All Forum Posts by: Nathan Grabau

When I am looking at markets, I look at the change in population over the last few decades, this is typically on Wikipedia under the demographics tab for a given city. Columbus's has not had a negative population decrease over a decade period ever, which is very uncommon for Midwest markets/ Ohio in general. (Cleveland, Cincinnati, and Akron are littered with negative population growth) 

With regards to your fear about the volume of rentals in the Columbus area, I would consider it as a percent of population verses a raw number. When I look it up on Zillow, 1,000 rental units available in an area with a population of 900,000 ish people is not very many. With the days on market of some of them, these are just most likely poorly managed, over priced, incorrect, or in a bad area. I would use how fast you have been able to rent your other 2 rentals more so to judge the market than specific rentals that have long days on market. 

Yes this is possible. If you find a bank that will carry the loan based on the income of the property, you can normally get this on 80% of the value of the property. Then you can get an owner carry on whatever the owner feels comfortable with carrying back. Typically this is up to 90-95% of the value for all debts on the property(bank carries 80%, owner carries 15%). Most owners will not owner finance a property to 100% of its value, because then you have no skin in the game. The way liens work is they are assigned a priority, most often by the date that they are added to the property. 

Here is an example of how this commonly looks

You put 5% down, or $27,5000

The commercial bank loans you 80% or $440,000 at the first lien

The owner carries back 15% or $82,500 as the second lien

You can modify the numbers here, so long as the bank and owner approve of it. 

The main issue you would run into here, is the bank will want to be the first lien position. If the owner wants to be the first lien, that will be hard to overcome. Especially if the owner is expecting you put $400,000, because their remaining $150,000 they are loaning you is much safer than if you only put 5% down. 

I would also be careful getting this leveraged depending on the cashflow of a property. This might be a requirement of the bank too, that you be able to service the bank loan and the owner carry back at a specific DSCR ratio. There are deals that I do, where I meet my banks DSCR requirement (1.25) with 20% down, but I could not meet the banks DSCR requirement if there was even a 5% owner carry. This might be frustrating, but the safer the bank makes the deal for them, the less risk there is for you in the deal as well.

So sweat equity is transferable if it does not need to be "maintained". If I paint a wall, it's painted, and a future owner does not need to keep repainting it to keep it that color. The sweat equity in a rent by the room situation is less about placing the tenants and more about maintaining the peace. 

I would not let the resale effect scare you here though. You still get make your money in higher gross rents and cash returns from the work you put in every month! 

1994 was the last time rates went up as fast as they have in the last 3 month, while there are many other factors, below is the chart of what housing prices did for the 10 years after that. It is most likely a mistake to wait for a crash, because until we fix our supply problem, it will be very hard for prices to go down. 

The way I would think about renting by the room, is it is a way to add more of your time into a project to increase your cashflow. If you have time to manage it, you are increasing the amount of money you will make, but your time is what is increase the cash returns. When you go to sell the property, you are not going to continue to add your time after it is sold, so that "value add" is not transferable and will not impact the sale price. 

If you take this a step further, the property being rented by room then requires that future investor to put more of their time into the deal. Typically, real estate investors are trying to minimize the time they have to put into the deal, which would make it less desirable. If the future owner wanted to covert it back to a whole unit rental, they would have to wait for the leases to expire, and most likely that will be at different times. I would argue that because of this, a property rented by the room will most likely actually have a reduced value when it goes to be sold. 

Hi John! Congratulations on finding this deal! On first pass this looks like it should be a good deal! My top recommendation would be to make sure you keep an emergency fund from day 1 to handle larger expenses if you think it is going to need a refresh. There have been a few podcasts recently about vetting multi family deals, here are links to them. 

https://www.biggerpockets.com/...

https://www.biggerpockets.com/...

These should be really helpful to transition from the spreadsheet analysis to your underwriting process. 

Low down payment FHA loans cannot be used for anything but a primary residence. How does the 1% interest rate increase compare to removing PMI? Quorum Credit Union currently has a 90% LTV Heloc that offers an interest only prime plus .99%. Currently that makes the rate 4.49%.(10 year interest only then 20 year amortization) It also allows you to pull up to 90% of your property value vs 80% on a cash out refi and has much lower closing costs than a refi. If you send me a DM I can share with you the application link. Before you apply it is pretty hard to get a hold of anyone that knows anything, but after you apply you get assigned a real person who has been very responsive to me. I am closing on my second HELOC with them on Saturday so I can personally vouch for them.

What you see on a property analysis can vary greatly based off of the market you are in. Some markets show very strong cash flow because they have appreciated less, and therefore are probably less likely to appreciate in the future. The reverse can be true as well, that some properties show weak cashflow because they have had above average appreciation. This is something that gets brought up in most of the Sunday "Seeing Greene" podcast episodes so that could be a great place to start. 

For me, there have been two things in "too good to be true" situations that I can easily miss on my first review. The first is underestimating maintenance costs. If you find a house for under 100k, it is probably likely that you will find things like old HVAC systems, hot water heaters, or roofs. If one of these go out, it takes a big bite out of your cashflow. The other area that is talked about less, but is in house conversions where the utilities are not split between units. In the central Iowa market where I am investing, a duplex that has split utilities vs does not, can be the difference between a property cash flowing a couple hundred dollars a month to losing a couple hundred dollars a month. 

I would encourage you to take action though. When I bought my first house in Longmont, Colorado in 2017, it was right at the end of an aggressive spring appreciation season. It felt like I overpaid for the house and I was worried about it. Fast forward 5 years, and my $22,000 down payment has now generated 300k worth of equity that has allowed me to refinance to a lower monthly payment (thanks to a lower rate and no PMI) and pull enough money out to buy a triplex, duplex, six-plex, my fiancé a new wrangler, and now potentially a BRRRR triplex and six-plex.

The cost of inaction in real estate is very often greater than the cost of action. 

Is there actually a problem for you with him being their for longer than 10 days? There are a lot of things that sometimes we do or enforce because "those are the rules" but now we get to be the ones who make the rules. If you evict them, they can damage the property, or you if you live next door, and will just cause you headaches. I would ask if the risk of him having extended stays there creates a problem for you that is worth the pain of an eviction. 

This is true if you bought it in your personal name. But if you buy it in an LLC, the LLC is the entity that services the debt, not you(personally).