All Forum Posts by: Matt Morgan

If you use a hard money lender, more than like you're still going to have to come up with a percentage of the purchase price PLUS the rehab funds. Typically you'll see hard money lenders loan 75% or so of the purchase price and you bring the rest. So in that case, you'd need even more than the 50k. Private money would be optimal but it may be a little difficult to wrangle up that amount of capital on short notice. 

If the numbers are accurate, you could always wholesale the deal to an experienced flipper and shadow him to gain some experience and capital at the same time.

 I don't think it's accurate to account for your return on equity considering it's not easily realized as capital. Either you access it through a home equity loan and pay interest on it (thus reducing your return) or you sell the home and lose a percentage to closing costs and fees. Either way, I don't think that equity should be factored in until you've built up a large percentage over your initial investment. This could be several years down the road.

If you're evaluating your expenses properly, property management should be included in that number and thus be subtracted from your total profit and return on investment. Also, when investing in areas with higher turnover and lower quality tenants, these things are compensated for with higher reserve costs and vacancy numbers. Everything should be accounted for in the numbers and will ultimately be reflected in your ROI. I don't believe there is any more risk or hassle in a lower class property versus a higher class property so long as you aren't managing the properties yourself. (which isn't investing, it's working)

I see properties with 20-30% ROI all the time that require no more hassle or risk than properties with 10% ROI because increased vacancy rates and repair expenses have already been factored into expenses, and thus ROI.

Appreciation may be greater in the class A properties but thats mostly speculative anyway.

You should be able to find the majority of the expenses without having to put it under contract. Taxes are typically available through the MLS, insurance can be found by calling an agent and getting a quote, maintenance/capex will typically be 15-20% of rents, and utilities can be found by touching base with local property managers and asking what they're seeing on their units.

Also, you can back out of a contract during the initial inspection period for any reason you deem appropriate and still be refunded your earnest money. That being said, you can skip all the above steps, apply the 50% rule (which is fairly accurate) and find that this deal is going to fall short of just about every return metric.

The only reason to buy this building would be because of future appreciation, which is purely speculative and probably not a wise idea.

Good luck!

Congratulations on such a successful deal. I have a few questions about the details if you wouldn't mind sharing: First, am I reading correctly that it was a cul-de-sac of 8 separate duplexes? Meaning 16 units total? 

Also, the cap rates you're quoting seem much higher than what I'm calculating, but that could be because I'm misunderstanding the amount of units involved...how did you arrive at those numbers? 

Why was it necessary to find an all cash buyer vs a buyer using financing? Was this because you had an expiring contract? Would it have been possible extend the contract to purchase out even further to expand your pool of qualified buyers? What protection did you have against putting your money into rehab before taking ownership of the property? What if you couldn't find a buyer?

You say that you were offered to property manage at 12% of monthly rents - this seems like a higher than typical number especially considering the amount of units. Is there any reason for this? And how were these fees more lucrative than the $1200 in monthly rent yoy would have been receiving had you taken control of the property? (I calculate $1120 in fees based on $700/unit/month)

Sorry if I misunderstood any part of your post, just trying to get clarification. Congratulations again.

I'm sure there are banks willing to do higher LTV's than 65%, and with much shorter seasoning requirements than a year. I think the biggest hurdle when doing these cash out refi's is finding solid supporting comps, since these low priced homes are typically in areas with lots of foreclosures and bank owned properties, which skew the values of retail/rehabbed properties.

Congratulations man! Care to share any more numbers with us? Specifically, how much are you paying for your private money, or have you financed into a mortgage at this point? Also, what is the home being rented for?

Some areas of the country are going to be much more conducive to rental properties that cash flow well. I don't know anything about Florida real estate, but if I had to guess, I'd say you're going to need to look elsewhere if cashflow is your main concern.

BTW, I think you meant 2,600 as the monthly rent, not the annual.

Looks like a very nice deal, great job!

As far as getting your money back out, I'm sure there are credit unions in your area that allow cash out refinancing after 6 months seasoning, and potentially some that will do it immediately. Call around to as many credit unions as you can and explore your options.

You could also look at the delayed financing rule which would allow you to immediately cash out refinance up to the full amount of the purchase price. This would leave you with about 25% equity.

Good luck!

Yes, and more than likely it's going to be a local bank or credit union that offers that kind of product. Search local banks/credit unions and start calling around to gather information. You could try making an excel spreadsheet to sort through everything.