All Forum Posts by: Michael Seeker

I purchased one of my first multifamily properties with owner financing. The terms were around 85% LTV, 6% straight line interest, 5 year term, 30 year amortization.

With any loan, the key pieces are going to be LTV, rate, term, amortization. Aside from that, you may want to be aware of anything like prepayment penalties and how quickly the lender (seller) can take action against you for non-payment.

Aside from that, the transaction should be easier than going through a bank because you're not going to see the same type of underwriting that a real lender will use.  You'll also need to balance the financing terms with the purchase price.  If you can get amazing financing terms then you can pay a higher price.  If you get terrible terms, then you better be getting a deal on the purchase price.

This completely depends on your definition of "reasonable area".  That means vastly different things to different people.  By my definition,  the going cap rates for a "reasonable area" in the cities I invest in are in the 6-8% range and these cities generally have higher cap rates than most.  If you post an address of somewhere you would define as "reasonable", you could get a better response as to what you should expect.

Generally anything above 10% is going to be in a rougher area and/or have significant deferred maintenance in the current investing environment.  Compared to around 2010 where you could get properties in great areas at 10-15% cap rates.  The difference is nobody wanted real estate then and everybody wants it now.

@Niyi Adewole - Have you considered making a visit to both cities to see what makes sense for you?   I primarily invest in Louisville, but spent 2 months traveling to several cities I was interested in moving to (with the requirement that I be able to invest there as well).  I ended up landing a city that was not even on the radar because it checked all the boxes for me and for my wife.

Everybody's investing criteria is different, so while input from local investors might be helpful...they are inherently biased.  The best way to tell if an investment area is right for you is to check it out in person and see if it is a fit and has a reasonable inventory of the type of investments you're interested in.

Good luck with the move!

This is the exact opposite of how you should think about things.  If you make a mistake at a young age (example, you lose your whole life savings on a bad deal) you have the rest of your life to make up for it.  If you make that same mistake when you're 65, well then you've really messed things up.  I think the saying is "time heals all wounds".  I've made plenty of mistakes (nothing colossal) and none have derailed my progress.  Most don't even seem significant upon reflection, though they seemed very significant at the time.

Next steps: Keep saving money and limiting your expenses.  Learn as much as you can and determine what kind of investing you'd like to get into.  When you've got enough money saved up to pull the trigger then go for it!

CA rental properties trade in low single digit CAP rates (down to 2-3% or lower in SF area). Louisville or any other midwest city will provide significantly better cash-on-cash returns than most areas on the coasts.

Generally speaking, people invest on the coasts more for appreciation and the middle of the country more for cashflow.  Your CA investors are likely targeting Louisville for the cashflow and/or to diversify from high-appreciation, high-risk investments in their local markets.

The utilities are post-paid, so he would only pay for services that occurred prior to me owning the building and taking over services.  If I take over the building on the 10th in your example, he stops paying utilities on the 10th and I start paying them.  If the total for the month is $30 (which would be determined a month later) then the tenant might owe him $10 and me $20.

After closing, the owner has no recourse against the tenant to pay him the $10 he is owed (because he is transferring me the deposit) so he wants it paid at closing.  I have no idea if I'll be able to get the tenant to pay me the $10 or if he already paid the seller the $10 and therefore the seller is getting paid twice, so I do not want to pre-pay the seller on behalf of the tenant.

It's an odd situation I have not run into before but surely it is common, especially with single metered buildings that have RUBS.  Any insight is appreciated

I'm closing on a property in a few weeks where the landlord pays electric and bills back to the tenants.  Does anybody have experience with this sort of closing and how funds are dispersed?

I'll put utilities in my name on the date of closing, but seller will have roughly 1 month of utilities owed to him at the time of closing.  He does not want to close without getting that cash and I do not want to pay him up front and then have to collect it from tenants afterwards.

Any suggestions?

There should be a section of the appraisal that shows your property next to 3 comps and it will add or subtract value from each comp sales price based on characteristics that differ from your property.  That exercise might yield a value higher than $318K based on the $395K property, but there should be at least 2 other comps included which could pull the value down.

The reality is that appraisers will compare properties based on how they look on paper (s/f, unit count, beds, baths, stories, parking, etc).  In my experience, "comps" could be a wide range of quality and may not provide any sort of reasonable value comparison for the subject property.   Unfortunately, the appraiser has to come up with a value based on whatever information they can find at the time of the appraisal.

Have one done again in 6 days or 6 months and you're likely to get a different value.  That's just the nature of the business.

To add to the complexity, there are any number of unidentifiable factors that could affect an appraisers value.  If the lender ordering the appraisal has direct contact, they may say "I'm looking for about $X"  or "I think this property is more/less valuable than most in the area".  This information will never show up in a report, but could move the needle on the final number the appraiser comes to.

Your best bet is to go through the report with a fine tooth comb and figure out whether or not the appraiser came to a legitimate conclusion based on the information available.  If you have concrete evidence to the contrary or they made a blatant mistake, then you probably have grounds to challenge their opinion.  Otherwise, their opinion is just that...they aren't a buyer (usually) and do not look at property the same way a buyer/seller does.

@David Moore - The appraisal report should have a very detailed breakout of the buildup to the valuation.  Since you are referring to 4-plexes, this would be a residential appraisal (not commercial) and the valuation will generally be based off of comparable sales approach (not income approach).  

The appraiser should be comparing square footage, unit count, unit mix etc, but the valuation based on income will only be used to validate the comparable sales approach (or not at all).

Did you read the entire report to determine how the appraiser came to $318K?  It would be helpful to know what the comp/income valuations are and how they differ.  It sounds like you want it valued with income approach, but that just isn't how 1-4 unit buildings are appraised.

@Upen Patel