All Forum Posts by: Nathan Grabau

There are lots of people who make money in products that the demand is decreasing for. It was in the last 10 years that the last telegram was sent. It is shocking that someone was still monetizing that service. 

I personally avoid investing in areas that have negative population changes, because I believe they will not appreciate as well as those areas with growing populations. That being said, there is money to be made in any market, and typically prices and cashflow reflect population changes. Colorado where I live and invest, has lower cash on cash numbers, than Story County, Iowa, where I also invest, which also has lower cash on cash returns than Flint, Michigan where I do not invest. You have a rapidly growing population in Colorado, a stagnant/ slowly growing population in Story County, and a rapidly falling population in Flint. 

In order to invest in an area with declining population, you need to make sure you are being rewarded with better CoC returns than you would get in an area with a growing population.

I would bite the bullet and do the expensive one. Ultimately you are going to pay the price at resale, or when trying to rent the units for doing the cheaper fix. Could just keep cleaning it out too. 

This seems like a flip candidate, not a brrrr candidate. There is no value in having doors if they are not making you money somehow. 

If I were in your shoes I would do number 1, assuming you can get it to cashflow when you move out. In most situation you can only have 1 FHA loan, so if you can get to 5% down, you can save your FHA loan for future use, or you just need to be aware that you will need to put 5% down on your next primary. I would also try to find a house you could have a set or two of roommates in to offset your expenses.

If you are looking for a market where you can cashflow with 50k down, I am invested in the Ames, Iowa area. I bought a 6plex for 275k, triplex for 190k, and a duplex for 150k. All three of them cash flow even after property management. I am happy to get you in touch with the Realtor and property manager I used, who is also an investor if you are interested in that market. 

You could also combine 1 and 3, putting 15k down on a 400k ish FHA property, and then 35k down on a cash flowing mf property out of state.

I would go into local banks in your area, ideally ones with less than 5 branches. As to talk with someone about real estate lending, chit chat with questions like "do you guys have an specific types of properties you want to lend on?". Then ask about their interest in lending on short term rentals/ airbnbs. They will likely need 20-25% down, but should not require 2 years of income. It might take a few to find one that is willing to work with you, but you should be able to find one. 

What are the rental comps in the area? I agree with you that 108k seems too high for the current rent, especially if it needs work. In high cashflow markets, which since this is a sub 200k home this should be, I am looking for 0.8-1.0+% of a property's value to be collected each month in rent. That being said, as the sales price and rent gets smaller, it needs to sit closer to the high side, because some costs like furnaces or hot water heaters are less dependent on the value of the home. 

If you need to put some money into it, with where interest rates are today, my "phase 1" underwriting check at the price point would be "Can I get rents to 1% of the purchase price plus rehab costs?". You have to run real numbers a monthly/ annual basis and do a deeper dive, but this is the back of the envelope math that lets you figure out whether to dig further into this deal, or if maybe you guys are way to far off. 

You can always say to the REI "I am not sure if you are going to like my number, do you want me to tell you it anyway?" This balances your desire to be respectful, but also gives you a shot at getting the property still, at the right price.

Are you asking for lower grade or higher grade finishes? I can get cheap, no fixture moving bathrooms done for under 5k. That being said, you have walls you are probably moving and are moving plumbing fixtures too. If you have to open the other bathroom from down stair's walls too that adds more cost there. 20 to 30 does not seem crazy to me for this, but pushing north of 50 seems like highway robbery. If you are in Tulsa, I doubt this is worth it. Jack and Jills are often actually seen as desirable too, one less shower/ toilet to clean for people. If you were planning on renovating this bathroom anyway, that is maybe where going from a Jack and Jill to 2 smaller bathrooms might be worth it. 

Also, if you have a bathroom downstairs, and its the same unit, going from 2 bathrooms to 3 bathrooms is not as big of a jump as going from 1 jack and jill to 2 independent bathrooms. 

I would increase maintenance and capex, especially for a cap 9 property, probably want to bring vacancy to 8-10%. Also, if this is investment property, 6.3% is probably really low for a 30 year fixed. I have not checked conventional investment rates recently, but for a conforming loan, they tend to be 30 year fixed primary +1 at least, which is around 6.3%, which would make your rate 7.3%+. I know people who are getting quoted 8-10% interest rates from some DSCR lenders.

I know they exist, but I would be pretty careful about buying a 200k property that brings in 2500 a month. There is probably a lot more to this story and it's not going to be fun. Someone is willing to sell this, in a down market, when it spins off this much cash. That is a bad sign. Where are you getting the 2500 a month number for rent? 

You can do a cash out refi or open a heloc on your home. It should not be too hard to get up to 75% of the value of your home back out of it. 

Generally for BRRRRs, people say to take the heloc route, because then you are only paying interest when you are using the money. That being said, I would personally encourage a cash out refi, because you are going to probably get a little bit better of a rate and more importantly, because then you have the cash. Banks are allowed to close helocs essentially whenever they want. It would suck to need the money, attempt a draw, and then be notified that your heloc has been closed to new withdraws. 

Good luck! Being able to leverage your homes equity puts you in an excellent position to take advantage of this slower market! 

In this market your return needs to be high, like over 25%. I would also make sure that you have the financial capacity to pay off or service the first lien on the property. If someone needs gap funding, its likely because the numbers are getting too tight for their hard money lender to extend them time or increase their line, so you want to make sure that you can cover the primary loan on the property so if the first lien holder has to foreclose, and sells the property for just their loan amount, you do not lose your money.