All Forum Posts by: Simcha Davidman

did you go through with this purchase? An update on how everything turned out - including how expenses played out - would be greatly appreciated. Thanks!

@Bharath Raj what happened with this? Did you buy it?

Congrats! Sounds like a great project.

When did you close on this and how has it been going since then?

Investment Info:

Large multi-family (5+ units) buy & hold investment in Springdale.

Purchase price: $1,365,000
Cash invested: $390,000

Purchased 4 adjacent quadplexes for a full value-add. New roofs and exterior paint, and we're going to heavily renovate the interiors on turns for 20% rent premiums. Really looking forward to this project!

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

I want to get into the Northwest Arkansas market because it's so fundamentally strong.

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

A local property management contact brought it to my attention. He carried my offers to the seller's agent and we went back and forth a few times.

How did you finance this deal?

Midsize bank with plenty of local presence. They put up 80% of the equity + a construction line for $160k.

How did you add value to the deal?

We're redoing the outside to make the property pop and the inside to make people love it!

What was the outcome?

In progress. We've completed the roofs so far.

Lessons learned? Challenges?

If you want something, go for it. So far, that's it.

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

Still too early to tell :)

Am I missing something? How is your PITI only $940/year? I see PI being at least $400/month + TI. Also, 6% expense ratio sounds crazy low. I'm not doubting you, I've just never heard of such a thing.

If you can sell it for $240k, can you refi instead? This way you get to have your cake and eat it, and buy the two new ones, keep the old ones, and maybe have some cash left over.

Great job and super exciting tracking your progress here!

@Inna Hurin do you mean $10k/month or annually? I assume per month. It's unlikely to get that high returns off new construction, with or without leverage. Getting 12% cash on cash is tough in this market, anywhere.

@Stephanie Gledhill I'm not sure you finished your post :) If you did, I apologize for not understanding what the problem is. I will wait for clarification before I respond.

@Ignacio Linares if your appraised value is way higher than your qualified loan amount, you might be able to get a better rate or some other term more favorable, since the LTV on the loan will be low - since it's capped at the amount of money they will lend you.

Regarding your other questions - it is tough! The first deal is really freakin hard for some people (myself included); other people seem to just pull the trigger with confidence and everything works out (or it doesn't and they figure it out as they go). So don't be discouraged. Keep analyzing and keep making offers with what you can handle. Little by little, without you realizing it, you will become really good at what you're doing. And one day, whether that's 2 months from now or 8 months from now (depending on how much time and effort you really put into this), you will realize that you've gotten really good and confident with what you're doing.

As far as getting HML for a first loan, this too will be hard. Unless it's a killer deal, HMLs won't want to deal with you. Unless you borrow from those HMLs who lend with one of the goals of taking over the property (as opposed to taking over being more of a contingency). Partnering with someone more experienced can help. Or working your network of family and friends and trying to put together soft commitments of "private money" - which generally has better terms for you than HML.

I do not play in this space, so I can't tell you confidently how to assess ARVs and comps. You need to really know the submarkets and neighborhoods on a granular level, even if you're investing at a distance. One block the wrong way and you can throw out your whole execution. Talk to local realtors/agents about markets, about houses they have or others that are listed. Some of them are not good, and some of them won't want to deal with a newbie who may or may not be serious. But talk to enough of them and you will find some great ones with the patience to deal with someone starting out and growing.

Good luck!

@Ignacio Linares yes, you need to buy the property before you can "refinance" it. You can buy properties at 70% ltv or higher, but that's a different strategy - not right or wrong, just different. It's more conventional. You're prequalified for 100k (make sure you understand if that's $100k of loan or purchase price (with the loan being 70% of that)). So you go find a property that you like and fits your criteria, including price, and make an offer. With your offer, you give the agent your prequalification letter, showing that you're capable of actually purchasing it.

Chances are you won't get the property :) This is a seller's market. You need to be prepared to move very quickly. That's on making offers, as well as shortening your due diligence and closing times as much as possible. So while you might be 99.9999% confident that you can close on the property getting a mortgage in 30 days (which nowadays will be closer to 45 because of bank and appraiser backlog), some other guy comes in and says, I'm closing all cash and I can do it in 2 weeks. If it's the same price, which is the seller going to choose?

That buyer (which is what I thought you were talking about in your original post) will close on the deal, do the rehab, and then go refi with a bank and get his money back. So in other words, he's putting up $60k + $20k rehab (making up numbers to try to match what you wrote originally), and he's confident based on the comps in the area that he can get an appraisal for $130k. If he's right, he's likely to get a bank loan for at least 70%, or $91k - be able to pay himself (or whatever alternative funding source he used), keep the property, and then redeploy his funds all over again. Hopefully he won't be your competition on your next offer too!

But the short answer is - yes, you need to purchase the property with alternative funds before refinancing at the higher valuation. As mentioned, depending on the house, you may be able to buy it with a regular loan, too, and then refinance that loan after you do the work. But if it needs $50k of work, you probably won't be able to get a loan on the initial purchase.

There's a general rule of thumb out there that your all in costs should be 70% of the ARV. (It happens to be that the 70% of ARV is the same as the LTV in your case - these numbers are not really connected.) So if you are looking for a property on which you can take out a $100k loan and therefore need an appraisal of $142k. If you're looking at a $50k rehab, then you can only buy the property for $50k - 50+50=100. But bear in mind that this does not include closing costs, holding costs, or any sort of contingency buffer.