All Forum Posts by: Michael Seeker

We've used sellers for both primary and secondary financing and have had great experiences with this.  The underwriting is very lax or non-existent.  We set up automatic payments and then never hear from them again until we're ready to pay off their loan.

Most sellers are not knowledgeable about or comfortable with doing financing, but if they offer or we're stuck on the numbers on a deal we like to explore it as an option.

@Ben Gordon - This is not a new issue, nor is it specific to your area.  We have always taken the approach of finishing out properties at the top end of the two markets we're in.  We've been able to attract strong tenants at high rents that support the improvements made, BUT there aren't any comps for what we do for two reasons:

1. Very few people improve rental properties above the market
2. Those that do make the effort to go above and beyond very rarely sell

What has ended up happening is we've had to argue on appraisals during refinancing and also keeping more cash in the deals than initially planned.  We've got one in the works that the appraisal was so low I went back to the bank and they had the appraiser redo the appraisal based on my comments.  He made some updates but did not change the price, so now their chief credit officer is stepping in and basically telling him he needs to account for value that he missed.  It's very annoying and unfortunate, but we're okay leaving more equity in the deal if that's where things land.

This has resulted in slower growth for us than we'd like, but also much better cashflow.  We've also skipped the refi on a couple deals because the effort was not worth the amount we'd be able to get out.

It's also worth considering the macro picture, lending is relatively loose right now and appraisers are fairly reasonable.  If we see an economic downturn of any sort, both will tighten up and the scenario's we're seeing will only get worse.  As long as you have a plan A, B, and C you'll be fine.  If the only way you can work the deals is with a strong appraisal and cashout refi, then you'll eventually get put in a bind.

@Rob Bergeron - also worth noting is that while sales are down, prices are up 5% YoY and properties at lower/avg price points are moving quickly.  While total number of sales are down, it appears to be an issue with supply and not demand!

Interesting that they're calling it The West when it's about as far east as you can get!

@Mike Lattier - that is nonsense.  Overall, the RE market is hot so good deals are harder to come by.  We operate in the small multi space and have continued to find deals that meet the same criteria we used 3-5 years ago.  They are fewer and farther between, but they still exist if you're patient and know what you're looking for.

I suspect returns in the SFR space are getting crunched due to being in a sellers market (higher sales prices = lower returns for investors) along with the added demand from investors who are buying SFR's to use as short-term rentals.

The vacation rental model is sexy on the surface, but most people ignore the fact (or simply don't understand/know) that these are very cyclical.  Everybody thinks AirBnB's will always make more than a comparable long-term rental, but that completely discounts the cyclicality of that business model, not to mention glossing over the much higher operational costs and efforts.

Times are certainly interesting, but to say that SFR's and small multis are not viable is a very broad and incorrect statement.

@Jim Goebel - I'd say it's too late to push back on rates at this time...but do you even know what your rate is?  That's not clear from your post.

Typically a lender will quote you an exact rate (not a range) and they will lock that rate in.  If rates go up or down, you still get the rate that was quoted.

Additionally, commercial lenders do not move their rates as frequently and many I've worked with are tied to prime.  As you pointed out, though the 30-year rate has trickled down a touch, the prime rate has held steady at 5.5%.  I don't see anything that would indicate you should hope for or expect a better rate than what you were already quoted/expecting.

Hey Terrez, I've noticed that marketing is very aggressive in Louisville and there are a lot of agents and wholesalers trying to drum up deals.  I own comparable properties in another mid-major market and do not receive hardly any direct marketing on them while I get several pieces each month from various people for my properties in Louisville.  Unfortunately I don't have any tips for you, but thought I'd add some insight from an owner's perspective as to why you may be having trouble getting responses/leads.  As an owner, if I were inclined to respond to some form direct contact then I'd have a lot of options to choose from, including several real estate agents who are likely promising much higher prices to sellers than you could as a wholesaler.

Why not meet at one of the bars/restaurants in Old Louisville?

This is definitely not true - I'm curious what leads you to make this statement?  What are the rents you are projecting when completed? 

One problem you will run into if doing a $70K cosmetic renovation on a 5-plex in Old Louisville is that tenants who are attracted to the area and are willing to pay top dollar want the following:
-Original historic charm (No covering up original wood floors, trim, etc)
-Central heat and air (their own system, not shared)
-Newer electric
-Laundry and off-street parking

If this happens to be the 5-plex on Ormsby, you may want to do some more digging on whether it is actually a 5-plex and if the basement unit can be legally used as an apartment or not. PVA has it listed as a boarding house. We renovated a property like this several years ago and were forced to turn it back into a SFR due to zoning restrictions.

From experience renovating several of these properties, I can tell you that $70K will not go very far on something like this if you're expecting to be at the very top end of the market when finished.

Happy to provide additional feedback and/or answer questions if you have any!

That's putting it delicately!  Fortunately it's much better today than it was 10 years ago so we're moving in the right direction.