All Forum Posts by: Lucas Miles

@Greg Kasmer that's a great idea to look at the three phases. Our management company will be mainly running the renovation, but we will both be more involved during that renovation, and hope to be more hands off when the portfolio is stabilized. Great point on not getting to tied down into a few % on the first deal. Thanks for the advice!

@Aaron W. thanks for this information! We are actively having these conversations now as this open conversation is absolutely important in a partnership.

Myself along with a partner have a small portfolio of multifamily properties under contract. This will be the first deal we have done together and are trying to establish a fair percentage split between us. The business plan is to basically BRRRR these properties, purchasing at a discount due to the properties are underperforming, we are obtaining a construction loan from a lender, improve NOI and refinance a 1-2 years down the road and then hold long term. Here are the details:

From an operational standpoint we are basically 50/50 and will both be actively involved in the business, we will be hiring 3rd party management. 

Down payment money invested are we 50/50, however seller is carrying a second mortgage of 20%, and we are obtaining a rehab loan so we will have little money invested. 

This is an off market deal that I found reaching out directly to the seller. 

My partner has a lot more experience turning around smaller (10-30 units) multifamily properties, this will be his largest. The largest project I have done is a 5 unit. My partner's net worth is also about 10X mine. So his experience, net worth, etc were the main reason we were able to get approved for bank financing. We are obtaining a recourse loan from a local portfolio lender. 

Main considerations are I found the deal, but my partner brings more experience and a better financial backing for lending. 

Looking for any guidance on how best to split our percentages in this situation. Thank you in advance! 

@Luke Eckert if you are able to able to get into a multifamily house hack (duplex, triplex, quad) with a FHA loan that is a great way to get started. This might depend on the type of financing you used for your condo.

Put in the time researching your local market and learn how to analyze a property to determine if it is a great deal. Great deals are hard to find, but they are absolutely out there. Find a local agent that works with investors and has experience working with house hackers or go off market and search for deals yourself. 

When talking directly with the seller the most important thing you can do is build a relationship with them. Ask them about their career in real estate, other properties, their life, etc. Get to know them on a personal level. Once you have built this rapport, ask them why they are selling, and figure out what their motivation is. 

I usually transition into high level about the property, ask them what they think its worth. If its in the ballpark of what you think its worth then continue digging. What is the condition of the property, what utilities are split, what are tenants paying for rent, etc. 

For larger apartment buildings it should be very easy for them to send you a P/L (profit and loss statement) for the current and past year/years. Smaller properties they may not have this easily accessible so you might need to do more estimating on income/expenses. Once you have a income and expenses you can calculate a NOI (net operating income calculation) and get an idea of what the property is actually worth.

You don't necessarily need a letter of intent prepared ahead of time, but it helps to have something ready to go if negotiations become more serious. 

@Justin Hash After doing my own research I decided to use Garrett Sutton's company corporatedirect.com for my entity creation. They specialize in asset protection for real estate investors all across the US. I couldn't find a local attorney in my area that specialized in asset protection was the reason I decided to go with Corporate Direct. 

Their prices were reasonable, operating agreements are very professional, and they offer different services (meeting minutes, LLC address, etc).

Main downside I'll say with Corporate Direct is I didn't actually talk with an attorney, just their office staff. In my experience, I told them what I needed, rather than them recommending what type of structure to use. This was fine for me as I felt confident in knowing what I needed after doing a lot of online research. 

If your planning to self managing your properties make sure to find a local attorney that specializes in local landlord tenant laws as well! Good luck!

@Matt Olson Few other items to consider. 

Renters insurance, if your require it. If you do require it, listing you as an additional interest on their policy. This way you will get notified if they cancel their policy. Proof of purchased policy before giving them keys. 

Utilities, anything they pay for transferred into their name before giving them keys

Early termination clause. Early lease termination is granted if 30 days notice is provided, and 2 months additional rent for "early termination fee". 

Multiple Occupants, each tenant(s) is jointly and severally liable for all lease terms.

Move in inspection sheet to document the condition of residence on move in. Before they move in, we also record a detailed (high resolution and timestamped) video of the entire residence to document the condition.

Move out checklist, process tenant needs to take when moving out. (how many days notice is tenant required to provide before lease ends, cleaning checklist, returning keys, etc)

Damages charges guide, estimated cost to repair damages, cleaning, etc. 

Emergencies vs general maintenance vs immediate maintenance. Good to walk through with tenant, if X happens (pipe bursts, no heat, safety issue) call immediately 24/7/365, if your cabinet door is not closing properly don't call at 3 am. 

Quiet hours policy.

Make sure to read through the lease with new tenants so they understand the terms. 

Good luck with your first investment!

Not legal advice, just my opinions.  

@Evan Polaski great points! From my understanding P2 does not need approval and has final say. I've been able to obtain some high level financials from P1. Made a verbal offer to P2, P2 now taking me a little more serious. Starting to get some traction! 

Here are a few free options. More tedious and time consuming but effective and a great way to get started. 

1. County tax records. Search for absentee owners, or by property type (multifamily or non residential).

2. Search local "for rent" listings on Facebook, Craigslist, etc (the more unprofessional the better, ads with no or poor pictures are a good place to start).

3. "Driving for dollars". Driving around and finding "for rent signs"

4. Call your city and see if the have a "landlord list". Cities often will have a list of all (or some) of the rentals in the city and associated landlords contact information. 

5. Networking with everyone you know. Make sure you know what your looking for, be specific when telling people. 

Figure out what works for you in your area, continue to grow your network!

@Mary M. Thanks for your advice!