file the deed returning the property to our name. The buyer then effectively becomes a tenant and we go through eviction.  It rarely happens.  I've never experienced it and the pros I work with who have done these for 30+ years have only seen it once or twice in their career in some pretty extenuating circumstances.

3. Damage - If you get the property back after a foreclosure, you may have damage to repair.  Not much different from a rental risk.

Best wishes.

Quote from @Matthew Mclean:

I am trying to find a tenant and one came to me with a housing voucher. She is trying to sign for a year where she pays 1/3rd of the rent and (the gov?) pays the other 2/3rds? Risks and rewards to this type of tenant?

 I've managed and had SECT 8 vouchers for several years.  They are normally my quietest tenants.  Housing does annual checks and the units are usually kept well.  The program pays 70% and the tenant pays 30% here.  It's all income driven.  If they don't pay or violate the lease in any way, they can lose their vouchers.  Most of those residents guard their vouchers like gold.  

I've had a couple of bad actors, but all in all I've had good experiences and continue to provide this type of housing.  

When I remodel, I look at the area of town I'm in and the demographic of the tenant base.  

Low Income affordable housing - tend to be rougher on the units, they get a basic 1 tone paint, inexpensive flooring package, no disposal or ice maker or dishwasher - Deep Clean and Safety is my concern.  Improvement won't improve my rents and tenants will destroy in 6 months to a year. $3-5k

Working Class - I'll do a midgrade updates - 2 tone paint with neutral walls & white trim/doors, inexpensive durable flooring.  No Ice Maker - Maybe countertops, light packages, & backsplash.  Modest Improvements will move the needle for occupancy numbers $10k max

Luxury - I'll go all out and put in premium finishes.  Without the finishes, these units will maintain low occupancy and lower rents.  These properties are more about the amenities on the property.  The units need to be nice and the amenities need to be nice and functional for your demographic.  $20k max

All of this comes down to your acquisition price, your ROI on the amenities, etc. Have you run the numbers on each upgrade to see what difference it makes to the bottom line?

At a 6 CAP, $1 in NOI = $16 of value.

Quote from @Sean Craigg:

Asking for some numbers analysis.

Landlord work is work and risk but I had experience. I'm hoping housing markets will pick up again in Austin/TX area.

1. SELL: ~720K (loss ~30K), 2.5% mortgage rate 27 yrs left. Total monthly house cost ~3500

2. RENTAL: ~3500/mo market rate. House in great shape

Cashflow may not be much but the LOW mortgage rate + deductions may help

How should I approach this calculation?

What other factors should I consider?

Good morning Sean,
1. What's your reason for the move?  Do you have to move?
2. Does the $30k loss cover all closing costs or just delta between purchase and sale?
3. Does the $3500 house payment include the taxes & insurance or is that principle only?
4. Consider a Land Contract and Wrap the underlying mortgage all paid through 3rd party Escrow.  
- Sales Price $720,000
- Down Pay: 15%  $108,000 (higher down payment reduces your risk)
- Balance owed: $612,000
- Int Rate:  6.75% (nice spread on your cost of money at 2.5% - Arbitrage)
- P/I payment:  $3,969.42
- make the buyer pay T/I in their escrow payment thus increasing payment
- Hold period - 5 years
- Additional Interest earned = $203,884 (No Longer a Loss)
- No Rental Management needed
- No repair costs
- You can still deduct the interest on the underlying loan as an expense - ask your CPA
- Monthly income without the hassle ($400-500 each month, more if there's T/I escrow)

I'm in NM and do these all the time.  I'm not completely sure how they work in TX as you all have some different real estate laws down there than what we do here.  

Quote from @Lynn Wong:

@Alice V.. My property is in Elk Grove CA 95757. I put the house on the market for 2 weeks.  I showed to section 8 clients but they think I listed too high. My listing price is for 3 bedrooms voucher but the house is 5 bedrooms. On Zillow, the rent in the area is lower than mine about $500-750. About 93% owner occupied in this zipcode. Do you think housing won’t pay more than Zillow? Thanks!

