All Forum Posts by: Joshua Christensen

 It sounds like you havean amazing support system around you that can help guide you in your journey.  Are you looking to invest locally or out of your area?  

I started in Sigle family and moved to 4 plexes then 16 units and etc.  I've done some syndication which can be ok.  The more I think about it, the smaller scale props are easier to get into with yourself and maybe a partner.  Fewer people to make decisions, and a different kind of risk as you are the one on the hook for it rather than a General Partner or Limited Partner scenario.

10 units are a good size to work with an off site 3rd party PM, and they can be tricky to find.  Property Management is a low margin business, so many of the PM's in this space have too many units and not enough staff or too many units to care.  It's challenging from a PM perspective to dedicate too much time monthly to check ins and property walks.  

Know that you will have some PM challenges as you get started and may have to go through a few to find one that you really like.  There focus is two fold.  1. Are they investor minded?  meaning, do they understand how & what adds value to the property?  2. How do they handle maintenance?  

Dig into those two situations. The best PM's understand that driving your NOI is their most important job. Too many PM's drive their own bottom line costing owners too much in maintenance and repairs.

Best wishes.

I used Buildium for a while, they were purchased by Real Page.  I had some problems with the reconciliations not matching my manual calculations and they could not help me.  

I like Appfolio as it is highly scalable and has a lot of nice features of high touch for the customers.  It is your customer database, lease/contract storage, maintenance reporting, online payments, accounting software, marketing, etc. all in one.  It is very a robust platform.  For around $100 per month it does a lot for you and allows for a much nicer customer platform when set up correctly.

 With 5 units on 4 properties, it sounds like you're single family heavy buying highly distressed properties that take time to renovate.  It's time to buy fewer properties with more units.  Economy of Scale is so much easier on mildly distressed multifamily than on single family.  

Take a 4 plex for example.  When people move out, take time to make the unit ready for rent again while the other 3 are still paying.  Idenitfy properties with enough deferred maintenance for a discount and not enough for Full scale renovation.

With 10+ unit properties, you can utilize more DSCR loans and drive the value through the income approach to valuation. They don't use your personal income to qualify you for the loans, only the income from the property. The NOI ultimately determines the value. If you can improve a property and increase revenue while decreasing expenses, the property increases in value. You can then Refi with cash out at the higher value.

Your efforts will pay off in dividends vs. the smaller 1-2 unit props.  Also with these properties, you can buy in bulk for flooring, window coverings, fire alarms, etc.  

Best wishes.

 You definitely learn a lot managing properties.  You'll learn about late rent, evictions, bed bugs, roaches, Sect 8 vouchers, clogged toilets, etc.  So much fun.  I managed my own up to 5 units and then built a small PM company (64 units for 8 owners) for 3rd party mangement a few years back.  Oh the lessons...lol  I'm forever grateful I did as I learned so much behind the scenes that I wouldn't have seen otherwise.  

Sometimes the best way to learn is by doing.  

Syndication and Crowd funding are different animals in their own right.  My first syndication deal was over 200 units and I could not have funded that deal on my own, not even remotely close.  It took pooling our collective resources to put that deal together.  We are working on our 4th one now and they are very different indeed.  Making sure you understand the asset manager / sponsorship team and their track record is important as they are the one's handling the actual management of the project.  

I'm a broker in ABQ, so I tend to come across them as I'm farming for clients. You can check Facebook Marketplace, FSBO.com, Craigslist, Zillow. You're looking for private sellers, not listed sellers. Mine was a client I sold a house to and he asked me to list. Sometimes when I have nice houses in the right areas, I offer to buy from my sellers rather than listing and try to work terms with them. Sometimes it works and others not so much. Its hit or miss.

That being said, There is opportunity to find seller finance deals through the MLS, just note that they will require a larger down payment and be less flexible in creativity with brokers involved. The closing costs on listed properties are higher due to commissions and the down payment is where that money comes from.

They are not all that easy to find, so you have to prepare yourself for the conversation when you see the right opportunity.  I hope that helps.

If you employ a broker to help - Ask things like...

How many owner finance (subject to) deals did you do last year?

Tell me about some of the more creative deals you've done utilizing owner finance.

