All Forum Posts by: Sam Yin

Well... in my pursuit of trying out owner financing, I think I finally locked one down that might work.

I will revive this post... my post... lol

The original one relented and removed the CPI adjustment component of the financing. But I walked away from it anyway.

I found another that had slightly better terms. Here is the deal:

$1.4M for 3 properties, total 9 unit, in a tertiary market. Actual individual current value adds up to that, at best. If it was to be evaluated as a multifamily commercial, it should be more like $1.2M at best.

The terms is what lured me. It took some negotiations.

20% DP

7.5% I/O for 5 yrs

Zero prepay

Separation clause

Projected cash flow 19K/yr as is with conservative underwriting

NOTE: seller wants a 1% seller finance fee... very cunning...

Actual cash should be around 30K/yr since I operate my own team.

I plan to enter into formal contracts in the next 48 hours and a week later, as a formality. But I'll just button it all up by Friday and wire all the funds because I have a family trip coming and I will not cancel it. I want to come back into town to a completed deal.

Also, I got 100k OPM at 4% to aid my DP. Actual out of pocket is $180K plus some minimal fees... like 11K to seller and $700 to escrow/title. the 180K was from cash flow saved from other rentals income this year, so none of my W2.

Is there anything that I may have missed that could be detrimental? This will be my first seller financing deal. I wanted to give it a try just to see how this would play out for portfolio growth.

I will be using a property inspector. The properties were fully renovated last year and got new roofs.

@Anthony Freeman

If you are trying to pool your investors, I would rely upon the attorney you hired to create this in the first place to outline the requirements and forms and docs to be verified. At the minimum, accept 3rd party verification, NOT self reporting by the potential investor.

The worse thing is an inexperienced/nonaccredited investors having mood swings with their investment funds while you are trying to operate. The last guy I sent money to required a 3rd party verification. And I was glad to do it because I know it was required of all other investors in the pool.

@Nick Bolding

This is a wise advice. I will concur.

Quote from @Kunal Datt:

Quote from @Sam Yin:

Quote from @Kunal Datt:

I have a similar situation that a wholesaler brought me a deal:

sale price: $369,000

ARV: $450.000

Renovation cost: $1500

Market rent: $2500/month

The property is a newer property and essentially turnkey. It would break even from a cash flow perspective but I’d be getting almost 80k in instant equity. 

Would you do this deal? 

That's a big NO. but then again, I do not have deep pockets with play around with.

here is how I look at it, at 369K, and an ARV of 450K, you barely have 20% equity.  What good is that? You likely cannot make any use of that equity for a long time. You are losing money in the meantime.  You have to wait until the value hits over 500K take any sense. 

Think about it. Do you have a lender that will allow you to pull money out to reinvest with about 20% equity on an investment property? Likely not. How much is the transaction cost when you do get that opportunity? At what interest rate will it be and how much more NEGATIVE cash flow will you be willing to take on to extract that equity if you want to buy and hold? Is your W2 big enough to even qualify for such a loan and meet the global DTI?

There are so many more risk factors, but those are just to name a few. When I look at that scenario, what I see a lost opportunity in the market. You will bury your money, time, and headache there until the next cycle. Unless you have a Crystal ball or a super strong feeling you are riding from near the bottom... but you better be prepared for a bumpy ride. You better make sure the rentals near you are higher in case that renter leaves or the economy is in recession. I have had to lower my rents before. It's not fun.

Just my opinion based on my experience. 

Thanks for your insight. My thought was to pay for the property in cash or use a HELOC from my primary residence, and then refinance it in a couple of years when the interest rates stabilize. It's similar to a BRRRR in that sense, but I didn't have to force the equity, but am simply getting equity from the lower cost of the deal. I would say getting 20% equity built-in without doing a reno is a good deal from an equity standpoint. Doesn't quite meet the 70% BRRRR rule, but again it's virtually turnkey. To your question about deep pockets, my wife and I both work W2 jobs and we positively cashflow more than 10K a month from a combination of active and passive income so I could survive if the property sits vacant or if there are unforseen repairs / maintenance.

 Based on your W2 and passive combined income,  I know you can make it work. But the key is why do you need to make it work when you can take some time to find one that works out the gate.

Before going too far, I am going to assume that you have calculated using the HELOC would have the current rents to pay the HELOC without dipping into you other incomes to sustain the property. I am also assuming that you have calculated capex reserves into the fold. This is because it is very common to run into capex when buying, turn key/or not, from whole salers. Remember the point of the whole sale, it's not to get YOU the best property. Rather, its top get them the quickest buck.

