All Forum Posts by: Matthew Drouin

@Jenny Zhang

I am an active operator that raises capital from passive investors but I also passively invest in others deals to diversify.

To be honest I enjoy my passive investments more lol

But i think a good blend between fund and doing it yourself would be to JV with someone on a larger deal where you have an active part.

Or become a CO-General Partner on someone else’s deal where you play a part in the deal which could include the underwriting.

Incidentally, what types of deals have you done thus far in your real estate investing?

@Lewis Sampson

Just curious, Why Upper Falls?

It does have one of the highest delinquency and eviction rates in the city, that’s why I’m asking!

@Daniel Bryant

@Jared W Smith hit the nail on the head. You are thinking about this the wrong way. I’ve been there before “how much are they sweating to earn this?”

I have an architect who does the same for me. Their early predevelopment work is a loss leader for them because they know the project might not get approved and don’t want you to hesitate engaging with them when you are “rolling the dice”

Also, in regard to the auto mechanic analogy, you are paying for their results regardless of how much they are working on it.

Leveraging someone else’s experience is the greatest most powerful form of leverage in real estate or any other business for that matter.

The only part of the scope you might be able to negotiate is on the construction documents and MEPs. You could do a design build project with your sub contractors but I’ve often times shot myself in the foot and dealt with many design fails when doing it this way, especially on HVAC!

@Michele Bronner who is currently in your sphere that could help you with this?

I’m assuming you are going to say no one because you are posting here.

But I had to ask.

When you are starting out, you don’t know what you don’t know.

The most common mistake that I see newbie investors make is that it’s easy to think everything is a deal and everything has “so much potential”.

It’s exciting!

You can add a lot of value to another investor who has the experience that you need to help you figure out what’s what.

How do you find this experienced investor?

Check out your local meetup or REIA or local REI Facebook page. Contact the organizer or someone who is really involved and tell them your exact situation:

You are a newbie that wants to help a successful real estate investor find deals. Who do they know who is active in that space (whatever you want your focus to be)

Meet them one on one, tell them you want to help find them deals. You would be surprised that deal flow is one of the biggest problems in investors growing their portfolio and they are probably inconsistent on prospecting.

Ask them exactly what they are looking for. And EXACTLY what types of deals they like. What is their test of value, specifically? Maybe visit one of their active projects.

Don’t even talk about money or what you will earn in lieu of you bringing them great deals. Unless they offer it. I have newbie investors come to me all the time trying to negotiate how they’ll get paid for finding me a deal before they even have something on the line.

Getting paid is not the objective.

Learning and building a relationship is the objective… way more valuable.

@Anthony Angotti

Totally understandable, but what does $150k buy you in that market?

@Kevin Howard $200 a square foot?  Well, you are already ahead of the game!  We are running $250 to $300 a sqft in our market currently so therefore there is not much being built because the market can't support it without PILOTs (property tax breaks)

I've used mini splits on several projects where ducted solutions were not possible.  In regard to what you are going through right now, this is what happens when you do a design build project.  Architect puts plans together for building permit and then your contractor or subs design their leg of the project.  I always run into issues like this when I'm doing design build versus having a engineering firm put together full MEPs (Mechanical, Electrical, Plumbing designs)

Don't expect your contractor to know engineering.  Expect design on the fly.

Some alternative solutions to your room count issue would be ducted mini splits where the air handler box can be installed in an attic or more ideally a small mechanical closet and duct out from there.  If you have a bathroom that separates two bedrooms, you might be able to take some space from a bathroom or linen closet and duct directly into the areas that need conditioning and then use a standard wall mounted mini split in the third bedroom if you have space issues ducting though attic space.

You could also use package units or V-Tacs.  These are still ducted but need to be installed on an outside wall to circulate air in from outside.

If you do use a ducted system, make sure that the air handler is not installed in an attic.  This makes it very difficult to service and do routine filter replacements and cleanings.

The bottom line is this.  You need to think two to three steps in front of your contractor.  Contractors tend to think of what is directly in front of them.

Hope this helps!

