All Forum Posts by: Chris Winterhalter

@Shaine Cobb

Why was the claim denied? Did you not change your policy to a vacant landlord policy with theft coverage? If it wasn't vacant for long (less than 30 days) most landlord policies should cover this (if theft coverage is included).

Foremost (Farmers) landlord policies are great for 1-4 units and they are an excellent insurance company. I've been through claims with multiple insurance companies and they are one of the best (in my opinion). I would work with a good broker to obtain multiple quotes from some of the bigger more well known companies. Go with the best company and price combo. Make sure you understand what's included and what's not. A few tips:

• ACV vs. replacement cost - actual cash value policies vs replacement cost. Understand co-insurance and depreciation when making decisions on this. In my opinion you should always go with a replacement policy on a 1-4 unit building because the cost isn't that much more vs. ACV. Unless you have a large portfolio of 1-4 units and are insuring the entire portfolio I would stay away from ACV.
• Watch for policy exclusions, theft exclusion & vandalism exclusions.
• I go for smaller deductibles because the cost is generally so minimal. I stay within 1-2.5k.
• Always check what the wind & hail deductibles are...many insurance companies have put high deductibles on these because they have been hammered over the last few years. Opt for a policy with no higher than a $2,500 wind and hail deductible.
• Loss of rents...This is extremely important and you should know and understand the limits of coverage. Go for a policy with loss of rents.
• Understand your liability coverage. This is an important factor especially when tenant issues arise.
• Contents coverage...do you need contents coverage? It depends what type of appliances, washer/dryer etc you have in the apartment/house. Do you require tenants to have renters insurance? For low cost rentals it can be hard to require this even if you the lease clearly states it.

Good luck!

@Account Closed

Sure...

• PCA was $1,250 however it was worthless. We were in a hurry and didn't have a good inspector lined up. We found someone that we thought was very qualified and I believe we even had a referral. He was going to do the Phase 1 and PCA for $2,500. When we met him on-site he was a complete yahoo and was about 85 years old (no age judgement). He might have been knowledgeable at one time however he was a nut, literally I think he had mental problems. He does a lot of commercial inspections however was no where close to as good as our local St. Louis guy that we use for walk throughs (without reports). We are hotel contractors so we have a lot of knowledge ourselves. Add in that we met a lot of our regular subs on-site the inspector really added no value. We were riding him pretty hard all day about details he missed, his credentials, and his professionalism. We ended the day on good terms however I felt like I lit $1,250 on fire. Before I gave him the deposit check that day (mid day) I asked him if we could cancel the phase 1. He already pulled the EPA data online and stated everything looked fine. Our lender didn't need the phase 1 and we weren't concerned based on location and the EPA report. He agreed to cancel the phase 1 if we paid for the EPA results ($175). When I called him the following week he flipped out on me and told me he was done. He wasn't going to write the PCA report and would send a refund check. I called and sent emails trying to calm him down however he was using profanity and acting crazy. We have yet seen a refund check. We threatened with legal action among other things so we will see. It's really not worth the hassle. Essentially we needed to do more research and get more solid recommendations. Honestly if we would have stuck with our normal inspector we would have been fine. As we grow into larger projects PCA's and Phase 1 inspections will become the norm however they weren't exactly needed for this project. Our regular inspector is so extremely detail oriented and knowledgeable...we should have stuck with him on this deal. Lesson learned!
• Sewer camera inspection was around $850.
• PM due diligence - $200 which covered pulling outstanding city violations, occupancy permits/issues, utility verification, lease and rent roll cross checking etc etc.
• Survey - $1,750 - not yet completed
• Appraisal - Will update once I get the amount...probably $3-4k.

@Steve Hyduchak

I didn't see on the thread but are you at UNC Chapel Hill or somewhere else? I think law school ranking makes a huge difference in job opportunities however I would stick out school on your end either way and push to get a good paying firm job. Having money and income makes real estate way better in the beginning. It's always easier to transition out of law after you are established in real estate but somewhat harder to do it the other way around. Whatever funds you think you need to start investing in real estate just double or triple it. Education has so many benefits especially when you are committed to learning the curriculum. Law will only help you in real estate in the future.

My fiancé is finishing law school at the University of Chicago this year and her education was worth every penny of the 55-60k year she paid. It helps being a top 5 school however it sounds like you have a good background in finance which should help with job prospects.

