All Forum Posts by: Milind Shastri

Originally posted by @Thomas S.:

As a first time investor you are probably way, way over your head on this deal.

First if you intend to improve the properties you will most likely need to get rid of all existing tenants, probably a must to rehab anyway. Second if you are not experienced with C-D class properties you must have a highly qualified PM to manage the property or upgrading will be a waste of your time.

Do not expect to flip and make a profit, no experienced investor will buy into a unproven appreciation of 300K.

Your ARV will be driven by the value of the neighbourhood not your improvements. You may not achieve any ARV improvement unless the entire neighbourhood turns around. Being the first to go is very high risk.

Bottom line is it is a far better investment to buy and leave it exactly as it is with the present rent to value then to spend a dime to improve it. It already makes a good return, put on a Band-Aid and reap the rewards. 

 Thanks Thomas. I am considering your band aid suggestion.

(Also I reviewed the listing further and the seller calculated the ARV based on a 9% cap rate in the area w a ~$60k NOI which leads to $540k valuation. Something is off here but I'll let it go for the moment. With current NOI of $40k & 9% cap the property still evaluates to $360k. Looking good but I need to verify all of this.)

Hello everyone!

I'm looking at a 10 unit row of apartments in Baytown, TX which I drove through. I am currently building my mental model of understanding the investment property well so that I can close the deal if it does seem like an opportunity. Here are my observations based on the listing and drive-through:

• Selling price is 300k+ and estimated ARV is 600k+ as per seller (rapid equity building opportunity)
• current NOI is ~40k. After repair NOI ~60k. (great cash flow!)
• rehab costs are not known (but perhaps much 100-150k; I have not invested or fixed yet so this is a total guesstimate)
• The neighborhood looked quite beat-up and about 10% houses in a quarter mile radius have broken walls, plywood patched windows, and/or rusted cars parked. Again 10-20% are well kept (the kind that has well-kept gardens and potted plants outside).
• It's the corner row of houses next to a railroad (fixing the properties will make the road much more livable and appear safer)
• trees/bushes/grass is overgrown; seems like a cheap fix
• current tenants have kept the property quite bad: trash outside, broken windows and from the looks of it, perhaps, trashed the place inside too. Looks like a drug friendly block.
• it looked like a 4plex+3plex+3plex
• I live 5 hours away from the property

I am going to find a hard money lender to purchase and rehab; the seller is also providing hard money financing for the purchase and rehab.

I am looking for advice on how I can successfully proceed in this investment journey and things l will need to look out for as a first-time investor. I am sure I have missed out information here and will be more than happy to provide it!

Cheers and thanks!

Milind

Originally posted by @Russell Brazil:

Originally posted by @Milind Shastri:

@Upen Patel and @Jay Hinrichs Thanks for clarifying. I didn't realize FHA changes the game significantly for the agent and for the seller.

Is that because as a seller, one is safeguarding them self against complications, such as foreclosures, and a low downpayment paying buyer (like me using an FHA) appears as a risky repayer?

Some great points here by Jay and Upen about how an FHA/VA loan puts you at a disadvantage particularly in a hot market.

Your agent though should be helping you structure your offers to compensate for that disadvantage. I find that in my market, which is the same market as Upen actually, and we've actually been part of these transactions together him as the lender and me as the agent, that an FHA/VA offer will need to be $5-$10k above an other offer to win the bid.

Now I don't want to say never lowball per se...because I think it's important to be able to determine the value of a property completely independent of the list price. I've gotten properties $100k less than list, and I've paid $250k above list.  This is also where we get a bit into the idea of pricing strategy, and that strategy will vary by property, neighborhood, market and agent. Some properties might be purposefully overpriced in slower parts of the market so that they work their way down in price. Others might be way underpriced in fast moving parts of a market to bring in 20 competing offers. 

One of the reasons you hire an agent though is to price the properties. They do that day in and day out. They should have an idea if it's going over or under asking and by what amount, how many competing offers there will be and their likely terms.

If I know an offer is going to be a waste of time, I'll just talk with the listing agent before making it to save myself the time of writing up the offer.

The advice from individuals telling you things like the agent works for you, they do what you say is just bad advice frankly. I don't know the quality of your agent....but if you said that to a quality agent they would fire you as a client most likely and not accept offers from you in the future. If you want to do well in this business it's important to learn to respect all the professions in this business. Agents, attorneys, inspectors, wholesalers, lenders, etc Having good relationships will carry you 100 times further than being confrontational at every turn. Now that doesn't mean you do business with people who are bad at their profession, but it's always better to have friends than enemies, and so at least pretend you respect them because at some point you will have to do a deal with someone you don't like.

Thanks for the advice Russell. 

I also completely agree with you about the business attitude which building relations with professionals in the industry.

