All Forum Posts by: Jacob Pereira

@Jay Hinrichs, ah, that makes a lot more sense. Thanks for correcting me. In that case @Ryan Herald, you should have few problems finding funding, although you might have to share some of that profit.

@Ryan Herald, have you done all the analysis on this? Where I'm sitting (admittedly without all the facts) this looks like a lousy deal. A $2,700,000 loan at 4% for 30 years has a monthly payment of $12,890, Add in the other loan, which is likely to be much higher, but let's be nice and say 4% and that's another $1,432, to come to a total of $14,322, and that's not including the property taxes and insurance. For argument's sake, let's say 1% of the property value for taxes, which comes out to a monthly payment of $2,500, bringing your monthly payment to $16,822. I have no idea how insurance would work on 85 buildings valued at $3M, but I imagine it would be at least a few thousand a month, which is pretty much all you have left. And all that before vacancy, CAPEX, OPEX, and delinquencies.

I don't have all the facts, so my analysis is very lacking, but please make sure you've done your numbers. It would be a shame if you had to forgo your $300k after a few years because you couldn't keep up with the payments.

Either way, keep us informed; I think we're all interested to hear what happens.

Hi @Brady Boyer,

Working down debt and saving money will certainly get you a leg up on most people your age, but I'm going to go against the grain (I seem to like to play devil's advocate on these forums) and say, "not so fast!"

I'm assuming with a degree from Penn and a move to NYC, you already have a reasonably well-paying job; it should offer some kind of 401k match. Maximize that first. There are a few people on BP who advocate not doing that, but honestly it's absolutely insane not to take that free money. You can actually loan that money back to yourself for a down payment on a house, so you'll still have access to it if you want to save for real estate.

Next, how high are the rates on your loans? 6%? If it's higher than that, it's definitely worth doubling down on that, but also, look at your living situation. Are you paying good money to rent from someone else? If so, you might want to consider saving for the down payment first and buying so at least you're paying down your mortgage rather than someone else's. At your age roommates are also often eager pay you. Many of the major banks are now offering 3% down loans for owner-occupants with high credit ratings, and the 60k of debt shouldn't affect your DTI too much.

Do be careful in NYC, though; it's expensive, and I occasionally see articles about how there's a net migration out of the city right now.

Anyway, just some alternate ideas if you're in a hurry to maximize your returns.

Regards,

Jacob

@Josh Caldwell, you make a good point. I shouldn't short-sell all credit repair companies simply because I had a bad experience. I do wonder if they're able to do anything beyond what a savvy person with an internet connection can handle on their own, however.

I have to disagree with @Josh Caldwell and @Daniel Hernandez on hiring a credit repair company. I actually hired one to try and get a mysterious charge-off removed at a price of $99 a month and after 6 months, nothing had happened except that my bank account was $600 lower. What I've learned is that credit repair companies are for people too lazy or unknowledgable to use Google. Your score is really low, but I'm not sure which scoring model you're using. Ideally you'll get your FICO, since that's what most banks use, but some of the "Fako" scores out there, such as those from Credit Karma and Quizzle aren't terrible. Here's my advice, but take it with the caveat that I'm not a credit professional:

Sign up for all the major free Fako providers, and also check to see if your bank gives FICO scores. Most of the majors are doing it now. Use these to help keep track of progress.

Credit card utilization will kill you, but luckily it's something you can change quickly. If it's a large amount, take out a lower interest loan so your fees aren't killing you. This should also have a pretty immediate effect on improving your score. If it's a smaller amount, you can try to just pay them off, but definitely do that before trying to save a nest egg. If you run into trouble, you can always use your card again. Check all three of your credit bureau reports and dispute anything you don't recognize. 

It sounds like your parents are pretty supportive, so you might want to consider asking them if they'd be willing to add you to one of their credit card accounts (assuming they have one that has been open for a while and isn't holding large balances). This will give you the benefit of vastly increasing the average age of your credit accounts.

