All Forum Posts by: Steve Trotta

Phillip - I think you are in the right place to potentially start networking.  Utilize the BP networking tools and reach out to folks in your area to start building the relationships, setting up conversations etc...  Start with contractors and other individuals that are doing the same thing as you in the area to get some insight and feedback about doing what you are looking to do.

Steve

I agree that laminate is a good alternative to hardwood and depending on what quality you get it can be more durable.  I highly recommend either laminate or hardwood over carpet particularly if comps in the area are going in that direction.  You can also potentially get more for rental income and can potentially increase the value of your property. 

Of course I don't know the size of the space you'd be looking to cover with the HW/Laminate, but if you decide to go the pro installation route, you should be able to find someone that will charge you on a per SF basis for the install, and then additional for the thresholds (room dividers like between the tile and laminate).  At least in Boston I can find these types of pros. For a ballpark sense of cost I pay about $1.75/SF for installation and another $45-75 per threshold depending on the size.  They will also charge separately for carpet removal and disposal.  I buy the laminate and sub-floor/padding myself and drop it at the site and he goes to work.  You can get a decent laminate (there are sales all of the time at big box stores and smaller mom and pops) for $2/SF and sometimes even less.  Your market might differ from the Boston area but just to get grounded in what is possible from a cost stand point, Boston is usually at or near the top of the market from a cost stand point.

Additionally, if you are thinking of DIY, it's doable.  I have done one installation solo and another with someone else.  It's a lot easier to have two people, one cutting and one laying the floor.  I would recommend going with a better quality laminate particularly if you are DIY'ing with a click and lock type of product, it will make your life a lot easier.

Let me know if you have any other questions.

Steve

I purchased a multi fam last year that was rented about 33% below market rate in the Boston area.  I was planning on moving in to one side of the house so there was only one unit in play that needed to be increased.  

The tenants were TAW but were really nice people and I would have been happy keeping them, plus the seller was very adamant about keeping the tenants - she basically wasn't going to sell it to anyone that asked for it delivered vacant.  I was also faced with the bank forcing me to obtain a 12 month lease on the new property to get financing approved by the bank because the approval was dependent on income from the rental property and without a lease it wouldn't qualify.  I was at the mercy of the tenants agreeing to a new lease in order to actually get the mortgage approved.  

Long story short, I proposed a 12 month lease and executed this with the tenants prior to even purchasing the place.  The lease was structured as the first two months being at their current rate of rent, the third month increasing about 15%, the fourth increasing another 15%, which would bring them up to close to market rent.  I gave them the option to terminate the lease at any time with 30 day notice within the first 3 months of the lease.

The tenants paid their first month, and gave notice to terminate at the end of the second month.

At that point we had 30 days to rent the place, which in the Boston area market isn't that difficult.  We wound up getting higher rent than we would have with the tenants that left by an additional 15% or so.

Mind you, there were a lot of reasonable people involved in this transaction and the stars aligned for us on this one... That said, I think the step up structure can be highly effective as long as you know there is risk in the tenants possibly leaving and you needing to fill the vacancy. 

From a math stand point, if the rent is $1000, and the market rent is $1333, you can pay back one month of vacancy pretty quickly - eg., if a unit is vacant and you lose out on the $1,000, at the 33% higher rate, you'll earn that $1,000 back in three months.  I know this can add up quickly if you have a couple of units and a couple of months of vacancy but don't be afraid to go after it if the rental market is decent and you have the reserves to accomplish it.

Good luck!

Got it - if you are looking to go conventional post the FHA loan you would probably be looking at an 80% LTV product, maybe an outside shot a 85-90% LTV type of product through a bank or a local credit union in the area if you plan to owner occupy, which I assume you do since you need to on an FHA product. I have a couple of contacts I could put you in touch with in the area if you would like at a local bank that might be able to assist you on the re-fi as you get more serious.

Just so I understand correctly, a few questions/comments:

1) What will your total loan and rehab costs be for the FHA product upon completion of the project? $740k?

2) How many units and what town is the multi fam in?  

3) How far along are you in the buying process on this house?