Originally posted by @Bart H.:

Originally posted by @Milind Shastri:

Hey Everyone,

My wife and I have been looking for our first investment multi-plex for the past 4 months in the DFW area now and we've made several offers too till now. However our agent seems reluctant when we come up with low ball offers like $300k for a $335 listed price and says it will never get accepted. Most multi-unit sellers require an offer to even walk through the property and we dont want to offer too much early on.

We would still like to submit more offers, say 1-2 a week atleast and were wondering if that means were are pushing our our real estate agent or not. Any ideas on how many low offers would be too many.

Thanks.

A Couple of things. 

1) In Texas its customary to get an option period after a deal has been signed.  That option period is usually 10 days but can be negotiated longer or shorter, the option usually runs $100. 

2) its not uncommon for multi unit owners to not allow any showings until the property is under contract in Texas.  Most owners will let you see the property first, but a fair number wont. Especially if they are agents marketing to other investors.

3) IF you are selling via FHA financing, its going to be nearly impossible to get a low ball offer accepted in this market. FHA financing can be a headache and runs a much higher rick of not closing. On a a/b/c level property, you wont get a massive discount AND be able to buy using FHA. The sellers for the most part will be investors, and they wont give you a lowball discount for anything short of cash. Honestly most of the $300K range multi family properties I know of are going at or above list, and they are selling really quickly unless they have major issues with foundations etc. And those as I understand wont be eligible for FHA financing.

4) you may want to find an investor centric agent who can help you do the first filter for properties in the area.

Best of luck to you, send me a shout if you have questions about the Dallas proper multi families, I am familiar with most of those neighborhoods.

Bart, thank you very much for the insights, particularly for the Texas market. We have done our learning mainly through the BP books, podcasts and a few other BP recommended books. However, clearly, a lot of the nuanced detail get missed out while applying theory to real deals. 

We appreciate the insights everyone has provided! Sending you a PM shortly. 

@Jay Hinrichs aaaha...that makes a lot more sense! now when I retrospect on the pressure to offer prices close to list price.

@Upen Patel and @Jay Hinrichs Thanks for clarifying. I didn't realize FHA changes the game significantly for the agent and for the seller.

Is that because as a seller, one is safeguarding them self against complications, such as foreclosures, and a low downpayment paying buyer (like me using an FHA) appears as a risky repayer?

Wow some fantastic insights here! I am wondering why I have not been more involved in these forums in the past

@Andrew Johnson I didn't know I could ask for a T12. That would be extremely useful. Thanks.

 @Upen Patel I am planning a 3.5% to 5% downpayment FHA loan as a first-time home buyer.

I am not asking my agent for any commission discount as recommended by some people I know. 

@Bob Collett : Thanks for your insights on the attitude. Point appreciated and well taken. Though I must clarify I am not concluding that my agent is lazy. But I do feel that he is pressuring me to close, which is quite understandable.

"By the way, where did you get the idea that you are expected to write an offer first, and only later see the property?"- My agent's secretary who is answering my immediate questions told me this. I was interested in 2 4plex units and she said that the seller needs me to make an offer before showing the property. I don't quite understand how a buyer can even cook up any offer without walking through the property.

@Jordan Sunshine  Aha...I enjoyed reading your post! Being a new investor I sometimes am unclear about the relationship between a buyer and the agent and end up giving away control under the pretext of a benefit of the doubt. Your response clarifies the boundary of the relationship a lot. Thank you!

@Joel Owens  "The broker/agent needs to find the WHY behind the buyer always offering below list price all the time." My why's are my own cash flow analysis and my own break-even point for a 15% CoCROI with a 5% downpayment and some safety margins. I know that is possible as I have seen such numbers for a few properties that were a bit too far from work. Will be conveying this to my agent. 

Hey Everyone, My wife and I have been looking for our first investment multi-plex for the past 4 months in the DFW area now and we've made several offers too till now. However our agent seems reluctant when we come up with low ball offers like $300k for a $335 listed price and says it will never get accepted. Most multi-unit sellers require an offer to even walk through the property and we dont want to offer too much early on. We would still like to submit more offers, say 1-2 a week atleast and were wondering if that means were are pushing our our real estate agent or not. Any ideas on how many low offers would be too many. Thanks.

That's great Kyle, congratulations on the success. The Cash on Cash ROI is fantastic!

I've been looking at investing in similar properties in the Dallas, TX area, it is going to be my first one. I was wondering as to how much time effort per week did it take to get this done. 

Cheers 

Thanks @Shital Thakkar and @John Broussard . 

I've been here for over 2 years and moved from Washington DC. 

Is there any search engine I can use to search for multi-family homes? Zillow and Redfin don't do a good job with looking for MFs.