All Forum Posts by: Levi T.

More than that. Per what you said, it's going to run about $500 to repair the floor at minimum. You will also have your shoe molding ripped up to do the floors, thus needing replaced as they get broken, plus baseboards painted again in most cases as contractors move fast and pop the paint removing said shoe molding, and the house cleaned from all the dirt and dust created from sanding the floors. I have some units that are 800sqf with hardwood floor. Floors cost is 1.5k to redo, cleaning is $200, paint and replacing shoe-molding runs around $350.

I don't know if this will help, but define a real simple number that anyone can use to see if a deal will work for you. This will off load most the work of reviewing deals, something they can do off the top of their head. Cap rate is a good example, property type, or some combination. Most my deals come via email as well, but it's consolidated by those sending them, so I just have to scan over it and if something looks interesting I ask them to send me more details about that deal. Example email from this morning: Triplex downtown $250k. 2 bed 1 bath, 1 bed 1 bath, 1 bed 1 bath $2,320 month rents $399 avg month utilities $150 avg month tax and insurance Duplex South Stafford $250k 3 bed 1 bath and 2 bed 1 bath $2,250 month rents $350 avg month utilities $192 avg month tax and insurance SFH Spotsy Greenfield $150k 3 bed / 1.5 bath $1,265 month rents $0 avg month utilities $110 avg month tax and insurance

Welcome to BP, Virginia is a great place for real estate investing.

I do no money down deals, and no I did not have some trust fund. I think I had to fund my fist 15-16 deals with about 30% cash. You have to do commercial loans, and your deals need to try and come in below the 60LTV mark. Build a relationship with a few local bankers. Around the time you think you are at a point to ask for no money down, show the banker your deal before you make an offer, then just ask them what type of offer you need to stay under to get 100% financing, then go make the deal. Once you have one deal with that type of financing, don't abuse it, it's privilege not a right. You will probably spend a handful to a dozen more deals doing some combination of no money or some money, and as your equity base grows so will the financing options. There are some hidden gotcha you wont learn about till one catches you. Like growing to fast, number of deals to number of amount borrowed, etc.. I know once I cleared more than 1 million in free quality, and in doing so paid off a building, that was a real defining moment in terms of lending. Lending is fickle, it all comes down to your security, ricks, current markets, interest rate, etc. Good luck,

I had a friend go that route, I don't know all the deals, but I clearly remember him complaining about the cost of getting a permit and the hookup for utilities.

Originally posted by @Matt Donley:

I hear so much about how important it is to have positive cash flow when analyzing a property to buy and hold. What I don't hear is how the deposit you put down on a property affects the cash flow (by directly affecting the amount of money you need to borrow), and how that should affect your analysis. 

For example, let's say I have $20,000 to buy a $100,000 property, but can qualify for a low interest FHA loan that only requires a 3.5% down payment ($3,500). Since my mortgage payment will be relatively high, let's say this causes my analysis to show a negative cash flow.

On the other hand, imagine if I had chosen to put the entire $20,000 as down payment. My mortgage  payment would be lower, so let's say it's enough to provide me with positive cash flow. 

So what's the difference? Should I turn down the deal just because I plan on only putting 3.5% down, just so I can keep extra cash on hand? Why does the deal suddenly get better when I tie that $20,000 as equity into the house? Whether my $20k is in cash, or is tied up in equity, why should that affect my decision based off of the cash flow rule?

What if I was paying 100% cash for the property? Of course the property is going to cash flow better than if it had a mortgage. But the deal may actually be terrible if you calculate it with a mortgage. 

What am I missing here?

I feel like the entire thread somehow got derailed off topic. I personally think if you have to put in real cash, it's just not a good deal. Your deals need to cashflow in the bad times to be worth it. There's only two times in landlording; Normal and Bad. The upside to the business is capped by having a normal operations with no repairs and no loss in rents. It's not like you can keep selling the same unit over and over to make more money like you do in other businesses.

