All Forum Posts by: Lucas Miles

@Rodney Lorenzo this is a great question. I think it really comes down to the type of person you are, your risk tolerance, your end goals, etc. For me it was easier to start on my own with smaller properties and learn the process, how to find deals, how to manage tenants, contractors, etc. These skills are very valuable even as I start to get into larger properties. With smaller deals when things go wrong, its a lot less expensive and you can personally deal with these additional costs. Without this experience missing something in due diligence on a larger property could become a much larger issue. I also think your chances of long term success are much better off starting small and continue to grow and get into bigger properties and syndication if you choose. Jumping right into larger syndication deals is a much larger hurdle to jump over, and may prevent you from ever getting started. Not to say for some people jumping into something large may be a better fit for them. 

That being said if you can find a great deal and have connections with more experienced investors, bring this deal to them and partner with them can be a great way to jumpstart your journey. You can learn the process with them while minimizing the risk of your inexperience. You will likely have to give up significant equity, but it will be worth it for the knowledge you will learn, and potential long term connections. 

@Christopher Murphy do some researching online in your local market for what a 2 beds and 1 beds are renting for. Things to consider are size/condition of the apartments, what utilities are includes, location, etc. Can also call a couple local property managers and have them give estimates on rent estimates. They can also help you understand if the location is good/okay/bad for finding quality tenants or anything to watch out for. 

@Hunter Crowder all three properties are for sale at the same time, and all are owned by different owners? This seems a little odd, have you checked that these aren't just owned by the same person in different entities? Are these listed on the MLS or have you been in contact directly with the seller(s)? If owned by the same person, you will likely get a better deal if you buy all three at once. If owned by different people, once you purchased one, it will likely be easier to buy the other 2 as you can sell those owners you just bought the one down the street.

If you don't have enough cash, have you talked with the seller about seller financing? Either 1. Seller finances the majority of the deal, 80%+ or so, whatever you can afford to put down (make sure to still have money saved in reserves). or 2. Would the seller carry a loan in 2nd position to the bank's 1st position loan. In this example bank gives you 80% of the purchase price, seller "lends" you 10% of the purchase price, and you have to come up with the remaining 10% at closing. Another option is to find a "money partner", someone who has money that could provide the down payment for you in exchange for a % of equity and cash flow. 

@James Fraundorf reach out to a few smaller banks and credit unions in the area you are buying the property. They often can provide the best rates, and often have a better understanding of the local economy. Like what @Tim Swierczek said, lenders may be hesitant to financing this structure without some of your capital involved, especially if this is one of your first deals and you don't have a proven track record. 

You could ask the seller about financing the majority of the deal, and not go through a bank. The seller finances 90%, 95%, etc and you provide the remaining % at closing For example you and the seller agree to a contract for deed that expires in 5 years, then at the 5 years you obtain bank financing. At this point you have paid down some of the principal, and the property likely has gone up in value. Then you can obtain longer term bank financing and might not have to put up any additional capital. 

@James Krell assuming this is this a SFR? I would shop this around to some local lenders, if this is a SFR you should easily be able to get a rate at ~3% fixed, amortized for 30 years (in my area most lenders only go 75% LTV, but there is a couple that will still go 80% LTV). Reach out to some local investors in your area for lender recommendations. If you planning on holding this property for long term, get loan that locks the interest rate in for 30 years. Interest rates are historically low right now, being able to lock that rate in for 30 years in awesome. Unless you only plan on holding onto this property for a few years, I would absolutely be paying down the principal on the loan.

@Arsen Sapsa Good place to start is NOI (net operating income) and cap rate (local market/time dependent). NOI = Rental Income - Expenses. Be conservative with your income and expenses calculations. Talk to some local commercial real estate brokers to figure out what the cap rate is in your market and asset class. Cap rate's are constantly changing are are highly market dependent.

Property value = NOI / Cap Rate. If your yearly NOI is $50,000 with a 10% cap rate, then the property is worth $500,000.

For any commercial property a lender will likely have a commercial appraiser appraise the property. However, as long as you calculate your NOI you can be confident to know how much you can pay and where the appraisal will come back at.

@Jacob Montemayor call some local relators in your area. They should be able to provide you with quality inspectors they use.  

@Zachary McDonough big thing to consider when dealing with inherited tenants is the previous owner/manager and the lease signed with the tenants. 

Try to get an idea if the current owner screened tenants properly. Make sure to get copies of all leases and any other agreements with tenants at closing. Look through the lease (hopefully there is a lease) that they signed with the previous owner, if the lease seems to be decent and everything is documented like it should be (security deposit, move in checklist, etc) there is a better chance if the tenants are better quality. 

If you have a decent relationship with the seller, ask about the tenants and see if you can get an idea of the quality of tenants (take whatever the owner says with a grain of salt). Ideally you should get a year to date (and previous year) rent roll to see if tenants are late on rent or have been paying late. If there is a local caretaker or maintenance person, talk to this person about the tenants. During your walk through of the property you should be able to get an idea of the tenant based on the condition of each apartment, dirty, damages, etc.

At the end of the day it can be challenging choice to make on keeping the current vs not. If tenants seem to keep decent care of their apartment, have historically been paying rent, and rents are at or close to market value, I would generally keep the tenants. 

If you do keep tenants, get them on your lease as soon as you can and start enforcing your rules. Immediately correct any maintenance issues in their apartments to show them that you are a quality owner that cares about their quality of living. Most tenants are happy if you show them that you care about them and their apartments. Get rid of any bad tenants right away, the good tenants will appreciate this and will want to stay.

Training poor inherited tenants can however be challenging if the previous owner did a poor job of enforcing the lease, often it is easier to start with new tenants from scratch. Trust your gut on this decision, often times it will be correct. 
 

@Josh Thompson the numbers are what the numbers are. You shouldn't be "playing around" with these numbers. Calculate your estimated income and expenses and use those numbers to see what you could offer for the property base on your predetermine criteria (cash flow, cash on cash return, etc). If the cash flow is negative, move on to the next property. I'm guessing the "play with the numbers" was some type of reference on different ways to make an offer, seller financing, seller 2nd mortgage, etc. 

@Andrew Ramirez I don't think it makes sense to spend several years saving up money to buy a property 100% with cash. When you can be into a property with only 20% (or less if you are house hacking). I'd much rather have 5 properties purchased with debt that cashflow $200/month each vs 1 property owned free and clear that cashflows $600/month for example. Overtime tenants pay off your debt for you and you will create significant wealth (equity). 

However, you have to buy right and have reserves set aside for when things go wrong. Leverage (debt) is very powerful, it can make a person very wealthy over time, but it can also make you very poor very quickly if you over leverage yourself. Understanding how to analyze properties, find deals where the numbers make sense, and purchase properties for under market value. Good luck!