All Forum Posts by: Seth Engelbrecht

Hey Karen!

The stance a lot of my investor friends and I have taken is to allow pets and charge accordingly whether it be through pet rent or additional damage deposit. There are a lot of good tenants out there that have pets and are very responsible with them. Occasionally there is still some damage but with properly vetted tenants they will typically take care of it or their higher damage deposit will cover it. This isn't always 100% but like with anything in real estate investing you can balance the risk and rewards. 

-Seth 

Hey Matt, there is a lot to unpack here.

I do not know your market but looking at the rents it seems as though the properties are fairly overpriced. The fact that they are sitting on the market is a great indicator of this as well. Typically when an investment hits the market tons of local investors will run the numbers and see if it makes sense. A multifamily that sits on the market usually does not have good cashflow.

I do not know what CAP rates in your area are but around here if the property needs work they are typically trading for 8%-10% CAP rate as long as they aren't in a war zone. A 9% CAP would be good for these properties but I think you may want to revisit how you calculated it. Assuming $700/mo on all 4 units and a 50% expense ratio would give you a value of $186,666 with a 9 CAP or a CAP rate of 4.97% based on the purchase price (not including the differed maintenance you are going to have to cover as well).

The beauty of a 4plex is that is qualifies for secondary market financing which give investors a chance to get 30 year fixed rate loans even on investments. Unfortunately, this also means that 4plexes can often carry a high premium per unit as they will still cash flow. With the current rates being historically low this has further increased the premiums. Be careful to not overpay and over leverage yourself just because the financing is available to you.

Hopefully this is helpful. If you want to talk more specifics or have any other questions, feel free to DM me. -Seth

Hey Artyem, below are the pros and cons I have run into with investing in apartment buildings compared to single family homes.

Pros-

      One move out does not equate to 100% vacancy

      One roof, foundation, parcel, etc to worry about

Easier to force equity with CAP rate valuation

      Buying multiple doors at once making scaling easier

Cons-

      Tenants typically don't stay as long as houses

      Tenants complain more about noise

      Landlord has to handle mowing, snow, and common areas

      Has to be sold to another investor

This is by no means a complete list but off cuff these are the ones that jump out to me. 

-Seth
     

Hey Jonard, a construction line against the home in second position is effectively going to be a HELOC. Calling it a construction loan will be effectively the same product with worse terms. Do you not have enough equity in the property to do a HELOC? If it is an investment property some portfolio or commercial lenders will be able to do a construction line based on an as completed appraisal but I would try to get more of a retail HELOC if you can qualify due to the better rates and terms.

-Seth

Hey Kadijah, 

Almost every property is going to have comparable sales of some sort it is just a matter of finding them and what adjustments need to be made. You may need to expand your search area to find other similar properties. With multifamily you can also look at properties that are larger or smaller (within reason) and adjust based on the number of units.

The other thing to look at as far as ARV in multifamily is CAP rate. This varies greatly by area (2%-15%) but knowing what CAP rate similar properties in similar areas are trading for will give you a good indication of ARV based on your as completed cash flow.

Hopefully this helps

-Seth

Good Morning Joe, 

The financing for this purchase could be handled a couple different ways depending on your situation. It could be handled as 4 separate secondary market mortgages or as one combined commercial note. Going through the process of trying to close 4 secondary market mortgages at once wouldn't be a fun process but I believe it is possible. Someone else may correct me though as I am on the commercial side of things .

-Seth

Need is a very strong word. There is no requirement to carry insurance on a paid for property however you need to weigh the risk before doing so. Some larger investors will choose to not carry insurance and instead self insure the risk since they can afford to do so. If an investor has 500 houses it may makes sense to them. The annual insurance cost may be more than their claims so they opt to not pay the insurance. If a small investor has all of their eggs in one basket with one paid for property a large claim may be more risk than they are able to take. It is all about doing the math to see if it is worth covering the risk yourself. 

-Seth

Hey Mike, 

Banks aren't typically going to lend above 75%-80% on investment real estate so working out financing with the seller may be your best option here. Depending on what he is looking to do with the sale proceeds this may be an attractive option to him as well. Maybe he would be willing to do 90% seller financing for you for a few years. Even if you have to pay a little more interest than you would pay a bank it still gets you into the deal. 

If the properties have improvements that could be made to increase the value you may be able to work a BRRR deal and refi to commercial bank financing in a couple years and balloon out of the contract.

Another options would be cross collateralizing your existing 6 properties in lieu of down payment. Obviously that only works if you have significant equity on those properties. 

Hopefully this helps

-Seth

Hey Nicholas, 

Real estate transactions are financial transactions and typically come down to the dollar and cents of the deal especially when an investor is involved as the buyer or seller. Having aid that there are things that make an offer stronger or weaker even if the net amount is the same from 2 offers. Sellers will look at 2 offers and weigh the pros and cons to decide which is best for them. If one offer is $5K under asking but 30 day close with no financing contingency that may be more attractive than a full price 60 day close financing offer. 

Any one of the many variables can be used to help strengthen an offer. If you are making an offer subject to financing a preapproval letter is one way to make an offer more attractive. If you are in a hot market you may also need to offer above asking to make your offer more attractive. Another thing you can do to make your offer more serious is to put up more earnest money to show them you are serious. 

Going out and making lots of offers is another good way to get one or more to hit. I always say "you can't catch fish without lines in the water"

Hopefully this helps! Don't get discouraged! 

-Seth

Hey Beau, the 6 months seasoning period is a Fannie Mae requirement and a requirement for some in house lenders. If you are looking to do commercial financing call around to small local banks and you should be able to find someone that doesn't require you to wait. If you are looking to do long term fixed rate financing on the secondary market you are probably going to have to wait out the 6 months.