All Forum Posts by: Judth Felker

Change your focus. There's so much competition for investing in single family homes. Move to multi-family. The big hedge funds are snatching up the "A" quality in "A" neighborhoods, and 400 doors and up, but the small multifamilies have less competition. Best of luck!

Assuming you don't know the seller, and in fact, live in  different state and are speaking on the phone,  the key is to establish a relationship before you make your offer. Whether you're talking directly to the seller, or through the seller's agent, focus first on the details of the property in your conversation. Get to know its strengths and weaknesses. Ask questions to get deeper into understanding and appreciating the property, the neighborhood, the good and the not-so-good aspects. Its in that conversation that you build the relationship between the two of you.  When you sense the time is right, ask why they want to sell. Listen carefully to their motivation to discern ways you can help them meet their needs/goals. It may be in the timing of the closing, or in helping them with any type of problem.

 Especially listen for clues that they may benefit from doing full or partial seller financing. They have to feel a connection with you and trust you enough to even consider this because they'll imagine the risks.  The first thing they need to know is just how you are going to secure their investment so they cannot lose it. Only when they are confident they'll get all of their money (or property) back through collateralizing their loan, through taking out insurance, through automatic payments, etc., do you talk about how they will actually make more money (the interest) through seller financing than through selling to a conventional buyer.  Hope this helps.

Absolutely, Christopher! But never give a check directly to the seller, nor take one from the seller. As Derek said, your closing attorney (or title company) handles all checks.  Buyers get to choose which title company/attorney closes the deal. Get to know the people in your title company (or attorney's office). They're members of your team!

Good for you, Tiara!

I'm also interested in Tennessee because its now one of the fastest appreciating markets in the U.S.!

If you're even slightly interested in working with someone, let's connect!

Taylor Kennison,

 I've purchased several books/programs sold by "gurus". I know a lot about buying multifamily RE, but haven't pushed through my fear quite yet (lost over $400k in the housing downturn). I'm getting closer to doing another deal since I've found a way to identify rapidly appreciating markets.

One thing for sure, Tayor, NEVER figure the current value of a property based on "pro-forma" (what it will do in the future). Work only with the ACTUAL numbers in current time. The owner needs to give you two documents: P & L (profit and loss) for the past 12 months (the "trailing 12"), showing you all income coming in monthly, and all expenses per month. Will the owners be completely honest about the numbers? Not to worry. After you have a signed Purchase Agreement with the owner, your "due diligence" period begins, and the owners will give you receipts to verify their numbers. If the numbers are different from those first given to you, you change your offer accordingly (in your favor, of course).

Once you have the P & L statements, subtract annual expenses from annual income , that number is your NOI (Net Operating Income) . Don't yet figure in the cost of money, but do figure, monthly, about 10%, or more, of the income for "Reserves" (maintenance that will someday be necessary over and above the monthly costs).

Maybe you know the formula: NOI divided by the CAP Rate (check out Loop Net to see what the going cap rate per unit is in your area) = Value of the RE you're interested in.

Ask the owner (or owner's agent if there is one), what the "deferred maintenance" is, and the approximate cost of each item. Subtract that number from the "Value" number you just discovered.

That's the offer you make.

The second document you'd require from the seller upfront is the trailing 12 "RENT ROLL" which includes the move-in date for each tenant, as well as actual rent paid, and rent owed, if any. That lets you see if there are long-term tenants, if some tenants just moved in, how many are nearing the end of their lease, and if there are vacancies. Your "expense" column should provide for a small percentage of vacancies, even if now its 100% occupied. If it's a large multifamily deal with 60% or even 70% occupied, I suggest you pass, because it will be hard to get that many new renters right away, and you'll be short of income. On your 7 unit, hopefully it will be 100% occupied or close to it.

Quick rental turn-overs are expensive because you will need to "make (the apartments) ready" each time someone moves out. I also google the address of the property to see what current and past tenants are saying about their living experiences at the subject property. If there are complaints, you can figure whether or not a better manager (you, or someone you hire) can correct the problems, and how quickly it can be done.

Once you have your offer number (start a little low, yet don't insult the owner), subtract your cost of money. Subtract your down payment 10% -20%), then, find out what interest rate you can get on that property. Always ask if the owner would like to keep on receiving a check after the property is sold. If that sounds interesting to them, ask for seller financing on some, if not all, of the remaining cost of purchase. Negotiate the price. If the seller wants something more of you than you're offering,

ask  for something (in equal or greater value) from the owner in return.

Jason Million's reply (above) is most helpful when seeking bank financing.

Matt, It was fun writing this. It'd make my day if you let me know this is helpful to you! I'm also open to working with you. If you'd like to explore the option, kindly call or email.

Best of good luck!

