All Forum Posts by: Joshua Christensen

These are all great options.  In any case, you need to get the deal into contract and tie it up with the seller.  

Offers to Seller.

1. CASH FOR KEYS  - Seller to tenant to vacate.  Good option above, sounds like the seller doesn't want to do that.

2. EXTENDED CLOSING DATE  - extend the closing to 59 days before expiration of one of the leases.

3. SHORT TERM OWNER FINANCE - Ask the seller to carry the note for 12 months until you can owner occupy.  Give him the down payment you were planning on, then refinance it as owner occupied when it's time to buy him out. 

Thank you Robert

 Thanks.  I appreciate your first hand experience with them as there are so many scams out there.

I agree with @Gino Barbaro and @Greg Kasmer.  They make valid points.

The units are the units.  You're running a business.  Be quitible and fair.  As soon as you start discussing your business practice and strategies with your customers (tenants), then all bets are off and you run the risk of Fair Housing violations.  What you do for one, you do for all without exception.  

Post notices and set expectations.  You run the business NOT them.  Be Friend-ly - NOT their Friend.  You are their landlord.

Make all of your decisions based on solid market driven metrics.   

I was cold contacted on LinkedIn recently to discuss syndications with DealEstate.AI.  Their fund is called Infinite Capital.  

Does anyone hear have any experience with either of these companies?  Bella Cohen is the founder / CEO that I spoke with.  

Thanks.     

@Paul Florez

You'd be surprised at how many owner financed deals are on the MLS. Only challenge is there are broker fees and closing costs. Best case, you're looking at 10-15% down on those deals to cover costs.

On Zillow, Craigslist, facebook, you can find For Sale By Owners.  You'll need to have conversations with them as they don't always advertise owner finance.  Often they don't know about the advantages to them.  it's usually an education process.

 Congratulations!  Those are great goals.  

Essentially, being conservative, 75 units at $200 net profit per door gets you there if multi-family is your only investment.  Over the next 10 years, you could acheive that goal reasonably.

You have a duplex now.  Add another 10 units puts you closer to your goal.

I wouldn't worry too much about the $15,000 initially, and focus more on adding doors.  10 years is a lot of time to raise rents and replace your income.  12 units by the end of this year puts you at 16% of reaching your goal.  

Tony Robbins always says that "most people over estimate what they can do in a year and underestimate what they can do in 5 years."  Imagine 10 years.

If you can add 10 units a year, you'll reach the goal in 6-7 years with a few years to improve rents.  7-8 properties kicking off 1500-2000 per month is pretty doable.

As for financing - There are lenders who will lend to you on a smaller deal like this.  Local Credit unions and small regional banks.  You can also find owner finance deals that will take lower down payments to get you in without the bank hassle.  Refinance them later. 

I just acquired a little 2 bedroom condo last month on owner financing with $7,250 down and the owner is carrying the note for me for 12 months.  I'll refinance next year.  $300 positive cash on day one with roughly $30k equity.  The deals are out there when you look for them and can structure them.  

I'm happy to connect and discuss.

 Hey Paul, Its great to have you here and contributing. 

Understanding your long term goals is important in making a decision like this.  There are a couple of ideas with real estate that most people shoot for.

1. Reduce Taxes through depreciation (If you don't meet the IRS definition of a real estate professional, it won't improve any W-2 income taxes)

2. Cash flow - smaller MF like these can take a few years to start seeing decent cash flow, so having positive cash flow early is a positive as it typically (not always) grows over time.

3. Equity / Capital Gains - This is usually a shorter term timeline.  Buy a value add, improve property and rents, resell for the gain.

4. Contribution - some want to provide good housing options.

Most will have a combination of all these factors.

QUESTIONS.

What type of cash flow are you looking to generate?  By when?

Adding a 5-10 unit will increase your expense exposure initially until you raise rents to cover costs.  Within 12-18 months you should see a positive return helping you get back to the $1500 cash flow you're used to.  Over time, more units = more cash flow.  Additionally, a larger property like this is valued based on the actual cash flow, not sales comps, so you have the ability to force appreciation faster with efficient management.

Adding the a 5-10 unit may also increase the amount of time you spend getting you closer to the 'Real Estate Professional' status for tax purposes opening up room for offsetting some W-2 income on taxes.  

Waiting as an option.  The current environment is shifting again.  Indicators are showing that price drops in the MF sector may be near bottom, and activity is picking up in the coming year.  That will drive prices up.  Rule of thumb is that waiting in real estate rarely pays off.  Find the right deal and take action sooner rather than later.  

With supply constraints and dropping interest rates, more activity will increase demand for this type of property.  A year from now, that decision will cost you more than you'll be able to save or build in equity.  

Besides. A year from now, you will still have the option for a 90% HELOC.

Best wishes to you.

@Karolina Powell

These are all great questions.  

Financials>  A 13 unit is not really a "larger" multifamily. It is still a small property relative to the MF world. It's just larger than your SFR, 2U, and Quads you described with different lending parameters.

That being said, it is not uncommon for a small, mom & pop, operator to have terrible books.  In my market, many of the mom and pop operators don't keep good books.  They collect rent, often in cash and put it in a bank account.  If you can get the leases, build your proforma and expectations on how you will operate, not on historical evidence.

If the seller is willing to open the books once you're under contract, than build that into your offer and due diligence period.  That is not uncommon on this size property.  Remember that during your due diligence, you can back out if something is fishy.  Don't overthink it.  

You may not know if the books are complete or correct.  Do everything you can in your due diligence to uncover what you can.  The rest, set aside contingency funds to account for things you think may have been missed, unless its a terrible deal, move on.

If the owner doesn't keep Quick books or any other accounting, you won't see a P&L or cash flow statement, so you'll be working off the leases.

This is pretty common.  

You may ask for a claims letter from their insurance provider for the last 3 years to show any claims they may have / or not made on the property.  

I've seen people ask for bank statements verifying rent deposits (not always easy to get from sellers).  

Remember, the person selling has a story and a reason for selling.  Probably that they are not running it like a business as you will.  

Best wishes.

@John Friendas

If you're looking at a Quad as a 2nd home.  Stop.  That's not an option with lending.

You mentioned the 'sneaky' rental BP strategy.  I'm not sure what that is, but if what you're doing with the lender is not completely true, then you may be committing mortgage fraud which is punishable with jail and big fines.  I don't recommend that route.  For example, saying you're going to occupy but then not moving into the property?

If you're doing a 2nd mortgage on your primary residence to get the cash for down payment on the new Quad, then you're looking at needing to qualify with DTI unless you find a lender who is a DSCR lender and not a traditional conventional loan lender.
DCSR loan qualifications are based off teh property's income, not yours personally.

There are lenders out there who will provide short term 'bridge' debt to rehab prior to cash flow.  Check the local credit unions or small regional banks.