All Forum Posts by: Joshua Christensen

What are some of the biggest things you look for when hiring a 3rd party management company out of state.  Consider that the property will not support onsite management or maintenance.  

What some pitfalls you've experienced that now you are diligent in your hiring process?  

Thank you. 

LOL.  Thanks Max. I do actually provide some coaching.  I haven't done it consistently and have had several clients over the years.  Not as a primary coaching business, just one offs.  lol.  

I'm glad to hear that you were encouraged and hope it helps with your decision.  

Quote from @Neil Wei:

Hey guys, I'm looking to purchase my first real estate property this year and according to my analysis, househacking a multifamily house here doesn't make any sense, I feel like I'm missing something. Here's an example of an average property I've looked at:

My issue is this: If I'm househacking and I live in one of these units, the rents on the other units are nowhere close to covering the expenses on the house like I was expecting.

I think I'm missing something either in my expectations or in my calculations, and I could use some help or an explanation 

I'm fairly certain of the income, tax, and mortgage numbers, but everything else is a guesstimate 

 Hey Neil,

If you're house hacking this, you have to run the number based on all 4 units. 

1. You're getting a 2% Cash on Cash with 75% of the units, that great.  In fact, the 4th unit a year from now if you move is purely cash flow.  

2. When you buy a 4 plex, rarely are the units being rented at market rent and you'll need to do some work to get the current rents to market.  It will take the first 6 months a to year.  What do the numbers look like on market rent vs. actual?  If you're cash flowing in 3 units at current rents, this is a good start.

3. Remember that real estate is a long game.  If its cash flowing marginally today, your improvements over time will make for a nice long term investment.  

4. Do you like the area and feel good living there?

5. The down payment of 10% nice.  Over time, your tenants will pay down the mortgage for you.  

6. Remember to factor in the 4th unit's rent (that you would have been paying somewhere else).  That's part of your cash flow on the property even though you're keeping it in your pocket.  Your analysis doesn't show the 4th unit's rent for calculations.  If you're living somewhere else and getting 100% of the cash flow, you will have housing expense coming out of your pocket.  Treat it as real money.  It is.  

Best of wishes to you.

Hey @Anthony Jentsch

I actually managed 24 units in a fractured condo for a client a few years back.  Here's some of what we experienced.  

With a 15% ownership in the association, you have 15% which is not majority.  That's first thing to consider.  You will have a heavy voice.  With that said, you will need allies in the community among others when it comes to voting on things in order to make up majority.  Our experience was my owner lived out of state and made a mess of things with their board.  The community rallied to block him on things and ultimatey led to a few units being foreclosed on for various reasons.

Our tenants were constantly going to the Association manager asking her to do things because they thought she was the Property manager.  That created difficulties with the tenants who wanted things done outside of our owner's control.  Remember, the Condo Association manages the exteriors and common areas, not the owner of the units.

We had some roof leaks that led to tenant issues.  As a condo owner, we could not touch the roof for repairs and had to rely heavily on the COA who did not act in a timely manner.  As a result, the COA put us in breach of contract on our leases regarding repair timing.  We narrowly avoided lawsuits.

Tenants made problems for owners in the community.  The COA fined us multiple times on complaints from owners.  The owners made our tenants uncomfortable. blah blah blah

All this I share as to say, I will never be involved in one of these again.  I would need to own and operate the entire bunch before I did.  There are too many decision makers outside your control who can harm your obligations to your tenants.  

The story ended with me convincing my seller to dump his units.  We found another investment group who bought the 24 units on owner financing.  Yes, the future lending in a traditional sense is difficult to identify.  It's possible as the group who bought my owner out actually found financing 2 years in.  There are a lot of requirements.

Hope that helps.

Ultimately the question I can add to these stellar options is this...

You seem to like both options.  You have comfort in both options.  Which one itches your investment desires most?  You probably have something leaning towards one or the other, so lean in and enjoy.  Once you make your choice, push forward and don't look back wishing you had done the other.

Give which ever choice you make your full attention as both will have different demands on your time and resources over time.  

A second question is, how much experience do you have in either space?  Do you know anyone who has experience in each space that you can pick their brains and run things by after you're in.

Maybe join a local REI meetup and find people already doing what you want to do. Have some local allies that know your market and have experience there. They will see things that any of us outside your market won't see.

Hey Gabe, I'm not a lender, just a broker and investor with my own experiences.  

Typically, what I've seen is 1-4 is considered a residential loan and falls under Fannie Freddie guidelines. There are residential DSCR lenders out there who will write these loans. The comments above are great examples.

2-20 units+ comes down to a lot of different options. They are all going to be "DSCR" loans as the lenders consider the income the asset produces in their underwriting, not the guarantor's income. We're currently working on a 69 unit deal that we're going with a Community Bank on. 25 year paper with a 1 year I/O period for stabilization timeframe.

There are no cookie cutter or "traditional" ways these are done.  There are a lot of different paths.

Community Banks

Credit Unions

Commercial Brokers

Private (Hard) Lenders

LifeCo (typically found through a broker)

Owner/Seller Finance (my personal favorite as terms are worked out between buyer / seller)

FHA 

Fannie/Freddi Small Balance (typically under $10MM)

Large Balace ($10MM+)

Preferred Equity

Bridge / Mezzinine debt

SWAPS

Assumptions

Land Lease Buyouts 

The best thing I can recommend is finding a good lending broker that deals in these.  Most will be more than happy to walk you through the details.  The size of the deal is usually what determines the type of debt structure it falls into.

I agree with @Russell Brazil - definitely want to watch your ps & qs on that one.

In my experience the best people to rent to are the best qualified tenants that meet my background & income standards.  I've worked with all kinds of demographics in high end and Sect 8 assistance.  Ultimately, the question is always, will they pay and will they take care of the property?  Those are all initial screening issues.  It needs to be consistent across the board with every person who applies. 

 Yes, they do allow distressed.  You'll want to discuss with a lender to know how the process works.  You can move through a process as long as you need to meet your goals.

Buyer and Seller markets are more residential and based on emotion.  Yes, there are factors that favor different markets negotiating power that lean more towards each, but ultimately as an investor, you have to be able to see the deal beyond what is presented.  The best deals I've ever done I gave the seller what they wanted because I had a plan on making a profit on the back end that worked out great.  I've even offered sellers' more than they wanted to get the deal because I saw what they didn't.

I don't pay too much attention to the Mass Market hype of Buyer / Seller.  That's more of a consumer mindset.  I crunch numbers and put deals together in both types of markets.  It just has to make sense.  Different strategies come in to play in both.

The one thing I'll say about a Buyer's market is that there is more competition fighting for the same types of deals, so I'm wary of dealing with all of that and getting into bidding wars.  It can be easier to put deals together in a sellers market when sellers get what they want.  Although, you may have to sift through more deals to find the right ones.

Are all 9 units on contingous parcels? What's their age? The CAP rate is subjective and a marketing CAP is a broker's explanation of what the seller provided in his proforma.

Is the CAP actual numbers or proforma numbers? You will have different operating costs and you need to determine how you will manage the property and expenses. It will be different than the current owner.

What's your exit strategy?  Are you looking for a value add exit or a long term hold?  

What are other 9 unit properties selling for in the area?

CAP rate is just one metric to tell you to pass or dig deeper. It's not THE it number. There's a lot to determining if an asset will fit your investment goals beyond CAP rate.