All Forum Posts by: Pat Jackson

Thanks! I think I should have posed the question differently. After all expenses and 100% financing, how much do people want per door?

Go on a bender. Spend the following day figuring it out 😄

I realize there's no wrong answer here......but some folks may have a more right answer than others!

I don't own any small multifamlies (2-4 units), but I'd like to soon.  Through listening to 135+ podcasts and reading 100's of forum posts, here's what I'm looking for, how about you?

• 10% vacancy (I think this is conservative)
• 10% property management (realistic)
• 4% tenant placement and lease renewal (my property management company charges 1/2 a months rent to place a tenant, and 1/4 a months rent to renew a lease, so this is based on a tenant staying an average of 2 years)
• 10% repairs (conservative?)
• Taxes
• 5% capex (is it a bad idea to just say 15% for repairs and capex?)
• Utilities depending on the building.  I'm conceptually a fan of not paying any utilities, but in the market I'm exploring it's pretty common for the owner to pay water, sewer, trash, and lawn care.  Billing back utlities seems like a bad idea, turns tenants off/away.  This number can really vary but I make sure to capture what the current owner demonstrates they're paying.
• Insurance.  I don't overinsure, but I don't get a quote for the bare minimum either.
• I realize there are other variables that are harder to quantify, like neighborhood, status of building, how recently has it been updated, etc. I don't want a neighborhood worse than B-/maybe c+, recent updates are an obvious bonus, and I don't plan on buying anything that needs immediate capex costs like a roof, unless there's a deep discount.  
• Finance 100% of the purchase price.  I realize you can't just do this, but I want to see what it pays 100% financed.  I always plan on paying closing costs out of pocket.

After all of these expenses, I still want to see $100 a door.  Is this crazy?  I'd take a little more if it was a newer building (less maintenance, more likely to have utilities metered out), and/or in a better area (better tenants, less turnover, less trashing of units). 

Love to hear everyone's thoughts.

I hesitate to ask this, even in the "off-topic" forum for fear of ruining a reputation that I don't even have.  However here goes....is anyone trading or mining or doing anything with cryptocurrency?  Up front I acknowledge that cryptocurrency is extremely volatile.  Scary stuff really.  However many millionaires have been made in the last 5+ years, and bitcoin is getting into the news more and more.  

IOTA caught my eye....Microsoft is interested and it seems like a very interesting way to share enormous volumes of data quickly.  

https://www.cnbc.com/2017/12/04/cryptocurrency-iot...

Anyway, just curious if anyone is in this game.

I looked at a property back in October. It's been available to investors since October 15. About two weeks ago it went offline...I assume under contract. Today it's back up at the same price when it went off. I know HUD can be random, but don't they normally lower their price after a month, and if a contract falls apart? Also, is there any sort of a push for HUD to dump properties before the first of the year? Auction.com sure seems to be selling stuff for less recently, curious if HUD does the same.

Originally posted by @Cara Lonsdale:

I don't think either strategy is better than the other as they set out to accomplish different things, but here are a few questions/thoughts to consider....

Regarding getting a better deal in bulk - this isn't always true.  Sometimes it's just an investor liquidating a portfolio, but not discounting.  So that isn't a given.

The conventional method will give you more flexibility when it comes time to sell.  If you have them bundled, it is somewhat of a process to untie 1 or 2 units to sell them.  So, you may want to consider how you would handle a sale.

Conventional is generally (if not always) going to give you better rates and terms.  With that said.....have you considered purchasing the whole portfolio, but obtaining separate conventional loans on each of the 1-4s?  As long as any 1 parcel is 1-4 unit, you could close them simultaneously, or in short succession.

This would allow you to obtain the portfolio at a discount (if one is offered), AND receive the conventional financing.  Regarding higher closing costs, many title companies can put you on an investor rate for doing multiple deals, and many of the other fees associated are loan amount specific, so whether you do them all at once, or individually, it's the same.  (IE 1 point on $1MM is the same on 1 property as it is on 10 $100K properties.)  Your prorates should all be the same too.  So, really it would just be about the title fees (and title insurance).

Great idea, looking into it now!

Originally posted by @Matt K.:

In theory this works, but in the current market it's HIGHLY unlikely it'll work out like this at all. If you do actually find something and are able to buy it for about 75% of appraised value chances are it's going to be in rough shape and in need of repairs OR it's going be in a rough area so it'll be harder to manage. Then you have to account for closing costs probably to the tune of couple grand each time, then costs to get the unit rent ready, and carrying costs... probably going to eat up more then you'd think.

Now to go on the commercial side it's probably even worse. Unless you're networked you're getting leftovers (or you get lucky and find someone retiring). Cap rates are pretty low right now and the higher cap rates come with more risk... and if you're just starting out that could be bad.

Not trying to talk you out of anything... deals do exist, but it's likely going to move much much slower than you'd expect. You'd probably be best served by sitting down with a investor friendly loan officer/broker and coming up w/ a plan. See what your max limit is for lending and go from there...

Come on man, this is BP!  You can't say that all of the US = the current market.  There are deals to be had!

Good points. I’m drawn to commercial in this scenario because it’s less headache and faster. I am curious how it will pencil out. Conventional=lower rates and longer terms but you’re paying a lot in closing costs per loan. Commercial=higher rates and shorter terms but less in closing costs (I assume)

I'm about to have ~100k in HELOC funds. My plan for awhile has been to buy cash flowing 2-4 units one at a time with my HELOC, turn around and do delayed financing, finance 100% of the purchase price, and do it again, and again, and again till I run out of conventional mortgages.

Then I listened to the second Grant Cardone podcast, podcast 250.  He says go big or go home!  Don't let your budget limit your buying, go BIG BIG BIG!!!  This got me to thinking, why not commercial?

Right now I'm looking at a couple larger portfolios of buildings, both of which have several 2-4 unit properties.  Some of them seem solid and like they'll cash flow.  Both sellers have mentioned they will break up the portfolio.  Assuming that:

1. I find a few cash flowing 2-4 units in the same portfolio I'm interested in
2. I believe cash flow can be increased in these properties, and expenses can be decreased

At what point am I better off taking my HELOC funds and using them as a downpayment on a commercial loan instead of getting them one at a time through delayed financing? I know conventional loans offer better terms, but if I'm buying in bulk I'll likely be able to get better deals. Also at some point not paying the closing costs on each conventional loan will be a fund saver.

I'm happy to elaborate, but in short, at what point should one try to buy numerous units at once with a commercial loan instead of one at a time with conventional mortgages?

Chris Grenier haha good call on the rugs.