After that, your score should increase relatively rapidly. After that, talk to your bank and see if they'll consider increasing your credit limits. This will put an inquiry on your credit, but that has minimal effect, drops off relatively quickly, and the increased limit will improve your utilization rate.

As far as condos go, I know a lot of people on BP don't like them because they don't afford you the amount of control that an SFR would, and I somewhat agree. If you're in a hurry to move out of your parents house, in most situations you'd be better off buying a condo than renting (provided you stay there for a few years), but why not just stay there for a bit longer and save up enough to buy a house? This would also give you more time to get your credit into that desirable 740 zone.

@Clint W. that's a rough one. I see you're in the same town as I am. Were you investing here in Austin? I hadn't heard about any new fouplexes going up near any of the area schools. Maybe San Marcos? If so, I'm sure you're running into a tough summer, but come fall you will still be in great shape.

Unfortunately, I'm not great at filling units, so I don't have experienced advice. As you know here in town you can often get a phone call from prospective tenants even before you know that your current tenant is planning on putting in their notice. I don't know if you'd be willing to try it, but section 8 is often an option. I reserve a few units I have on the East side for that.

Even at the price he's asking, that seems pretty low for a 20-unit building, although I don't know your market. May I ask why you insist on seller financing? The combination of the lowball offer, seller financing, and low interest rate are guaranteed to scare away just about anyone, even if they're motivated.

You already have the 15% to put down, why not put in the extra 5-10% to get a commercial loan? If you don't have that kind of money on hand, there are a number of ways to scrounge an extra $15k for a down payment. I suspect you'd still get rejected, but at least the seller might consider making a counter-offer at that point.

It seems to me like your criteria are already well-defined, and the only problem you're trying to solve is that people aren't reading them, which I run into to. I like the idea of sending the email, but I agree that it sounds a bit scammy, and it also requires a bit of work to answer the questions. I realize it's not a lot, but if your market is anything like mine, tenants have to compete for every apartment and are probably filling out lots of these forms. What about just adding checkboxes for them to return? This ensures that they've at least read the requirements, although they of course still have the option to lie.

Someone recently brought up how we see so many successes and how great that is, but we also need to see failures to learn from and temper expectations, so I thought I would confess my most recent mistake. I hope other brave souls will share theirs here as well:

Six months ago someone bought a fourplex a few doors down from one I own and ended up with a pretty good deal for the Austin market. The place was listed for $280k, and they bid 290k (it's a hot market right now) and their bid was accepted. However, the appraiser looked at comps, including my property, and appraised it at $225k. The buyer ended up negotiating with the seller and they settled at $230k.

After seeing this, I saw another fourplex with the exact same floor plan one street over go onto MLS for $280k, so I decided to bid $285k with the expectation that I would be able to renegotiate our contract in the same way after my appraiser made a similar assessment. There were some repairs needed, so I talked them down to $275k, but with the expectation that it wouldn't really matter since I would eventually pay a price closer to the $230k the last buyer paid.

Imagine my surprise when the appraiser came in at $290k! They ended up using an income basis, and stated that current rents were under market, the comps were due to distressed sellers, and that the dwelling price was still well below averages for the Austin area (basically all the things investors look for).

I ended up buying the building anyway, mostly because I said I would and I do believe that keeping your word in contracts is important, but I do also still stand to break even and with the potential for appreciation it could still eventually become a less-than-mediocre deal  over time. The opportunity cost hurts, though. I'm a conservative investor, and I think that may have insulated me from some really tough breaks, but it has also meant that I've lost out on some home runs. Is anyone else brave enough to share their recent failures?

I'm surprised to see these responses; I've only invested since the market upturn, so I have no experience anywhere near the 50% decline you're discussing, but looking at those markets that did see significant price value declines (I'm looking at you, Detroit suburbs) did see significant losses in rents, from my understanding. Of course, a 50% decline in a short period of time is a catastrophic event, so there are a lot of elements at play. Does no one else agree? If not, what am I missing? I should also mention that if your deals are structured properly, you should be able to weather most short-to-mid-term headwinds.