All Forum Posts by: Patrick Menefee

@Ryan Daigle perfect, do they all have front footage?

To turn 1 into 3 they initially quoted me $1700, but when they found that they could revert back to original property lines rather than draw new ones altogether they dropped it to $1300. That was in Statesville, not sure how regional that is. Where are your duplexes?

@Ryan Daigle oh very nice! There's a lot of opportunity...depends on the parcels though. Mine luckily had enough setback and front footage each that they could be split with no issue. In other cases it might take more creativity

@Ryan Daigle the buyer profile is 100% different. As a 6 unit property, your buyer is an investor using some type of commercial or “advanced” loan product. Demand is relatively low because the pool of buyers is fairly limited

As a duplex, the buyer pool is totally different. The price point is lower and more funding options are available, which leads to increased prices. You can get someone moving in, house hacking, or just using a conventional Fannie/Freddie mortgage to buy with great terms. All of this makes it more competitive and increases the value-higher demand with limited supply = increased price

It’s not about what I would sell it for or selling 1v3...at the end of the day i have a portfolio loan and would need to either sell all 3 or refi separately in order to sell 1. But it does drive the value up on the appraisal, which is all I needed right now!

Investment Info:

6-unit multifamily property (3 duplexes), buy & hold investment in Statesville, NC

Purchase price: $155,000
Cash invested: $47,000 (down payment + rehab)

Successfully completed my first full fledged BRRRR just outside of Charlotte! The property came occupied in all 6 units so I continued to collect cash flow throughout the process (from September 2019 to May 2020); Purchase price + rehab cost + closing costs = $170,000 all in. Rented for a combined $2,470 per month at closing, $2,700 at refinance.

Appraised at $255,000 2 months into the pandemic!

What made you interested in investing in this type of deal?

My portfolio is made up 100% of small multifamily properties (all either duplexes or quads...still awaiting the elusive triplex). This property was perfect since it was three duplexes located on a single parcel, and I knew the cash flow potential was great. I also knew there was value to be added by improving the property to an extent, increasing rent, and subdividing the property

How did you find this deal and how did you negotiate it?

I found this on Realtor.com when I expanded my search radius outside of Charlotte. That radius slowly stretched...when I realized there was almost no supply of cashflowing multifamily properties in Charlotte, I expanded to Gastonia and picked up my first property (a week before). When I saw the better but limited supply in Gastonia, I expanded to Statesville. I knew what the market was good for (stability) and what it wasn't great for (massive expansion and growth) and knew this property would fit my criteria

The property was listed for $179,900, and since it had been sitting on the market for 3+ months I put in a low offer at $135,000 (my goal was to get it at $160k, but why not give it a shot??). They countered at $155k!

How did you finance this deal?

I secured long term financing from a commercial lender and cash from an equity partner. The partner wanted to be pretty hands off and preferred not to be on the loan, but was willing to bring almost all of the cash required, so we did a 55/45 split. We financed the rest with a commercial lender who offered a 5yr fixed rate, 20yr amortization, with 25% down and no prepayment penalty. They also financed the majority of closing costs which was a plus

How did you add value to the deal?

Our primary value add came from subdividing the property into 3 separate parcels. This absolutely increased the value of each unit by giving flexibility and increasing the pool of potential buyers. As far as rehab is concerned, most of the units turned out to be in pretty good condition and just needed to be brought up to market rent. We turned over a couple of tenants, performed one rehab, and increased rent to $450/door with everyone on 12mo leases

Total for the subdivision + rehab came out to right around $7,500

What was the outcome?

I was nervous due to the fact that I initiated the refinance right as Covid-19 hit. We initially pursued conventional lenders to do a cash-out refi, but points on investment refinances were brutal at the onset of Covid and we wound up going another route

We wound up using a commercial lender who would provide a rate/term refinance on the previous balance + closing costs, and then issue a line of credit on up to 80% the remaining equity.

Ever since the purchase I expected an ARV of around $210,000......it came in at $255,000! As a result we will decrease our monthly loan payments by $10 while obtaining a $72,000 line of credit at 4.5%!

Here are the final numbers:

• Purchase: $155,000
• Rehab: $7,500
• ARV: $255,000
• Cash left in deal: $42,000 (received about $5,000 cash from term refi)
• Cash flow: $700/mo
• COCROI: 20%
• + a $72,000 line of credit!

Lessons learned? Challenges?

Take care of your partners

The deal required a lot of flexibility in order to find a lender willing to work with the situation, to subdivide the property, and then to work through a couple different refinancing options. But at the end of the day, the most important part of all of it is taking care of those who invest with you.

He invested with me because he trusted me, and because of the results of this deal he is going to be a partner on many more deals to come. It further helped reinforce the importance of seeing your partner as truly a partner, not just dollar signs in a deal. The relationship is worth far more than the money (and naturally good relationships will lead to even more money)

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

There were a few people who helped bring the deal together, but at the end of the day the key was my broker on the deal. Alex Lopez with Verge here in Charlotte is a rockstar and has helped me on nearly all of my on-market deals

@Josh Bugbee first of all as a Minnesotan myself who went to school at Iowa State, I have to extend a huge welcome!