I will not sit here and say it is a bad deal. I just want to caution you of the potential and to remind you and others not to give up on finding a cash flowing deal from the start. They are everywhere. You just need to keep digging around.

Based on the numbers you have put out so far,  you can easily find multifamily that would probably get you a few thousand a month in cash flow from the start. At the very least,  $1000/m with the potential to hit $4k/month after a few years of stabilizing. 

In the end, only you and you spouse will know what is right because it depends on your risk tolerance.

If you do proceed, I wish you the best of success and hope it keeps you climbing to the next level.

Quote from @Kunal Datt:

I have a similar situation that a wholesaler brought me a deal:

sale price: $369,000

ARV: $450.000

Renovation cost: $1500

Market rent: $2500/month

The property is a newer property and essentially turnkey. It would break even from a cash flow perspective but I’d be getting almost 80k in instant equity. 

Would you do this deal? 

That's a big NO. but then again, I do not have deep pockets with play around with.

here is how I look at it, at 369K, and an ARV of 450K, you barely have 20% equity.  What good is that? You likely cannot make any use of that equity for a long time. You are losing money in the meantime.  You have to wait until the value hits over 500K take any sense. 

Think about it. Do you have a lender that will allow you to pull money out to reinvest with about 20% equity on an investment property? Likely not. How much is the transaction cost when you do get that opportunity? At what interest rate will it be and how much more NEGATIVE cash flow will you be willing to take on to extract that equity if you want to buy and hold? Is your W2 big enough to even qualify for such a loan and meet the global DTI?

There are so many more risk factors, but those are just to name a few. When I look at that scenario, what I see a lost opportunity in the market. You will bury your money, time, and headache there until the next cycle. Unless you have a Crystal ball or a super strong feeling you are riding from near the bottom... but you better be prepared for a bumpy ride. You better make sure the rentals near you are higher in case that renter leaves or the economy is in recession. I have had to lower my rents before. It's not fun.

Just my opinion based on my experience. 

@Wesley W.

I would heed the advice many have offered on this post.

I have had both negative and positive experiences with young people. The positives ones are nice and easily forgetful. The negative ones are a reminder of why you should think twice.

Example, I had a young couple last year that I gave a chance to. Within a few months, they had late parties, drunken friends pissing over the balcony and challenging the on site manager. This was followed up with domestic violence. He beat his girl friend who was caring for his baby. Then he was caught choking on the balcony. Cops arrested him. His mother came and beat up the girl friend some more and kicked her and the baby out onto the streets in the middle of the night. The list goes on...

We got rid of them all. It was a learning lesson for my PMs. Funny part is I knew it was a likely outcome. However, this was early in their training regimen to become my PMs. I wanted them to experience it. It was my school of hard Knox for them, amongst other things. I had to know they would be able to overcome before I gave them a permanent salary and make them a permanent member of my team. That's another story all together.

If you are a self manager, save yourself the trouble. You are not discriminating, you are only mitigating risks. If you are using a PM and they want to rent to them, then either they are desperate or have not experienced enough.

At the same time, if these are young church goers with great recommendations and the community known they are from good stock, then I would give them a chance. I still rent to young people, but background, employment, and an in person interview is a must.

@Hannah C Christie

I will say DITTO to @@Chris Seveney on this.

The good thing is you made this post and the veterans are offering you a veterans perspective. I hope to take that into consideration versus a lot of other things you may have heard about LLCs. There is a big difference between experts/gurus and actual LL and owners opinions.

I'll make mine quick. Based on your OP, an LLC for your rental does not make sense. If you have multifamily commercial loans, then it's a MAY BE. If you have a loan and requires it to be and LLC, then obviously you need one. For conventional SFH type loans, it's not needed, nore neccessary, and it does really NOTHING to keep you name off. You own ths LLC, right?

And let's not go down the path of anonymity, WY, DE, etc... unless you have like over $20M of equity and net worth. For all other situations, get an umbrella policy.

This topic comes up often.

Quote from @Carlos Ptriawan:

Quote from @Sam Yin:

Quote from @Carlos Ptriawan:

Quote from @Johnny Drago:

I had a property manager extend a lease on a unit M-to-M after the lease expired May 31. Unit became available middle of August after they moved out but wasn't ready to be rented out until the end of August. Now it's the first week of September and unit is sitting vacant. My question is wouldn't it have been more prudent to decline the M-to-M option and end the lease so that the property could be marketed during a prime rental month like June? I'm pretty annoyed by it and am venting. 

 If it happened to me, I consider that's blessing. Less headache ! I don't like turnover fee and new tenant.

