All Forum Posts by: Matt Lefebvre

1358 Elm Street is a mixed-use, brick building located in downtown Manchester, New Hampshire on the intersection of Dow Street and Elm Street. This building is comprised of four, fully occupied, ground level retail units on Elm Street and twenty-three apartments with a blend of studio, one-bedroom, and two-bedroom units. Featuring on-site laundry, leased parking directly abutting the building accessed via N Hampshire Lane, an additional off-site leased lot for overflow parking, and three additional, unfinished units.  This ±32,364 SF building has had many capital improvements over the years, including the the installation of rubber membrane roofs, window replacement, upgrading the sewer line, conversion to natural gas heating systems, and much more. Many of the apartments in this building are below market rent and haven't been renovated for many years, providing an opportunity for significant value add. This property is located in a Qualified Opportunity Zone. 

Matthew Lefebvre | Elm Grove Realty

[email protected]

M.  603-554-2309 | O. 603-505-4900

www.elmgrovecompanies.com

KEYWORDS: nh, new hampshire, ma, massachusetts 

@Paul Moran there's definitely still time!  You need the cash and it can be done... but the second best time to start investing in real estate is today... the best time was twenty years ago :)

@Richard Dale-Mesaros man you're a legend with a story like that!  Already proving my post wrong and showing me up!  Haha I'm looking forward to working with you one of these days Richard... I'm sure we'll get a deal done together this year.  

@Joel Arndt and boy oh boy was there a lot of ugly along the way!  I appreciate your insight onto the real estate brokerage business.  After a lot of research, this is the industry I felt would get me as close as possible to the people I needed to know to be successful as an investor... and turns out, it got me in exactly with the right crowd!  

@Henri Meli thanks!  I spent a lot of time making a very "clickbait-y headline" :).  Its definitely something that you have to be in for the long term... Success rarely happens overnight in any industry.  Real estate especially.

@Jay Hinrichs I'm hoping to be making that much by 29 actually ;).  That you for your support though and I wholeheartedly agree with your statement.  There's a lot of education and work to be successful on the commercial side of the real estate brokerage business, but compared next to being a doctor or attorney or even a microbiologist, the amount of hours in a classroom (and dollars of tuition) are exponentially smaller!  

@Sean Brennan no you the man! You're on the right path too man! See you at the next REIA meeting ;)

@Kelly Iannone thank you!  I can't wait to see what the next steps of my journey bring!

@Brett Goldsmith that's what I tried to put out in this post.  Being self-employed is hard... and it ironically makes it harder to be a real estate investor!  They don't teach you that in school!  

Thanks @Jon Crosby!  You seem to still be doing extremely well for yourself, especially with the IT career you had... seems like you've applied it to the real estate world quite well!

@Richard Lovering thank you!  I just hope to inspire some to take the same path I did, and convince others not to follow in my footsteps if its not for them :).  

Thank you @Dieggo Goncalves, that'll be an exciting next step!  

Let me preface this by saying... I've seen A LOT of posts recently of people under 25 asking for advice about getting into real estate.  And I think that's great, don't get me wrong.  I put out one of those posts when I first discovered BiggerPockets too.  Young people interested in bettering themselves financially and thinking about real estate while many others are focused on partying... that's a great thing!  Power to you!  

BUT... many of these posts go something along the lines of "I've got no money, no credit, no job, but how do I be successful in real estate?"  Wholesaling seems to be a common "get rich quick" path that people want to try.  Some ask about how they can get a seller to finance their first deal for zero money down.  Others want to try the complicated sounding master lease option.  But in reality... the odds of any of those things being the magic pill to creating massive success in real estate is slim to none.  

I took a bit of a different path, and since I probably caught some eyes with the flashy headline and the fact I posted this in the "Success Stories" forum... I'll explain a little bit of my story here.  I joined BiggerPockets five years ago as a small-town, 16 year old, New Hampshire boy, motivated to make it big in real estate but having no clue how to actually do it.  One of my first posts was polling the members here "is it worth going to college for a real estate degree if planning on being a full-time investor?"  (Spoiler alert) -  I didn't end up going to college and I gained a lot of valuable insight from the responses I got.  Ultimately I realized that to get into real estate investing... you do need money and you do need a job.  Otherwise you can't just buy properties!  