There are a million things to say, many of which have already been covered. But I want to emphasize two in particular:

1. Dig deep and channel your burning passion into a long term purpose and “why”. There are hundreds of combinations of strategies in real estate, and without knowing what you’re striving for you won’t know what steps to take to get there. Read books like The Compound Effect, The ONE Thing, Rich Dad Poor Dad, etc. (happy to provide more, just PM me)

2. Don’t listen to one single person and make decisions based on their input. If someone tells you to pursue a particular path, take it with a grain of salt. There are too many options and no single option that is right for everyone...absolutely consider the input and opinions you hear, but don’t take any of them as gospel

There’s so much more but that’s an important start. Reach out if you have any questions!!

@Edgar Daniel gonzalez it's important to be brutally honest with yourself about what you bring to the table and value yourself accordingly. Your profile says that you're a contractor and co-own a plumbing company...what is your role? Are you hands on doing the work, or are you managing the business?

Do you have experience managing tenants? Analyzing a deal? Do you have a track record of being able to do either of those, or do you have a network of people that can help you do so/learn to do so?

If as it sounds you're positioning yourself as the single point of contact for a cash investor who will otherwise be hands off, you need to have everything else absolutely locked down. Your ability to run the numbers and find a great deal should be unquestionable. You may not need to have experience managing tenants directly, but if not do you have a great property manager or network of property managers who you can hire? Do you know how to manage the property manager(s)?

Partnership is an incredibly valuable tool...almost my entire portfolio is built off of it. But I know exactly what I bring to the table and exactly what I'm looking for, and I have a network to plug into in order to produce the results that a hands off investor would expect.

Taking down an investment property requires 1) finding a good property, 2) doing a thorough analysis of current value, ARV, rental estimates, and rehab estimates, 3) getting the property under contract, 4) navigating the due diligence and closing process (either with a trusted agent or on your own if off market), 5) lining up all services and funding to close, 6) completing the rehab, 7) finding, screening, and placing qualified tenants at appropriate market rent, and 8) ongoing management of the property, the finances, the tenants, and the partnership

Before going further, answer this question - of those 8 items, in how many of them do you have enough experience and confidence that would justify someone entrusting you with tens or hundreds of thousands of dollars?

What kind of funding are you looking for? Are you looking for someone to play bank and finance your purchase long term, provide short term funding for a rehab or flip, etc.? Each of those will have different implications, expectations, and terms

I've worked with a few sources of private money and am constantly looking for it here in North Carolina, and the discussions generally revolve around the same things - they want to know how well capitalized you are, what your experience is, and what the deal looks like. 

You want to find out what kind of money they're lending (is this their life savings, or their kids college fund, or something else?), what type of collateral they're looking for, what kind of personal guarantee, what their terms are, if they have prepay penalties, charge points, charge for extensions on short term loans, etc.

Rates depend on the type of loan as mentioned previously as well as how well you know each other. Rates for hard money are around 9-13% (if you can access it), so bear that in mind. Conventional mortgages are around 4%, commercial loans are between 4-7%. Take all of that into consideration when looking at the rate they offer and what you suggest, and also take into account the simplicity factor. Fewer points may be worth a higher rate. You may also find it worth it to shave a little bit of the rate by providing additional documentation and extending due diligence for a longer close, or vice versa. All play into rate, but you should anchor back to the widely available rates as a starting point to adjust off of

@Devon Keaveny a lot of people have said it - it depends on what you want. What are your goals for the long term? What about 5 years? 1 year? This question can’t be answered unless you know that

Real estate is a function of your goals and your purpose/priority. If you don’t have that figured out, forget class types altogether and figure out what you want

That doesn’t need to be a permanent want, it can change. Maybe you want cash flow right now to get you out of your job, so you’re willing to take a lower class property that provides it with a caveat. Maybe you’re comfortable in your job so you want a little cash flow but security and stability is more important

Point is NOBODY can identify that but you. Anyone who tells you one property type or investing approach is better than another is full of it...that’s what’s better for them based on their goals. Figure out what you want, and figure out how to get there

@Zachary Giles it's important to realize that getting your financial house in order doesn't necessarily mean being 100% debt free. That said I believe you have 2 very big things to take into consideration:

1. Consider how secure your financial picture is...do you have very little money saved and can put away very little every month because of your debt payments? Or do you have ample income to cover all of your expenses (debt included) and have some money saved up? If the former, you're playing with fire while wearing a blindfold and should focus on your financial picture first

2. If the latter, consider the ROI on your money AFTER making the debt payments. Are you paying 4.5% on your most expensive loan but can invest in real estate and make 10% on that money? That's a big spread and investing may provide the better ROI. Are you paying 7% but only think you'll make 8% on real estate? Maybe it's not worth the risk

The answer doesn't need to be all or nothing. If your student loans are at 4.5% and your auto loan is at 7%, maybe you should pour your extra money into paying off 7% and then shift to investing. But none of that matters if you don't have a solid financial foundation, so get your own financial house in order

Hey @Bryan Henry, welcome to BP and the world of real estate investing! Congrats on the house hack, how are the numbers working out on that? Are you close to living for free?

You'll find fantastic resources here on Bigger Pockets, and all of the things that @Craig Curelop said are spot on. I'm a little north of you up in Charlotte but I'm happy to help in any way I can! Don't hesitate to reach out.

What consulting firm are you with? I've been living the consultant life for the past 2 years and there are plenty of pros and cons as it relates to starting your investing journey, but if you're intentional you can certainly make the most of it! Best of luck and let me know if I can help in any way