All Forum Posts by: Nick B.

I am not a CPA or attorney but you and your accredited friend may create a holding company that would invest on your behalf. The company can choose a partnership tax status which means that all profits and losses are passed to the members and then the members pay they own taxes. 

You can use TREC contract form. It's a couple of pages long and has all boilerplate language. All you need is to fill the blanks and add whatever special provisions you and the seller agreed on.

Then you bring this contract to the title company. They'll open the escrow and guide you through the rest of the process. 

On the closing date you will have to sign the closing statement at the title company office and wire the money into the escrow account. 

The seller will do their part on the same day. You don't have to be at the same place at the same time.

If rents are at the market, you have no room to increase them. That includes utility bill back as it is another word for a rent increase. You effectively want to add $120/mo to the rents. Can these tenants afford it? If they can, will they tolerate it or move across the street?

Now, if the rest of the neighborhood is paying for their utilities separately, then you may try to implement billback. Just remember, you're increasing their rent by 20%, will they tolerate it?

If the price lowered significantly ($200K?) your debt service goes down and your cashflow goes up. So there may be some immediate upside but no long term upside because you cannot raise rents.

@Justine Ade,

You did not provide a few key pieces of information without which it is difficult to give you a meaningful advice.

- How big is that metro area and how far is this property from the nearest center of employment?
- Same question about a mid size town
- How does the rents of this property ($650/mo) compare with other properties in the same area?
- What is the median and average income in the 1, 3, and 5 miles radius?
- Provided that the rent is below the market, what improvements would you need to make to achieve that market rent? At what cost?

The most important data point here is the difference between current and market rents. If your property is $250 below, you have a good room for increasing the rents and thus the value of the building. If the market is $650, you have no growth potential beyond 2-3% inflation.

The proximity to the larger cities is less important IF you have enough margin to grow rents.

Regarding utilities bill back, you may have better luck simply increasing the rent by the same amount. It is easier to implement and easier to collect and enforce. 

Past performance is not a guarantee of future results. 

Apartments are almost never bought with all cash except for deep value add that no lender would touch.

So, all deals I invested in are bought with 20-30% equity (investors' money) and 80-70% loans.

On the first deal, there were about 30 investors. Profits were split 80/20: 20% to the sponsors (GP) and 80% to the investors 

Yes. Based on 11 deals (2 in full cycle). It's either better (rarely) or worse (more common) but never close to the projections. 

The very first deal was indeed a value-add. It was supposed to cash flow almost nothing in the first year, then get 90% of the original equity out on refinance, and then cash flow 8-10% annually for 5 years and deliver 100% ROI upon sale.

In reality, it got refinance with only 50% of the original equity, then cash flowed 3-4% but when it got sold in 4 years, the overall ROI was a bit over 200%.

Homerun? Yes. But never close to the original projections. Rent growth was higher but so were expenses. The biggest contributing factor was cap rate compression and thus much higher sale price.

Actual performance is never ever close to the sponsor's projections. 

This goes for both GP and LP.

You need to find out:
- how much similar houses are sold for in a move-in condition (ARV)?
- how much will it cost to finish the rehab?
- what equity do you expect to obtain if you finish the rehab?
- what will a house like this rent for?

Now, if price of the house + closing costs + rehab + equity gain < ARV AND this house will cash flow your desired amount if financed at 75-80% of the ARV, then you have a deal.