Hey Lynn, the easiest way to find out is to reach out to housing in your area. Usually they break down their standards by zip code and need for the area.  You can also advertise your listings on the SECT8 website with them.  That's where a lot of the tenants go to find their housing.

Quote from @Tom Owiti:

Does anyone have experience with or know about Section 8 housing and properties? Looking at a MF property and I noticed that some current tenants are section 8 tenants.

 Hey Tom, 

@Alice V.nailed it.  SECT 8 tend to get a lot of negative press.  Ultimately, they are an option to help lower income households afford a place to live.  We have a lot more "under employed" than "Unemployed" in our country and these folks are stretched very thin.  Many of my Sect 8 tenants work hard at 2 jobs to support their households.  For multiple reasons, the types of jobs they work don't provide for the rising cost of living.

In our market, there are more SECT 8 vouchers issued than housing units available.  Many of the local housing authorities have classes for landlords wishing to provide this type of affordable solution and can answer your questions.  They often have good websites with a lot of resources.

During COVID, we experienced very little variance in rents collected due to our voucher acceptance. Other landlords were fighting with eviction moratoriums and non-payment, but we didn't. Most of our voucher tenants are great (a couple of exceptions that we have to deal with). Our rents come in like clockwork and we are able to increase rents annually with the COLA afforded through HUD which makes it a pretty simple business model.

Quote from @Russ Mooneyhan:

I have been looking at apartment complexes. I managed to get 1 8 unit and 1 6 unit building over the last few months and have done well with them. The cash flow jump was substantial and so of course I'd like to acquire more. To a degree I lucked into the 2 buildings so my biggest question is the title. I'm sure there are lots of variables so its not a one size fits all answer normally. However I am wondering if investors in multifamily go into it with asking for 10-15% off of listing price? Or is there some other method that works better. I cannot pay cash for the building. I would be looking at properties at 1 million or less. Any advice or a point in the right direction would be greatly appreciated. 

 Russ, this is a great question.  Answers are all over the place.  Ultimately, you have to be clear on your goals.  Know the market.  A good deal to one guy may not be the best deal for someone else.  I get criticized for deals I do because I have a very long tail approach with a 20 year outlook before I sell.  Most investors I talk to focus too much on discounting the sales price to squeeze as much as they can from a seller.  Remember, Deals only happen when both parties are willing and able to agree.  

Short term exit:  Buy and sell inside 5 years.  Your purchase price becomes more important because the length of time for market improvement and your revenue increases has been shortened.  This is the equivalent of flipping houses for apartments.  You "make your money on the acquisition."  These deals are rare and take a longer time to find.  You need to exercise a lot of patience.  This is Capital Gain and Speculation Investing.  

Long term exit:  Buy and hold for 10+ years.  Time is your best friend in real estate.  Mistakes made at the acquisition are made up for over time.  Look for a deal structure that makes enough sense for you and makes the seller happy.  If you give up a little on the front to acquire a nice longer-term asset for your portfolio, the price becomes less of an issue.  Your asset value will increase each year with your revenue, so look for assets that you can manage the revenue and expenses in the most efficient way to release your investment potential.  These deals are Yield Investing for long-term cash flow and wealth building.

@Robert Rixer has about the best fix really.  This is an ongoing issue at apartments.  Catching them in the act is difficult.  If you do catch them, pressing charges and getting police to do anything is next to impossible.  We've seen locks and such which is a deterent, not a 100% fix.  

"Hiding" them from plain site can be helpful.  If you put walls up around your dumpsters with signs posted, no trespassing, for residents only, etc. it can help.  Also make sure to keep the area clean so that trash doesn't pile up in there.  The garbage people don't care and leave it all laying on the ground.  

