All Forum Posts by: Matt A.

Do you have a HELOC or some other line of credit you could tap into?

If you don't have access to some sort of line of credit then I'm a fan of keeping things simple.  If the deal makes sense with hard money then just do it with hard money. Yes you will pay higher rates and probably points, but you'll be able to do the deal and potentially make something vs. not doing anything.  Plus a hard money lender usually helps validate if this is a good deal or not, it's always nice to get some validation you're making a good business decision.

Maybe back up a step - what is your goal on this property?  Your original question was "What am I missing to make this a good deal" - what defines a good deal to you and your investing strategy?  Is Cash on Cash your main metric or is it cashflow or something altogether different?

Cash on cash return is just one number of lots of metrics you can use to judge good or not good on a given deal.  

I'll throw out 3 fairly easy and FREE options

Option 1:  Directionally you can use Zillow, Redfin, etc.  to see what things are selling for and how long they've been listed and how much inventory is in a given area.

Option 2:  Find a real estate agent in your market that can provide all that info to you in a nicely formatted report.

Option 3: This is what I do although it is much more manual but it forces me to become very very familiar with the data vs. having it provided to me by someone else.

I have 4 MLS searches set up in my area, through my realtor, for each property type I buy (SF, Townhome, MF, etc). Once a week I export the data into excel and update all my pivot tables & charts. Do that for a few months and you'll have a really good feel for your area!!

@Jordan Moorhead Congrats!!!  Awesome to see how quickly you've scaled the business.

You are correct on what you've listed out for commercial loans.  Terms are usually shorter, rates are usually a bit higher, and down payment is usually higher.  

However, I think you are overthinking this a bit. Unless you are buying in an LLC, you shouldn't have to move away from standard Freddie/Fannie mortgages until you have more than 10 in your name. Do you have a good mortgage broker in your area? I would reach out to them and see what types of financing they would provide you. Assuming you have good income/debt and good credit, you should be able to get another mortgage.

Short answer - if it were me I would self manage and I would have tenants cover utilities.  Longer answer below :)

• I'm glad you have vacancy in there, although 3% may be a tad too low depending on your market.  I usually run an 8% assumption on vacancy.
• Capex and Repairs at 7% are probably ok, although if you are putting $35k into repairs upfront you may have lower Capex and repairs on the unit for the first 5+ years.
• Do you have to have property management?  That alone makes you profitable after the refi.
  
  • If you keep property management you should see if you can negotiate down to something like 5-8% of rent.  In my market I usually see something like 10% of rent, max of $120/month.
• Electricity, Garbage, Water & Sewage are combined to 28% of your expenses.  That's a huge number in this P&L.
  • Can you have the tenants cover the utilities?  In my market, 95% of the time the tenants responsibility for these expenses.  If you can have them cover that then this is a great deal.

I'm sure you can find documents online to use.. but I would strongly recommend you find an attorney to help you draft something specific for MN.  I have a guy that I use that specializes in Real Estate law in MN.  Send me a private message if you want his contact info.

Have you had a conversation with your family member on their expectations of getting into the deal with you?  Or on your expectations?  

Just to keep things simple - I usually split the income after all expenses from the property based on the % that each person put into the deal.  If you are doing all the work on the deal you certainly could split the income more like 60% or 70% to you 40% or 30% to them or some other version of that.  Not to make it sound too simple but it just depends on what both of you want to do and get out of the deal.

Whatever you end up doing make sure you have a contract with them and that EVERYTHING is in writing and signed!

Check out the podcast from a few weeks back.  They answer what's changed in the new tax laws and if the book is still relevant :)  I'd look for their (Amanda & Brandon's) other podcasts too and see if those can give you answers to some of your questions.  Or ask any of the CPAs on here that I'm sure can help answer questions too!

https://www.biggerpockets.com/renewsblog/biggerpockets-podcast-269-how-the-new-tax-code-affects-your-real-estate-investments-with-amanda-han-and-brandon-hall/

Congrats, and I love the write up!

Are you going to Househack another one in Minneapolis?