All Forum Posts by: Jonathan Towell

I'm not the brightest bulb in the box, so forgive me for the question...

What kind of property is this? How will you be able to use two separate loans to buy one property?

They are all over the place. I started at church, asking investors I knew there if I could buy lunch to pick their brain. When I'd meet with them, I'd ask them for names of other investors. Then I'd just make a call and say something like, "My friend Bob said you're the guy to talk to who knows about rentals. Do you mind if I buy you lunch to pick your brain?" Rinse and repeat. A few years later, we've got a list of hundreds of high net worth individuals in town who we are proud to call friends.

Sounds like the only way this property becomes a good deal is if the owner takes a big loss.

I'd get the deal first. There are a bunch of contracts on the Internet that you can download in a snap. No reason to sweat that detail until the deal is in hand.

Attorneys are expensive. We've only used one once and that was to syndicate a $6.5M apartment deal. That said, a good attorney is a good way to reduce risk. And, I know plenty of investors who won't do a deal without the approval of an attorney. 

So she is upside-down? (Owes $266k on property work $225k?)

Anytime I can get a low-down, seller carry deal at good terms, it is good. But, I'd never do it if it mean paying more than the value of the properties. Maybe that isn't what is happening here, but it is hard to say.

Also, it is impossible to analyze the deal if the debt terms aren't stated.

Anytime you can pay off debt, it is a good thing.

That said, it is hard to say if this is a good deal without knowing what the debt terms are. Obviously, a lower payment is good. But, if that lower payment is stretched over a 30 year vs a higher payment at 15 year, it would change the evaluation.

The other thing to consider would be alternative investments you could make with that $38k. Will it otherwise just sit in the bank?

And, is that $38k going to drain your savings? Would you have more personal security if you had that cash on hand?

Just a few questions to consider as you evaluate. I hope that helps.

Interesting.

On the one hand, assuming an upside-down deal will immediately impact your net worth. That will, in turn, might affect your ability to borrow from banks. Maybe that isn't a big problem. 

The bigger problem is that you may have to put cash into the deal in order to sell it. Do you have the cash to cover the loss if that happens?

On the other hand, if the property rents well and generates strong cash flow, maybe it is worth the risk. Maybe the cash from the rental combined with appreciation will close the negative equity gap quickly enough for you.

In order to do this deal, I'd need to believe it will have strong appreciation, stay rented at a good rate, and have some cash to cover my loss in the event things go south.

A few more expenses to check...

1. Property management... are you going to self-manage? Regardless, it is usually a good idea to budget for property management in case you need to hire someone to help.

2. Utilities. Maybe the tenant pays these.

According to your pro forma, your project cost is $53k, but the after-repair value is $40k. That means you'd be upside-down $13k. First, you'll probably have trouble getting a bank to lend on that. Second, that makes the BRRR method impossible. The BRRR method assumes you have equity in the deal in order to pull cash out on a refinance.

If you can be all in at $53k on a property and rent it for $1k/mo, that is very good in my view. That is nearly a 2% rent-to-value. My main concern would be the equity situation.

@Jackson Carr

This sounds like it may be a portfolio of single family houses. If it is, I'd want to check a couple of things:

1. Location and condition of properties is critical. Probably like any other city, there are neighborhoods where keeping good tenants is very challenging. All the property management companies know where these neighborhoods are and many of the good managers won't take those properties. Unless you are self-managing, you'll want to make sure a good property manager will take the portfolio.

2. I'd want CMAs on each property. Basically any property in Lubbock can be bought and immediately generate better cash flow than a similarly sized property in California. My big concern is the exit. A lot of cheap houses are easy to buy, but hard to sell because local investors know them well. So, it is important to make sure you know that you are getting some built in equity in the deal, especially if you're buying 67 at once.

Of course, if this is truly a 67 unit multi-family property, that might change the advice slightly.

I'd be happy to look the deal over in detail if that is helpful. I wish you the best.

Generally, it hard to do much about people who live dirty. However, if they are doing things that damage the property (e.g. staining/ruining carpet, etc.) or creating health risks, you may be able to write a lease violation with a fine. For example, when our maintenance guys recently discovered dog urine on a tenant's carpet, we issued a $25 lease violation and required them to clean it up.

That said I don't know the laws in Virginia and your lease may or may not allow for such measures.