The lending curve comes in as you start off having to put in cash for the deals, then over time as you build relationships with banks, and show that you are making not just good deals but amazing deals, they will start to lend you capital more freely. When they look at your deal with a 40-60LTV and the next guy is coming in and paying full price or higher for a deal, they will give you very decent offers on loans. As your deals sit they gain equity, lots of it hopefully, and at some point commercial loans will let you lean on a old property that has plenty of equity. I recommend trying to pay down one of your properties quickly so you get a base to work with.

Hint: if your LTV is under 60, your always gaining equity with each deal, so they don't really lean on the fist property, tho it's attached. So over time your portfolio has a continues LTV that is below 60.

Originally posted by @Andrey Y.:

Originally posted by @Levi T.:

I always run it as 100% financed, easy numbers to work with, and safer. Things I look at when doing deals:

1. At a glance; I want to figure out the gross cap. This at least lets me know if the income to property cost is right. If this don't work out, it's not worth learn more and I turn down the deal.

2. If gross cap is good. I dive into the net cap to insure it is cash flowing. Lots of times this is where bad management has run the rental into the ground. Don't expect to unload utilities or basic operations cost, however late pays, evictions, and run down units are easy to fix.

3. Finally LTV/Market value at closing without improvements. Leave plenty on the plate to insure you can get out if something goes sideways, plus that's your bonus profit after cash flow.

Buy and hold is like a slow flip, you want to earn at a higher rate than you can get on the stock market, then kick it the bonus earnings on exit.

*via my iPhone

 You mentioned gross cap. Is a higher or lower gross cap better?

Higher is always better. Treat it like the first hat being tossed into the ring. Yesterday I looked at a deal for a residential/commercial deal with some other SFH combo. They said the property had a gross income of $362,000, with a net of $268,000. Long before I got the net I already know it was a bad deal as they wanted 4.3 million for the deal... that GCR is coming back at 8.4%. That's run as fast as you can asking price. They would have to come down to at least 2.5 million to even start to talk, but it's turn key so that's where it would sell at with a GCR 14.5. That's basically my line 15%, I know deals just are nowhere close to happening at that point, you got my attention at 20%+. I've come to these numbers by going back and looked at my old deals over and over, see what won, what loss, what did better, then just mechanized the process. If you want to make a lot of money, you can't get stuck in the work, it's mechanizing everything so you can move more quickly and get more deals at higher volume. You also need to do the same with the property management. What works for managing 10 units wont work for 50, and what works for 200 units hardly will work for 2,000 units. 

Even at that point it would not matter as the property would profit as it stands. As the area was upgraded it's just going to go from a poorly managed property, to a nice property, and as rents bubble for the region you would just follow, and at some point fall back to your old earnings. So yeah...

I never said that @Account Closed, using my process you will never over pay for a single unit, and you don't have to run around and check markets to do your numbers. It's base is controlled by the rents, which is controlled the local market, and forced down by cost. Here is a deal from a few years back, ended up at 66k each, closing appraised them at 90k, CMA holds them at 95k last year, and we are seeing numbers at 100k-105k this year already.

Coming into a deal we run everything high for safety. Rehab came out of rents the first year, so that got removed from the cost after the fact. In all we are netting a little over $50k year and climbing with a $552,400 investment. We still have a few more years to go, and rents are climbing nicely each year, so it's turning into a really good deal. I think we will unload for a little over 1m when said and done; It will be 100% turnkey operation for investors looking for a solid operation to buy and enjoy for many years to come.

The only time I could see it not working out is when a massive rental bubble happens, then everything is inflating everywhere, and it really don't matter at that point as everyone is going to lose their shorts if they play and don't get out before the tide rolls as housing prices will follow rents. 

To add to Charles Parrish post, you should be a little loud about your deals, self promote. Personally it's not my style to be loud, but if no one knows your making good deals, no one will ever ask you if they can invest. So talk about them with anyone who is willing to listen. Show them the deals, back it up with solid data, and if you need, take some on a tour of a property. I've picked up a lot of capital partners over the years just by taking about deals, and helping others get into real estate investing.