I have one tenant that has been month-to-month since four years ago. Guy initially want to come back to Mexico for good but he keeps changing his plan.

I would agree with Carlos. This was a blessing for you. It could be a lot worse. 

In fact, I consider my episode a blessing. I have a friend who owns apts in LA, next to USC. Evictions there was a nightmare. Probably set him back a years worth of profits!!!  These days, in the city of LA, they want $40k for move-out/eviction!!!! This is not a joke. This is now becoming the norm.

I have heard a few LL able to finagle and haggle it down to 15k-20k, but it is still ridiculous. 

Even for new contract I prefer month-to-month these days, it makes thing easy for everyone, especially if it's smaller unit. I prefer M2M especially for units where I'm the PM as well. 

 Yup. I ONLY DO M2M! I have tenants that want year and multi year leases... I learned my lesson with those types of leases long ago. 

It may not fit every investor, but I find that M2M is the way to go for me. If you are a buy and hold investor, it may not be for you.

Quote from @Carlos Ptriawan:

Quote from @Johnny Drago:

I had a property manager extend a lease on a unit M-to-M after the lease expired May 31. Unit became available middle of August after they moved out but wasn't ready to be rented out until the end of August. Now it's the first week of September and unit is sitting vacant. My question is wouldn't it have been more prudent to decline the M-to-M option and end the lease so that the property could be marketed during a prime rental month like June? I'm pretty annoyed by it and am venting. 

 If it happened to me, I consider that's blessing. Less headache ! I don't like turnover fee and new tenant.

I have one tenant that has been month-to-month since four years ago. Guy initially want to come back to Mexico for good but he keeps changing his plan.

I would agree with Carlos. This was a blessing for you. It could be a lot worse. 

In fact, I consider my episode a blessing. I have a friend who owns apts in LA, next to USC. Evictions there was a nightmare. Probably set him back a years worth of profits!!!  These days, in the city of LA, they want $40k for move-out/eviction!!!! This is not a joke. This is now becoming the norm.

I have heard a few LL able to finagle and haggle it down to 15k-20k, but it is still ridiculous. 

Quote from @Dan H.:

Quote from @Sam Yin:

@Johnny Drago

I'm not sure how much experience you have with apts/PMs in your area or as a whole, but from my limited experience, your PM did you good.

I have had units empty up to 3 months after renovations. It's better that you can get a tenant out amicably and dent it out the best quality tenant from your application pool then to be haphazard in your haste.

People will always be looking for places to rent. I do not put too much stock in timing or seasons. Just last month, I had 6 vacancies and 2 evictions going on at the same time. One eviction had not paid in 5 months. 3 of the vacancies have been vacant for 3 months. As of yesterday, one evictions is out and we are going to begin rehab. 3 of the 5 vacancies were filled with quality tenants at top market rates.

In the past, when I rushed it, I ended up regretting more often than not.

 Is this in Los Angeles?  It seems strange if L.A.   Do you make money off your rentals?  Did you start eviction process immediately on the tenant that has not paid for 5 months?

 Good morning Dan,

These were in San Bernadino. 

Saturday's eviction was easy,  she vacated as agreed and I credited back her last months rent (Sept). I kept her Security Deposit. I booted her out for being filthy because her unit was attracting roaches that could not be controlled by pest control. 

The one that has not paid in 5 months was unique. I bought that apt in April. He was already a few months behind on rents. The Seller and the PM were not truthful during the sale. The guy also provided me with false rent payment records. I started the eviction immediately. Long story short,  he fought me on the eviction. We went to court last month and we got a default judgment against him. However, the court asked that we give him another 4 weeks before we schedule a sheriff lockout. Now that its here, the sheriff is backed up about another few weeks for lock outs. At least it's coming to an end.

The other vacancies included bed bugs, a death in the kitchen,  etc. Sometimes when it rains, it pours. 

Yes, I still make a little money on my rentals... just a little less than optimum. Based on my portfolio, I can afford to have about 25 vacant units and still break even. I try my best to run the operation at about 35% or higher margins. Each of the vacancies were filled at market rents, roughly 20% to 50% higher than the inherited tenants.

This recent episode has been the worse of it. The death was unforeseen. One girl who moved out and left the unit with bedbugs was likely accidental. She found a higher paying job in LA and celebrated right before she left. She probably picked up the bugs from Las Vegas the weekend prior to move out. 

I took my time to rehab and rerent because I intentionally wanted to change the demographic of my tenancy. Additionally, I was also in the middle of a unique deal, buying 14 homes and a vacant lot and trying to get all the financing and insurance was a nightmare. But that all settled and should close today or tomorrow.