@Derek Carroll

We will definitely add a significant amount of value to the property over the course of 5 years. However even if we don't the 6 year fully amortized loan will almost be paid off and the 20 year term loan will have amortized a great deal. We shouldn't have an issues refinancing even if the value comes back lower than the initial appraisal amount. However the environment can definitely change and that is always an ongoing concern which interest rates and values. Another way we are insulated is that most of the local banks in the STL area will renew the loan without an appraisal if you don't require cash out. It is obviously not guaranteed.

10 year terms don't exist in the STL market even with 5 year fixed rates. Our only options would be small balance CMBS and a few other wall street options. They come with high fees, inspection requirements, lower LTV's and higher rates. Not a good option for this project in my opinion however I might reevaluate depending on where the capital markets trend.

@Drew Whitson

I've owned quite a few vehicles in my business (mainly work trucks & vans) however I've only owned one car. The IRS can more suspicious of personal use when you own a car in your business depending on what you do and where you do it. I travel a triangle from Cincinnati, to St Louis, to Chicago quite a bit so most of my miles are actually business travel (about 90%). I believe your CPA can add up all of your mileage and make a determination of what percentage is business use and what percentage is personal use. Just to reiterate, records are very important when you factor in personal use.

• You need to keep a mileage log...you can use apps like milebug to make the process easier however I find this to be the hardest part of the process. If you don't have a mileage log the IRS can dismiss your write offs. Each trip needs to have a business purpose.
• All expenses should be paid for out of the business. I would imagine you could pay for it personally and get reimbursed with the proper paperwork by your business however it's just not as clean.

I believe there are maximums on depreciation per year that can change. There are a lot of different IRS codes that give bonus depreciation on certain vehicles. I'm still somewhat unclear on this and would love some clarification from others in the group.

*No tax or legal advice

@Joe Spence

Tower Grove South

@Phillip Vincent

Yea potentially....however I'm probably not the type of seller you are looking for :).

@Account Closed

Seller carry back is a 6 year fully amortized loan.

As-is appraisal needs to come in at 1.55MM and the ARV with 250k in improvements needs to come in 1.8MM. If the appraisal comes back low I will ask for another seller reduction. If the seller refuses I would dive into the reasoning of the appraiser and potentially appeal the appraisal amount which is very difficult to do. If the appraiser caught something that I didn't in underwriting then I would potentially walk from deal. If it appraised really low then the returns might not be there to bring the extra cash to the table.

Deal Update:

Our inspection really highlighted quite a few issues in the building. The large majority of the major systems are at the end of their life and need to be replaced. So our budget jumped up to 250k for the building. We tried to negotiate with the seller however he wouldn't budge. He has several down units that he is going to bring up to rent ready condition however that is pretty much all he is doing. We went back and forth during negotiations 4 or 5 times so we really hammered him down from the beginning. We still decided to move forward with the deal because of several reasons:

• We own 44 units within less than a mile of the prospect property. Having another 64 right there would streamline management, maintenance, and capital improvement projects. Plus we were already comfortable with the area, occupancy levels, and rents.
• We have an excellent relationship with the local South City PM.
• The numbers were still within our investment parameters.
• We had strong relationships with local banks to provide favorable acquisition and construction financing.
• The acquisition fits within our goals of owning complexes over 50 units.

Today I received word that one of our banks approved the loan contingent upon appraisal (hopefully everything goes well). The write up went through normal underwriting and then was signed by the board today.

Here are the terms:

• Purchase loan of 1.24MM (they are allowing only 10% down with the seller 2nd).
• Construction Loan of 200k (250k rehab w/ 20% down)
• Rate 4.25% fixed for 5 years (ballon at 5 years)
• Amortized over 20 years
• I/O available for the full amount for 6 or 12 months to help with cash flow.

Almost to the finish line!

@Chad Meyer

Just the condensing unit? Or line set and a-coil as well?

If just the condensing unit you should be able to get a decent 2.5 Ton unit for $1,500 installed. For line set...$300 give or take depending on the run. For a-coil you could add another $500. It does depend on the type of unit however a good investor friendly HVAC contractor should be able to provide you those prices.

Try Corcorn and Harnist...one of my good friend's family owns the place and although they do a lot of retail residential I think their prices are good.