What are some of the nuances I should be aware of with owner finance in our state (each is dif). (play dumb and see how they answer)

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $220,000
Cash invested: $500

We bought this as our primary residence on a private owner finance deal. It is a single family 3/2 anchored in a nice neighborhood. We are turning it into a rental in 2024 as we move to our next note deal with low/no down payment. It will cash flow 1.3x DSCR in the current market.

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

I didn't have a down payment for a house and had damaged my credit at the time. I wanted rentals and also wanted out of our apartment situation. Had to be resourceful.

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

I was the broker who helped the seller buy a new house. We were getting ready to list this one and negotiated the terms that worked for all of us to buy it from them.

How did you finance this deal?

Owner Finance - Subject to

How did you add value to the deal?

Deferred Maintenance & time. It has grown in value 68% since its acquisition. The value is in the financing terms as a $500 initial deposit has created a near infinite return on our investment.

What was the outcome?

We have lived in the house 4.5 years. We're working on our next one and will be renting this one out in 2024.

Lessons learned? Challenges?

Have a much clearer contract in place with the seller. This seller was upset when we paid him off that we "took advantage of them" because the market improved so much. A lot happens in 4 years and the seller's situation had changed for the better. My next one will be more clear with less interaction with the seller at payoff time.

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

I am a broker and structured this deal myself. I do quite a few of subject to in my business.

 Is it in your lease that the tenant is responsible for damages vs. maintenance issues that our out of their control like appliances not working properly?  Send the tenant the bill.

Rule of thumb:  As a landlord be friendly...NOT their friend.  Big difference.  Be the landlord and always refer to the lease for rules of engagement.  No exceptions.

 Good afternoon @Siddhant Pradhan,

Congratulations on jumping in. I'm a big fan of owner financing deals. DSCR loans often require some level of experience when you do them. With owner financing, you can usually put a smaller down payment down (15% or so) to get in, then drive the value through improvements or rent increases to market.

I always look for light to improvements and mostly rent increases with month to month leases or vacancies to get the best deals that I can move the rents faster. Once you get the majority of the rents to market value, you can refinance out to a DSCR commercial loan that never falls under the fannie mae rules. They are fantastic.

I recently did a 16 unit this way and we couldn't be happier with the results less than 60 days in.  More than likely, we'll be able to refi around the 12 month mark to get the seller out of it.  

 Hey Sabrina.  I am a big fan of SEct 8 and there are a lot of nuances.  Depending on the property you're looking at, with a $300k starting point, I'd look for something with more units than less to spread out your risk.  ie. 8 units - if you have a vacancy and repair costs, 7 units are still generating revenue to offset other expenses.  

Find a solid property manager who specializes in Sect 8.  Be sure they love what they are doing or it could be a case of the "social worker" who hates their job and hates their clients.  Sect 8 clients are lower income and can often have lower education levels (not always), so they can come with unreal expectations from their PM's.  I've seen some PM's treat people very poorly who don't deserve it.  So do a lot of due diligence on your PM.

During Covid, we survived with extremely low bad debt due to vouchers who paid every month.  Our tenants were taken care of our and our bills were paid without dealing with mass eviction issues that so many experienced.  There are a lot of Pros and there can be a lot of Cons.

If you're falling in love with the plan, drive a handful of Sect 8 properties to see how well they are maintained.  Find out who manages those properties and interview those managers.  

The nice thing about MF investing is the forced appreciation from the income approach to valuation. The faster you can move the NOI on the asset, the higher the value. Improve Rent collections and Reduce Expenses = increased value.

You can't do that on 1-4 unit properties as they are valued by sales comparisons.  Totally different.  

Best wishes to you, and welcome to the game.

 Chances are you will get negative cash flow on these smaller deals.  Depending on how long the seller owned it, he may have cash flowed fine off his purchase price 20 years ago and hasn't raised rent to market.  

Evaluate how far off the rent is.  Are they month to month or longer term leases?  How many are empty?  How quickly can you move rent to the market rate.  This is a value add play.

In your evaluation, you have to consider how long it will take to move to market rents and if those rents will cash flow.  If they will and it looks good, then make sure you build in reserves to cover the shortages monthly til you get there.

No Cash Flow day 1 is not always a bad thing if you account for it and have a good plan to quickly move to a cash flow position.  In these cases, you need to be able to negotiate a discounted sales price to offset the lower rents.  Current condition doesn't dictate the highest market value.