4) A couple of other considerations on the FHA loan - A) PMI cost - this is an added cost when dealing with an FHA loan. It can be steep on FHA products, be sure you factor this in to your costs. B) Early term penalties if you are to re-fi the FHA loan quickly. Not sure there are any but something to be aware of/ask about.

Let me know

Hi Colin - I live in Watertown and have never done an FHA 203k loan but have experience with investments. I am not 100% sure what your question is in regards to the numbers?

Let me know and I'll provide feedback if I can.

Steve

Hi Alex - I am not an accountant and best to seek consultation from one on the ultimate reporting and documentation of your flip.  

However, in my experience and having partnered on deals as an individual and not an LLC or other entity, I keep track of all of the expenses and just perform the math on the difference between the purchase price and the sale price less all of the expenses to get to the profit. My deals were 50/50 situations so easy to divide from that standpoint. Tax docs are also generated when the property is sold so you will receive that tax doc which discloses the sale price and best to record and document all receipts to back up your expenses as well as your purchase docs.

Your profit will be taxed as a short term capital gain if the property is bought and sold within a year and will be taxed federally at your ordinary income tax rate.

Hope this provides some level of info for you but again I would speak to any CPA and they will give you the quick run down.  Also always probably best to set up as an entity as opposed to partnering as an individual but that's another story altogether.

Steve

Hi Lisa - A real estate license can be very valuable for two key financial reasons and one other business reason that I have leveraged it for in the past:

1) Receiving a commission for buying an investment property that is marketed with a buy side commission.  Although you have to be careful, as some sellers can be taken aback by an agent purchasing a property and also taking a commission, it shouldn't really matter to them as they would pay it otherwise, and this produces immediate cash for you.  You have to split the commission with your broker in some capacity but I have a flexible arrangement and get to keep a majority of the commission.  My broker will even submit the offers occasionally to remove the potential awkwardness of me placing the offer directly.

2) Saving on the commission when selling a property.  You can still offer a commission to a buyer agent and if you work out a deal with your broker, they will likely minimize the commission they will take.  For example, I have my license with a friend of mine who owns a brokerage.  He only takes 0.5% on investment deals on the sell side.

3) You have control and you don't have to rely on others for responses on deals since you are the agent.  Can be very valuable to be in control of your own destiny.

I have made or saved about $50k in commissions over the past two years on five property purchases and sales.  Mind you, only one was a buy and hold but it was the largest and most expensive and produced about $17k in commission.

It's a small investment to get your license for the amount of potential return, not to mention you can pick up listings on the side if you so choose and produce additional cash flow.  Many other reasons to do so but these are the key ones for me.

Hope this helps.

Steve

Hello - I was hoping to get some thoughts from folks on Bigger Pockets that have worked with a group of investors on real estate deals, specifically as it relates to the first ask or breaking the ice with investors on a deal.  It would be good to get thoughts from both sides, the "lead" or General Partner opinion who has asked an investor (s) to go in on a deal as well as the investor opinion.

As far as my background goes I have done a few successful flips over the last 18 months and currently own a multi family that I was able to increase the value of significantly in a short period of time through improvements and increased rents.  I am interested in getting involved in larger and more deals and possibly targeting a larger building. Go figure!

I have a handful of reliable folks that are potential investors that have specifically said over the past few months "let me know if you need an investor". 

That said, I have the following questions that was hoping could spark an interesting conversation here in the forum:

1) Any tips on going in for the "ask"?   What is the best approach?

2) From a timing stand point, those with experience, when do you typically go for the "ask" and secure cash from the investors?  When a property is found or when you are looking?  Seems like if you wait until you find something it could be too late in today's market?

3)  Do you typically offer any sort of "investment prospectus" in regards to strategy, fees, track record, or targeted returns?

That's all for now, I appreciate any feedback!

Steve 

Rental Property:

1) Neighborhood & Proximity to Me
2) Size/Number of bedrooms
3) Economic Profile: Price, Value, rental income (below or at market rate), upside potential, cash flow, return on invested capital
4) Condition, particularly, Systems/Mechanicals & Foundation/Roof
5) How to optimize the income and increase value