All Forum Posts by: Kurt Hines

I'm looking at a similar strategy, and you need to consider what happens in a worst case scenario.

Your bank could decide at any point to cut off your HELOC. Consider the scenario where the real estate market goes down, and your home is no longer worth what it was when you got your HELOC. Your bank decides they don't like the risk, and don't let you borrow from it anymore. If you've been counting on the HELOC as your emergency fund, and then something else happens (possibly related to a recession), your emergency HELOC money is gone, and you don't have cash saved, because you were counting on the HELOC being there. Then something goes wrong at a rental, and you can't fix it, because you don't have reserves.

If your entire money strategy rests on the HELOC, and it disappears, you are in trouble. I keep 6 months of personal and rental reserves sitting in a bank account, so I know if disaster strikes, or I lose my job, I don't lose everything else. Better safe than sorry.

Thanks @Greg Scott I'll give Walter a call.  

Hi Everyone,

I'm looking to partner with my brother on a house hacking scenario in Metro Detroit, near Wayne State. He'd live there, and rent out the rooms, or other units to students. I'm not happy with what I am seeing for financing (75% LTV, higher costs than I'd expect). It may just be what it is, but I want to look around.

In the past I've always preferred working with independent mortgage brokers, instead of captive brokers. But all the ones I use to work with are gone now.  Does anyone have a independent mortgage broker they can recommend in Michigan? 

Alternatively, any portfolio lenders who go above 75% LTV on investment properties would be helpful.

Thanks All!

Hi @Victor Cooke  I live in Presque Isle (as of a couple years ago), so Alpena is my local town.    I've been looking into investing in rentals in Alpena (I currently have a rental in Metro-Detroit).  Welcome back to the area!  

I've been investigating the local market, and would love to meet up sometime, we can talk about the market.  I actually tend to spend some time downstate (down here now).

Good luck selling your downstate house!

Hi Everyone.

I recently put in offer in on 3 duplexes being sold as Multifamily.  I got help with the costs in a previous post: https://www.biggerpockets.com/forums/432/topics/50...

I may now have the opportunity to sit down with the sellers and customize an offer that includes some function of seller financing.

The Background

The property was listed for 196k, on the market for 14 months with no activity. When I toured the property, the renters told me I was the first one to look at it in all that time.

I put the value at 85k, and offered that.  I knew it would most likely be rejected, but I wanted to do it for the practice, if nothing else. I think I will have to put around $15k into the property at purchase to take care of deferred maintenance. I would then raise rents part of the way to market rents, and as renters leave, remodel them and bring them all the way up to market.

The seller's agent came back and told my agent the seller wanted to reject my offer, but didn't want to get into a back and forth to just end up somewhere in the middle. (And I wouldn't come anywhere near the middle).  I suggested that I sit down with the seller face to face, and see if we can work out some deal that includes some or all seller financing, and if so, I could potentially offer more.

The Numbers:

Current Rents: $2442/month, no leases, everyone on verbal month to month. Most renters have been there for years, 1 moved in a few months ago.

Current Costs: Not including Mortgage or CAPEX, NOI Costs are $1809/month with 10% each for Vacancy/R&M/Management. (Many of these costs are estimated by me, the only finances from sellers are Schedule C's)

I think I can get the Rents to around $3300/mo with remodels, and costs to stay about the same. (Lower some costs, but increasing amounts for % based costs).

Bank Financing Option

I'm working with a local bank that is offering 4.5% with a 5 year ballon, on a 20 year amortization. They have said this property can be financed commercially with those terms.

The sit-down Scenario

If I get the opportunity to sit down directly with the sellers, I'd like to be able to present a win/win scenario. I know for a fact they don't want to deal with this property anymore, but they also have very unrealistic value assumptions.  They have been told by their agent that their value makes no sense.  They could get more money (still not close to $196k) if they split the duplexes up, and sold them individually to individual sellers, but I don't think they want to do that.

My goal is to minimize two things.  The cash I have to put down, and my monthly costs, especially in the beginning, when I will have to put money into the property.  I'm thinking a scenario where they get a down payment, then a low or no monthly payment for a while while I am stabilizing the property.  This might also be an opportunity to get a longer term until a balloon payment is due.

In this area, everyone is familiar with Land Contracts, and nothing else when it comes to seller financing. So if I offer something around a Note, I'll have to explain it from the ground up.

The Question

What does everyone recommend I do when talking to them, what offer to give, and how to explain and sell the offer? Are there types of offers I'm simply not thinking of?  What other ways can I give a win/win scenario?

Thanks!

Hi Everyone. I wanted to give everyone an update.  I went and walked the units with my realtor. The owner just sent us there unaccompanied, so we were able to talk to all the residents.  There is more work to do on them then I thought, it seems the current owner is not paying attention to them at all, and letting things slide. 

One resident mentioned a stove that has only had 2 burners working (Oven is dead too)for 3 years. There are 3 or so windows with massive seal failure, you can't see through them for all the water on the inside. One building has squirrels living in the walls.  Multiple residents told us that we were the first people to look at the units int he 14 months they have been on the market.

The owner is actually an elderly women, who purchased them with her husband (who has since passed) 26 years ago. Her son has been taking care of them for the last 5+ years, but is not paying attention, seemingly not caring. I doubt the mom actually realizes the state that they are in. The residents aren't complaining too hard, because they are paying massively under market rent, and know it.

I think there might be an opportunity to go in and purchase them on conventional financing with a portfolio lender, and do a BRRR strategy on them. I'm going to work on getting a handle on the costs that I wasn't certain about, talk to local banks about financing, and look at putting an offer in. I'll update everyone when I have a game plan.

Thanks for all the help!

@Geoffrey Schaeffer

For the trash number, I'm using the current owners number. This would need to be confirmed.  My snow/landscape number is a rough guess, and would be confirmed before I place an offer.

I wonder if pest control is a regional thing? It seems like some people budget for it, and others don't.

Hi @Michael Plante.  The rents are well below market rate.  If I bought them, I would do what is needed to fix/spruce them up, and then get to market rents, though not necessarily in 1 year.  I'm okay with longer term plans if necessary.  I've read many stories on biggerpockets of investors doing this same thing, and many tenants happily paying more for a better place to live.  

A lot will be answered when I see the properties tomorrow.

 I agree entirely. That is what could make the deal viable, is the difference between what they are charging and market rates.  I'm viewing the units tomorrow with my agent, and I plan on nailing down what I could charge at market rates.  The purchase would need to work to some degree at the current rents, but I am fine waiting until the building is stabilized if I need to to get the cash flow I want.

My plan is to move away from percentage based figures for R&M and CAPEX, and have firm numbers based in the actual buildings.

@Michael Dang  My understanding of the Vacancy / Loss is money not earned while a unit is not rented, between tenants, or if it is off the market for some time for some reason (Vacancy), and Rent due but not collected (Loss).  When I google Economic vacancy, that appears to basically be the same thing, except it includes things like giving a free month of rent and model units.

Is that what you are talking about, or should I be looking at something else?  Thanks!