All Forum Posts by: Lynsey Staes

@Michael Gansberg  Thank you so much for the reply!!!  

Yes that does make sense and clarify things a bit.  I know I will have to raise the rent and it will be a slow and steady change - however I do think within 2 years it can be highly profitable and at market value (profitable from the get go - but a whole lot more wiggle room in 2 years).  Right now there is at least 2 units vacant and I can not find where he has this advertised anywhere at all.  There was a sign out front, but to my knowledge very little advertised online and such.  I also know that a majority of his tenants (8 of the 10) are on a month to month lease - some of them for a couple years.  So literally they have lived there several years with no change to the rent, while taxes, etc have all increased over time.  The two that have an active leases are the two highest rented units with leases expiring in Sept 2018.  

I will have to factor this into my analysis and see the effects!! 

Thank you for the response! 

I will start by saying this is my first deal on a multi-family unit. So please excuse some of the ignorance in regards to how to evaluate this. I did search and know how to evaluate it based on financials, but still had a few questions..... My current properties are all SFH - so this is truly a new beast for me.

I am currently interested in a 12 unit building.  6 - 1 bedroom units and 6 - 2 bedroom units.  I have a copy of all the financials from 2017.  

I am currently calculating ROI, etc to see if this deal is feasible/worthwhile. I am beginning to speculate that the reason for him selling might be mismanagement (I have several reasons to believe this, my realtor also is starting to lean that way as the seller has just said he wants to be done with it). I am just not sure how to evaluate with the uncertainties that I have found.

Here is my problem... The rent on the apartments from the financials is all over the place. Some of the 2 bedroom units rent for less than the 1 bedroom. 1 bedrooms ($560, $495, $555, $475, $410, $515). 2 bedrooms ( $605, $595, $535, $550, $550, $610). I have actually confirmed this to be correct.... So do I evaluate ROI and other financial numbers on what I think the rent should be and just prepare to raise some of the rents upon taking possession? Using the rents he has listed, the deal is still feasible but definitely not as good. How does this play into trying to acquire financing? Like will they look at the 2017 financials and assumed that those are what is expected? I have not yet tried to secure financing on a property of this size, so I am not sure how this works.

If I do proceed, I would want to balance out the rent on the apartments.  However, I am not sure a good place to look to see what current market value is (I based my guesses off another local apartment complex).  I want to be fair and find a way to evaluate the trends in the area.  Anyone know of a good side for this?  I am in a rural area, so I usually just check similar places close by.   Really wasn't sure if that was standard practice or not.  

If you made it this far, thanks for the read... Look forward to your input! 

 All ratios seem to be within acceptable limits at this time, I think the question came up with the pre-approval for the next property.  We are still very comfortable and the property will make money, however if just looking at my income it doesn't work out.  If I toss in my rental income, financials work out splendidly again.  

I talked with my CPA and one lender on here, both agreed 75% of the gross income from rentals is all I should use in calculations.  Using that, I am good to go.  My confusion came in with getting documentation to actually prove it.  I have bank records that show the routine deposits from each rental, I have tax docs that prove the income for the one property, I have lease agreements (though one is coming due), I have reserves built up... so I really think I have my bases covered.  

Thanks for the response.  I was hoping I wasn't missing anything.... 

@Stone Teran  I have no problem coughing it up.  It was more of if I needed something more than that, I wanted to get it ahead of time.  I am fairly new to this and have not ran into this, so was more interested in what was typical. As mentioned, I have a meeting with a second bank later this week and if there was something more required I just wanted to have it on hand.  

Current property situation... 

1 SFH - no mortgage - cash flow is $366 a month - rented since March 2016

1 SFH - mortgage - breaking even - this was my house before getting married. We turned it into a rental as to keep the equity. I have renters building my equity at this point. Very low interest rate on the loan. So I am okay holding this property and accruing the equity. Rented since Oct 2014.

1 SFH that we live in. We have a mortgage on this one as well....

I work full time, so up until this point my income has covered everything.  We have not exceeded debt to income ratios etc.  Never really had any problems getting approval for a loan and such.  Taxes have been properly filed each year to account for the rental income, however the first house listed has not been shown on taxes yet because we do not file this year's until next April.  

Recently though we went to refinance the loan on our house.  It was a straight up refi.  We did not pull out equity or anything like that.  At the same time as refinancing, we were getting a pre-approval letter for another property (this ended up falling through but leads to my question. ).  When going through the process for both at the same time, naturally the bank had a few questions.  Giving my financials a quick overview, he stated that he was not sure I could get pre-approved based on my income alone that I would have to include the rental income on both properties.  I understand what he was getting at, however not sure what I need to "prove" it so to speak.  The second house listed above was shown on my taxes as income, so in my mind that was proof enough.  I can see how the first could be questioned, since I haven't had to report it as income yet.  The mortgage lender mentioned having signed leases from all renters along with a notarized letter for each property.  I could see that on the first house, because it was reported on my taxes.  But is it necessary on the second property that was listed?

At the end of the day, I am trying to get my financials in line because we are wanting to get a couple duplexes early next year.  One of our leases is going to expire here at the end of month, so I will need to get it renewed.  If in the process of getting it renewed, I need to get something else from my renters I would prefer to request it in one visit.  What other financials from the rentals would be needed?  I have all the expenses and income listed out - but it seems the bank wants "proof" and I am not sure what counts as proof.  