@Mashal Choudhry

Don’t feel bad. I didn’t get it at first either!

I think a couple people here explained it quite well.

Essentially, if your property increases in cash flow and it appreciates in value, a bank will give you an even bigger loan on the property. Some times the property can appreciate enough where a new loan can pay off the old loan and be big enough to allow you to “pull cash” out of the property. So you are able to buy more property without having lack of cash being a burden. You can recycle your downpayment money over and over again.

When someone mentioned that BRRRR is getting tougher these days, you asked "well what should I do?"

Here's my suggestion. You don't need to worry about the refinance part of BRRRR until after you've bought a property.

So figure out how to Buy first.

The only rule you need to follow is that the property needs to be in a good location. Not a “meh” location. A good location where people with good incomes, good credit and long term stable employment want to live.

Once you’ve don’t that you’re going to have broken through the first barrier that most people who are just real estate wannabes never do!

@Rich Cadena

Don’t feel bad about not knowing about the newest addition to the real estate alphabet soup!

Truth be told, I've been using "DSCR loans" since I bought my second property back in 2008. These have been the portfolio loans (on balance sheet) lending that is typically offered by community banks. The property usually needs to meet a DSCR covenant of 1.2 or 1.25.

Community banks kept investors growth alive during the financial crisis as all of the non confirming exotic loan products provided by institutional lenders (typically backed by hedge funds) were pulled off the shelf after the collapse.

Now as things have become more normal, non confirming (not fannie freddie) loan products have begun to trickle back into the market place as institutional capital has developed a thirst for yield backed by hard assets like real estate.

These DSCR loans you have heard buzzing about are not agency backed products so therefore there is not the hard and fast rules that you see with conventional. What that means is every DSCR lender is different in their criteria.

The first DSCR borrower of this type (2018) that I knew was an STR investor who over renovated a property using hard money and couldn't find a local bank to help them refi it because they couldn't get the property to appraise at a 80% ltv to give them loan proceeds to take their hard money lender out.

They found a lender that had a product that as long as they could show consistent revenue to meet at least a 1.3 DSCR for 12 months (the seasoning period) that the lender would do the deal regardless of appraisal (even though they required an appraisal to understand their exposure). The borrower needed to have a good credit score. They ended up getting the loan at a premium to appraised value because the revenue was sufficient to meet this particular DSCR requirements.

The fact of the manner is all of these lenders that offer DSCR loans may have different requirements so if you are going to go this route you may need to do research to see who would do your prospective deal.

Perhaps you might not even need to go this route and your deal could qualify for conventional or with a portfolio loan from a community bank or credit union.

Hope this helps!

@Shawn Williams

Growing in this business requires getting outside of your comfort zone. So why not start with this deal? Leverage does not equal risk. It’s just a business expense.

Besides by using some leverage and keeping more cash on your balance sheet, you can have some dry powder and weather a storm if one happens. If you spend the entire $150k and you have little reserves left, that doesn’t leave you much wiggle room.

Leverage is the biggest reason why real estate is attractive as an asset class. And you are throwing that out the window. To be honest, if leverage wasn’t a tool in real estate, I wouldn’t invest. If you aren’t comfortable with it now, then when will you be?

Plus, the median home price in Pitt is $259k according to Redfin. Your budget is almost half that. I always aim to invest in neighborhoods above the median because they usually signal desirable areas where I can get great tenants who take care of their place and pay me on time every time.

@Mels Kumisbekov I would say, be open to both. If you find a townhouse (with a well run HOA) and the numbers work, buy it!

Save your money in the meantime and if find a multi where the numbers work, do that!

Too many newbies get way too paralyzed about which way to go that they never do a deal and then lose interest and live with regret.

I would insert this caveat here. Only do this if you think there is a possibility of growth. If you know this is a “one and done”; your first and last investment property, then I would hesitate.

Every client I have ever sold an investment property to where it was their first and last, ended up calling me (like clockwork) five years later wanting to sell the place. To own just one, the juice isn’t really worth the squeeze. Gotta collect ‘em all lol