Judith Felker

Hi Matt! I've purchased several books/programs sold by "gurus".  I know a lot about buying multifamily RE, but haven't pushed through my fear quite yet (lost over $400k in the housing downturn). I'm getting closer since finding a way to identify rapidly appreciating markets.

One thing for sure, Matt, NEVER figure the current value of a property based on "pro-forma" (what it will do in the future). Work only with the ACTUAL numbers in current time.  The owner needs to give you two documents: P & L (profit and loss) for the past 12 months (the "trailing 12"), showing you all income coming in monthly, and all expenses per month. Will the owers be completely honest about the numbers? Not to worry. After you have a signed Purchase Agreement with the owner,  your "due diligence" period begins, and the owners will give you receipts to verify their numbers. It the numbers are different from those first given to you, you change your offer accordingly (in your favor, of course).   

Once you have the P & L statements, subtract annual expenses from annual income , that number is your NOI (Net Operating Income) . Don't yet figure in the cost of money, but do figure, monthly, about 10%, or more, of the income for "Reserves" (maintenance that will someday be necessary over and above the monthly costs).

Maybe you know the formula: NOI divided by the CAP Rate (check out Loop Net to see what the going cap rate per unit is in your area) = Value of the RE you're interested in.

Ask the owner (or owner's agent if there is one), what the "deferred maintenance" is, and the approximate cost of each item. Subtract that number from the "Value" number you just discovered.

That's the offer you make.

The second document you'd require from the seller upfront is the trailing 12 "RENT ROLL" which includes the move-in date for each tenant, as well as actual rent paid, and rent owed, if any.  That lets you see if there are long-term tenants,  if some tenants just moved in, if some are nearing the end of their lease, and if there are vacancies.   Your "expense" column should provide for a small percentage of vacancies, even if now its 100% occupied. If it's 60% or even 70% occupied, I suggest you pass, because it will be hard to get that many new renters right away, and you'll be short of income.

Quick rental turn-overs are expensive because you will need to "make (the apartments) ready" each time someone moves out. I also google the address of the property to see what current and past tenants are saying about their living experiences at the subject property.  If there are complaints, you can figure whether or not a better manager (you, or someone you hire) can correct the problems, and how quickly it can be done.

Once you have your offer number (start a little low, yet don't insult the owner), subtract your cost of money. Subtract your down payment 10% -20%), then,  find out what interest rate you can get on that property. Always ask if the owner would like to keep on receiving a check after the property is sold. If that sounds interesting to them, ask for seller financing on some, if not all, of the remaining cost of purchase. Negotiate the price. If the seller wants something more of you than you're offering,

ask for something (in equal or greater value) from the owner in return.

Matt, It was fun writing this. It'd make my day if you let me know this is helpful to you! I'm also open to working with you. If you'd like to explore the option, kindly call or email.

Best of good luck!

Judith Felker

My understanding is that multi-family real estate with up to and including 4 units is valued the same way Single Family Residences are, using comparable properties in the neighborhood.

For multifamily apartments with 5 units or more, use this formula: Income - expenses = Net Operating Income (NOI). Now do this: write "NOI" on paper and draw a line under it which symbolizes "divided by". Then draw a vertical line from the middle of the horizontal line. The vertical line symbolizes "multiplied by".

On one side of the vertical line, write "R" (which represents "rate" or "cap rate". On the other side of the vertical line, write "V" (which represents "value" or price. Now, if you have any two of those numbers, you can calculate the third number. Try various cap rates to see how the value (price) changes. You MUST know the NOI. I use the numbers the seller or the seller's agent gives me, to figure the price I'll offer on an "Intent to Purchase" one page document. After the offer is accepted, submit the Purchase Agreement (drawn up by or at least reviewed by an attorney). The PA has more than one "escape clauses", one being "verification of due diligence documents", another being "contingent upon satisfactory inspection results". So, the PA is just the beginning of a long process to be sure the numbers work for you. Wishing you best of good fortune!

If "upfront fees" are requested as a condition upon which they will fund your deal, it's a scam.  If points are required, when the money for the deal is put in your title company's escrow account, the points will be taken out, and then you will get "draws" from the account as the work gets done. The lender will want proof that the work is being done before allowing each "draw" because their money, when released from escrow, is at risk.

If you don't make payments as agreed upon, the lender can foreclose because the property secures their loan.

It's important that you DO NOT send any money to a lender until they've approved the loan and a contract has been drawn up by an attorney and signed by both parties (let your attorney look at it before you sign it). 

Others could answer this question better than I, but I know so many people have sent money to someone saying they're a lender, then sending more money, then more, until the poor borrower finally realizes they'll never get any money from that "lender", scammer.  

Hard Money Lenders do NOT ask for fees upfront.

Scammers do.

Hang up and delete.