Any advice or help is appreciated.  I do have a meeting set up with a different bank later this week, as after reading some on here I do not think the first bank I selected is necessarily the best fit for what I intend to do long term.  

That makes a bit more sense.  I am just a little new into investing, so I tend to lean towards trusting what the lender is saying.  So I tend to lean towards thinking it is not possible when they say it can not be done, instead of thinking they just don't want to.  

Thanks for the response.  It is appreciated.  We are working towards gathering details on this deal and what not from the current owner.  Need to know exactly when she will list it, etc.  I am hoping it works out!!

Thanks guys!!!  I was told by my bank (which is not small/local) that I can only have 4 conventional mortgage loans to my name at any one time.  Since I already have two, I couldn't take on three more.  However at the time I was told I didn't think to ask for the reasoning. At the time, we were refinancing and had a pre-approval letter on a different property we were looking at but did not end up buying.  We have been discussing these duplexes for about a week and I decided to look into it a bit more to see what I could do as far as loans go.  

@John Warren, look for a message here in a few.  I will at least get the contact info, however might not follow up with them right away.  As I mentioned, these duplexes are not yet on the market.  I was just trying to get some foot work done ahead of time.  

So my current investment situation before I get to the specifics on the deal.. All properties are in west central Illinois area.  All properties we self manage and will continue to do so. 

Own one SFH - no mortgage - Cash flow is $366 a month

Another SFH - have mortgage on it - nice chunk of equity built in - breaking even. This was my house before I got married - we turned into a rental. We are currently breaking even each month, but have a huge chunk of equity and it is in a great area.

We also have a mortgage at the moment on the house we live in.  So two mortgages to my name.... 

I work full time and rentals are not my only source of income.  

Coming up in Jan, there will be 3 duplexes coming up for sale.  $95k a piece, all next door to one another.  2 are identical houses, each side having 2 bedrooms.  The third duplex has one 3 bedroom unit and one 2 bedroom unit.  Great area, low crime.  All are currently rented at $600/month with some long term tenants.  This is slightly under fair market value for my area for a 2 bedroom, however not by much ($625 is current market value).  The 3 bedroom should be closer to $700, however again my financials are all based off $600 for each unit.  All units built in the 90's and have been kept up over the years.  Very nice units for the $95k price.  I know they are being sold because the owners are getting older and the husband has health issues making maintenance difficult.  For tax reasons on their part, they will not go on the market until 2017.  

Rent on all units per month is $3600.  $43200 per year.  Assumed 100% rented at the moment.  Did other calculations with 15% vacancy as well.  

Taxes on all units is $8247 per year.

Insurance on all units is $2160 per year

So I will get positive cashflow as long as the terms of the loan are favorable.  

Due to already having two mortgages in my name, I can not get separate mortgages for each house.  So I was looking into portfolio loans, however have struggled to find the actual general terms on those loans (do they do 10, 15, 20 year terms, rough interest rate, fees associated with it, money down, etc).  We have a local small town bank that states they offer them, however no real terms are listed out.  

So anyone who has one, what are some general terms?

Is there anything I am overlooking in this deal? 

What other loans should I look into?  Remembering I currently have 2 mortgages in my name.  Credit score of my husband and I are over 800. 

@Joel Owens  Commercially we are researching storage units or a smaller apartment complex (10 or fewer units).  The plan would be for us to manage the property so relatively close to us is a must.  This is part of our retirement plan, however that is definitely not set in stone at this point.  I am researching to hopefully get a better plan in place.  We do know that we want to stay away from retail, in our area it just seems to be dead.  Lots of vacant buildings and such.  

Current assets and the additional assets I am looking at for rentals (non-commercial) are all older homes.  I do not even bother looking at new builds as my cash flow is not high enough on it at the moment, nor is my return on investment.  

Our general method for evaluating properties is to look at the monthly cash flow (clearly we want this in the positive).  Our goal is about $300/unit cash flow.  We also put down 25% to get a lower interest rate.  If it is a duplex or triplex, we try to get it to where only one unit needs to be rented to pay the monthly mortgage.  Lastly we  look at rental history, fortunately we have known a few of the other investors in our area and the one duplex I was pursuing, we were able to get 3 years rental history for.  Unfortunately, an offer was accepted prior to me making an offer, it really was not on the market long.  

@Andrew Cushman  Thank you!!! That makes sense and is the info I was looking for.  The term Schedule of Real Estate Owned is what I needed.  I didn't think it was difficult, just wasn't sure what I needed or what it was called.  I tried to google it in generic terms, but wasn't quite finding it.  I figure at this time, it is at least two years out before I will qualify (financially and experience) for a commercial deal.  Our current plan would be to acquire storage units, however that could change to larger multi-family homes.  Either way, I like to have a plan in place and everything documented ahead of time.  

@Stephen Lofthus  Thank you for the reply as well. I am working on building up my portfolio as well.  Really I am not doing too bad for having no experience when I started.  We have learned a decent amount along the way and I am getting more and more comfortable with things.