Quote from @Walker Irby:

Hello, I'm looking for a little bit of insight. I currently have 3 rentals. 2- townhouses and 1- 4 bedroom SFH. the equity on the 4 bedroom is around 150-160k. and the townhouses are around 55k together. my question is. How are people getting into these 500k+ multifamily deals? especially without being able to increase w2 income very fast? if I cash out refi, I'm wondering how much w2 income does the lender want to see?. would they potentially approve it for some making 60-65k a year? or do I just need to save more, increase my income and wait for the markets to cool down. Any insight on this would be appreciated.

 Hey Walker, it's a great question.  Starting out, most of us (myself included) didn't know all the cool ways to buy real estate and only saw things through the traditional mortgage lenses.

1. Owner Financing is a great way to break into smaller multi-family 4-10 units when a seller is willing to carry the mortgage for you up to a few years until you can qualify for a commercial / DSCR loan to refinance them out. You'll need a down payment which is negotiable between you and the seller. Terms are completely negotiable between you and the seller. It's a great way to get started.

2. DSCR lending:  This is Debt Service Coverage Ratio. Can be a residential 1-4 unit or commercial 5+ units. These loans are not typically available in your traditional banks, however their are loan brokers out there who specialize in this type of lending. They want to know if the property will cover the debt payments. For example, if the loan payment is $1000 per month and the NET revenue is $1250 per month before the payment, you have a 1.25 DSCR. That's a loan they would more than likely do. They are looking at the income of the property, not the borrower. They will consider your credit, assets and experience depending on the deal as a personal guarantor.

3. Commercial MORTGAGE loan: larger than 4 units: Commercial loans typically use a DSCR methodology for their underwriting, so very similar. They tend to look at the overall strength of the asset and the borrower, but not so much the borrower's income. However, if the asset has weak numbers, they may consider the buyer/borrower's personal strength and ability to repay in extreme cases. Usually, the borrower's personal is running in the background. Strong credit and some liquid assets provide good stability for the personal guarnator in these deals.

4. LOAN ASSUMPTIONS:  Again, a lot of commercial loans may be assumable and you can try to take over the existing loan with the proper qualifications.  You'll usually need a larger down payment to buy out the remaining equity from the seller.  

5. PARTNERSHIPS:  Partner with others to put together the down payment and equity as well as structuring the loan.

I hope that helps.  The bigger the deals you do, the more complex they become.  Learn to walk before you run, then learn to run with efficiency before you sprint.  As you do more and more, you'll learn a lot of different ways to structure your deals and move forward.  

My advice is don't go too fast and get yourself in over your head.  The mistakes are extremely costly and could potentially derail you.  Take your time and be patient while you're learning.  It won't take as long as you think, so don't rush it.  

Remote can be...Marketing, Lease Signing, Lockouts (install coded smart doors), background checks & screening, Virtual Tours, Payments (online or ACH debits)

Live In Person (local team)...Showing units, Posting Notices, Evictions, Dealing with Complaints (some need live interaction), Maintenance Calls, Property Condition Tours, Meeting Utility Companies, Meeting Contractors, verifying Contractors work, Live personal touch with residents (can improve tenant relations depending on property), Cleaning, Turns, Police Calls

Through the years, I've learned that there are places to save money and places to invest.  Cutting costs through DIY from a long distance can lead to long term Costs and lost equity in poor property conditions.  I've seen more absentee landlords lose money for taking their eye off their assets and Blindly trusting their "local" boots on the ground.

Everything is great until 9 am when you get that first call.  If you're not local or don't have a local team, You can actually spend more time tracking down good people long distance than someone local.  That can cost.  Imagine a $1500 per month, 10 unit building.  At $15,000 per month in gross revenue, invest in good people.  DIY can be cheap and is one of the biggest mistakes I've ever made in my own investing.  

The experts are only cheap in your eyes, start seeing them as a partner in protecting your investment.  You'll be grateful you did.  It may take a few to find the right one, but the right PM company should make you money, not cost you.  The right PM company should know what drives the real value of your investment, not just collect rent.  Do your research and hire the right PM company.  It will be well worth it.