All Forum Posts by: Nicholas Lohr

Another thing I've been doing lately along with what's been said is to simply have the prospective tenant do little things that require them to follow directions and be accurate.  Nothing too hard just things like meeting at a certain time, emailing something on a certain day, filling out the application by a certain day and time, calling back by a certain day and time, following up by a certain time, and have the other people living in the house do the same.

I've found that people who can follow directions, be accurate, and communicate well will make for good tenants.  The ones who can't will weed themselves out and they aren't the kind of tenant you wanted anyway.

If someone can't send a simple email with the correct info by a certain time then how timely are their rent payments going to be?

Again this is all in addition to all the usual screening.  I pretty much keep mental track of everything a prospective tenant does during the screening process as it all adds up to a story of what kind of person you are dealing with. 

I've been considering investing outside of Sac but every time I get to that point I find another deal here!  

However it does make me wonder if I should force myself to invest outside of Sac in the interest of diversification or to just stick with what I know?  

I own one of these. It's a 4-plex with one of the units being a Convenience Store at the bottom. One thing you need to be aware of is the ONLY way for me to figure out financing was an FHA loan. The usual Fannie /Freddie loans wont lend to you unless you are actually running the store yourself. It's weird I know, but that's what I ran into. Obviously I wasn't taking over the store.

The loan / building was too small for a commercial loan so the only other way I could figure it out was an FHA.

So with the FHA loan that meant that I had to actually live in one of the units. That's where I am right now actually.

Also I had to deal with something called the Self Sufficiency Test which was super annoying. The test looks at what the rents are, and if they are too low, it makes the amount you have to put as a down payment go way up.  I originally thought it was going be be great because it was an FHA and I was only going to have to put 3.5% down or something but, because of that test, I ended up having to put 30% down!

Just sharing some of my experiences. Yours is way cheaper than what mine was so you may be going the no finance route. 

Feel free to ask me anything more. 

@Jay Hinrichs  what kind of small businesses do you have in mind?  This has occurred to me also lately. 

It's possible but if that did happen you could always just wait to refi until market conditions are more favorable. A BRRRR deal usually reduces cash flow a bit so a plus to waiting is that you collect more in cash flow in the meantime. One thing that people will always need, perhaps even more in a downturn, is a place to live. (it's harder to get loans thus making for more renters)

However, in my opinion, it's best to just get on with it.  Macro economic predictions are too un-knowable. 

Focus on things that ARE knowable like, do the numbers work, am I being realistic with the rental income forecast post renovation, am I budgeting for the 2nd "R" to go over budget, and is this a desirable property in a decent neighborhood.  

I've done 3 BRRRR deals. I'd say definitely get the inspection and also get another contractor in there to look at it. A 2nd set of eyes is a good idea.

Also have a contingency amount for the rehab costs. For example, the "in my head budget" target for my current BRRRR deal is $150,000 but the real "secret" number is $180,000. I'll still do fine return wise if it goes to $180,000 but when I listed out the costs it came to around $150,000 and thats what I shot for. It's a good thing too because, as always, we ran into some stuff in one of the units' plumbing that nobody could see or realize until we went to redo the bathroom.

Come up with your rehab number, then tack on some extra money for contingency, and then run the numbers again with the added costs to make sure you'd still make out ok. 

I haven't had that exact experience but I'm in the middle of adding 2 units to an existing 4-plex and in retrospect I should have thrown this in the "too hard pile."  I should have dealt with the existing building and moved on without trying to get fancy and build something new. 

I'd say exhaust all other options before barking up the new construction tree.  

In the event a partner wants out it works in this order...

1. Since I am the sponsor I get right of first refusal to buy out the departing member's interest. 

2.  If I decline then the choice goes other partners as to if they want to buy out the departing member's interest. (it goes in order of who has the highest equity to who has the lowest)

3.  If no other members want to buy then it goes back to me to find an outside party to buy out the departing member's share.

4. If I can't fine someone then it goes to the remaining partners to find an outside party to buy the share. (again in order of who has the most equity)

5.  If they can't find anyone then the departing member has an option to find a buyer but the buyer must be approved by the members who are staying in.

6. And finally if none of that works then we have to sell. 

We choose a timeline of 45 days for each step. 

Price to be determined by a mutually approved appraiser. 

You generally can't have more than one FHA loan. There are some obscure ways to get more than one but I don't think it fits for you.

https://riverbankfinance.com/blog/can-i-have-2-fha-loans-at-the-same-time/

I have an FHA loan for a multi unit that I live it and I know for sure that I can't move it to a LLC. I tried and the loan company threatened to call the loan due. This will vary with different lenders but just something to be careful of.

Without knowing the desirability / livability of these 2 properties I will say that you kind of said it yourself there.

"I am looking for a property that will have good cashflow with lower vacancy rate"

You already said the duplex has better cash flow so that checks the first part.

As to the 2nd part, if you have one vacancy in the duplex you will still have the other half of the building bringing in at least some income. 

What will you have if you have one vacancy in the single Townhouse ?