All Forum Posts by: Kathy Henley

A first class rehabbed building looks interesting. Is it the best use for our money? It would be a step up from our 4-family in both size and location. The location is in the Central West End of St. Louis, where the young professionals live; close to two universities; class A. The property has undergone complete renovation. Here are the facts: List price is $729,000, 8 units, 2 2-bedroom and 6 1-bedroom units. Gross monthly rents: $7545. Property tax $5,287. The seller's number look good because 25% expenses are used to show a delicious NOI. My BP analysis lays out more details. I went light on the vacancy rate (5%), and the usual 10% for CAPEX and 10% repairs (old building) and 10% PM, less the property tax, common utilities, and insurance.

It may cash flow $1185/mo.

It shows a 1.49% debt coverage ratio, which my commercial lender will like.  The commercial loan may be 20 years at 4.5%.

We are considering using our HELOC of our primary home in California for the 20% down payment, $145,000. The interest expense, of this borrowing, is included in the above calculation at $425/ mo. What dangers might there be in this transaction?

@Matt Kauffman   If the lower rents were because the tenants have been in the unit a long time, the unit will need repairs to make it look current and fetch the market rents.  Go at your own pace.  We gave each tenant a hello letter, announcing the change of ownership and where to mail the next month's rent, etc.  It also announced a rent increase going into affect 60 days out, going up to $525.  We let them each resign at month to month, at the new rate.  The unit who's rent had never been raised in 12 years (still $300) chose not to resign at $525.  The unit will be updated and rented at the market rate of $625.  Other tenants will get first dibs on the fresh unit.

I have talked with Ed Campbell of St. Louis Bank about a few deals. When asked about a fixer, he said, 'show me the numbers,' and offered a contractors name.  I am an out of state investor and he helped me understand my favorite zipcodes. We haven't closed a deal with St. Louis Bank yet, as structural issues showed up in both inspection reports.

@Mohabub Miah

If you are asking about owner financed purchases, I know nothing.

To borrow the remaining 80%, banks are an option. Our banker required us to buy as individuals, so far one multi-family building. Our attorney is in the process of changing title, to move the ownership to our corporation. This is our structure: Our buildings will be owned by our limited partnership (husband and wife.) This LP has given the management contract to our LLC. This LLC is a management and marketing entity. I collects the rents and pays the bills. It has a bank account and good credit; it pays its bills on time. It filed a tax return. If there ever is a profit (read about depreciation and tax benefits), we would pay taxes as individuals; as we registered the LLC as an S corp, making it taxable to us as individuals.

Welcome to BiggerPockets @Bill Manassero Here is where I learned to be bold and considered investing out of state. Dollars go farther out of California. Property management is figured into the purchase expense. I searched for college towns, areas that have property management companies in place, or urban areas where young people want to live. It took months to network, interview, and to build a team. Good people knew good people, who recommended other people. The future looks bright. The multi-family in St. Louis has a better return than our SFH, it weathers the vacancies better.

Update:  The sellers went with the 'as is' bid.  We are not gamblers and punted.

I just closed on a multi-family in St. Louis with under market rents. When viewing each unit, I said hello to each tenant.  They were aware that the building was for sale.  One tenant admitted that rent should be going up and that he wanted to stay.  One had his boxes packed, ready to jump ship.  

I wrote a letter, which my property manager printed on his letterhead stationary and hand delivered it to the tenants on closing day; after ownership was official, as said by @Brie Schmidt    This was a good plan since the closing date kept moving. My letter was very business like: the address change for the next month's rent (same rate as current month), the phone number for building maintenance issues, and my wish that they stay.  The third para. was telling them that their rent would be going up one month out.  The new rent will be closer to market rent. It passed the test of my lawyer that it would help serve as a notice to resign or vacate in two months time.  The hand delivery was to soften the blow.

I welcome each to resign on a month to month lease, at the new rate, and plan to update each unit as they vacate and raise the rent again. @John White  If you want a copy, PM me.

Excellent step.  Keep at it!

I read a great book, "Commercial Mortgages 101," the week that I found an interesting 6-unit building. The book walked me through the writing of a commercial loan packet, which is how a banker analyzes an opportunity.  Understanding how the banker looks at the property taught me important details.   These details helped me understand the opportunity too. Writing my first packet was a success -- we got approval for a loan and we got it under contract quickly.  When negotiations got to the part about repair costs, the seller did not want to make concessions. I bailed; the deal was showing too much expense for the rents rolls.  The commercial banker thinks I am very knowledgeable and conservative, like his bank.  He is now on my team.  He calls me once a month and listens to my latest prospects.  Eventually, something will be a winner.

Good suggestions @Bob Hines@Jared K.

We don't want to walk away. We can't wait out the tenants request for an extension because we would loose our locked in low rate (4.125) since they have since risen.  Our property manager is not alarmed at the tenant needing to the end of the month to vacate. So we negotiated.

Our property manager, who will take over upon closing, suggested 2 months rent to be in reserve to buy the tenant's keys.  When approached, the tenant wrote a handwritten letter to his landlord, the sellers, that he will be out at the end of the month.  So the sellers declined to make any monetary arrangements, since they believe their lease-breaking tenant to be telling the truth.  The listing agent wrote us, the buyers, a guarantee that he will be out by the end of the month or he will pay us the 2 months rent.  This seems extraordinary.  Closing is this week, March 19.