So I figured "well if I can't buy properties myself, I should do the next best thing which is sell them to people who can!" and that's how I decided to pursue the path of being a real estate agent.  I'll fast-forward through a lot of the details, but three and a half years after having gotten my real estate license, I'm closing out this year selling $8,218,300 of multifamily properties for a combined total of 117 multifamily units.  And contrary to my profile picture which still makes me look like I'm in middle school... I am 21 years old.  I've helped out a lot of first-time and a lot of experienced investors alike... both with buying properties and selling properties.  This year was a huge win for me and I'm very happy with the success in my real estate agency business.  However, there is a not so successful part of my story here too.  

I bust my a-- working 80+ hours a week, opening doors, showing properties, pushing paperwork, and... here's the kicker... I STILL HAVEN'T BOUGHT A PROPERTY.  Being self-employed and only three years of credit history makes it really hard to qualify for a mortgage.  2019 is finally going to be the year that I can afford one... because my last two years of tax returns show I've made enough money to get approved for a mortgage.  I have my sights set on a great four family that I'm hoping to have purchased by Spring but there's definitely a lesson to be learned here.  

For all of the aspiring young real estate entrepreneurs and investors out there reading this post, here's my words of wisdom for you... 

1. GET A JOB - (W2 income is sooooo much easier to qualify for a mortgage and make consistent income.  Plus, you might hate real estate as a full time job.  Hanging drywall and fixing toilets ain't so glamorous in real life)
2. SAVE MONEY - (yes you need cash in the bank to buy a property.  There are great programs out there that can get you low-money down or no-money down loans... but it still takes cash to operate a property and you need to have an "oh s---" fund in case something breaks)
3. DON'T RUSH -  (it takes time to build wealth in real estate.  You can't expect to go from reading a book to owning a big apartment complex in six months.  You need to spend time educating yourself, viewing properties, getting money lined up, analyzing deals, and THEN... MAYBE... pulling the trigger)

There is no "get-rich-quick" scheme in real estate.  You have to work hard and you have to spend a long time before you'll even be moderately successful in the industry.  If you want to get involved as a real estate wholesaler or agent or flipper... great!  There are some very successful people in those spaces that frequent these forums.  But you have to work twice as hard as anybody else in your market for YEARS if you want people to know your name, respect you, and want to do business with you.  Its not for everyone and there's no shame in buying one property every couple years passively while you're happily pursuing your passion in a completely different industry (and hopefully making lots of dough!)  And don't forget... if you don't have a W2 job... getting financing is really difficult.  I found that out the hard way :)

To all of my would-be, up-and-coming, or already wildly-successful, young real estate entrepreneurs... I wish you the best of luck and success in 2019!  And to all of those that are older and wiser than me... thank you for your continued support and guidance, and I hope your year is fabulous as well!  

@Alan M. While I'm not familiar with the rental market of the Bay Area, you have outlined what is considered a BRRRR strategy. The challenge with what you're describing though, is that there is a large risk factor in terms of your ability to make money. You're sacrificing cash flow (which actually produces a measurable return on your investment) for appreciation. Appreciation is an extremely important factor to consider for larger investments because it has a noticeable impact on your bottom line upon sale... but that's the key thing to remember. You're only making money if you sell.  In the meantime, you have to deal with a breakeven or loss on the property (which you have to subsidize through your existing investment properties or your personal income) in the hopes that the appreciation will produce a substantial enough return for you to exit the investment profitably.  

This can be a profitable investment strategy, don't get me wrong... people buy properties in hopes they go up in value all the time. But there is a larger risk factor associated with solely relying upon your profits coming from appreciation rather than solely cash flow or a blend of cash flow & appreciation. Cash flow has a much higher degree of control compared to the SFH market. That can go up and can go down independent of what you've invested in a property and there's nothing you can do to change that.

Also based on the numbers you outlined, your return on appreciation isn't that great when you analyze the number behind it... $100K/year appreciation on a $1.4M property = 7.14% property value growth in Year 1.  If you assume the property value continues to climb at a consistent 7.14% and you remain cash flow neutral... then your return on investment is only 7.14% per year (assuming you can sell when you choose to).  Is that a bad rate of return for a relatively easy investment to maintain?  No.  People acquire properties for 7.14% cap rates all the time.  But the difference to note here is that people buy properties for 7.14% cap rates that produce that much annually in actual cash flow.  You only make that money when you sell.  

You may want to look into more turnkey investments where you can invest $1M of equity in a more stable asset class and target a cap rate of 7%+ and simply hire someone to manage the investment for you. This could be a NNN leased industrial building, or a medium sized apartment building in a A/B class neighborhood with a property manager. If you really wanted to be as passive as possible and were comfortable with not maintaining control in your investment, you could invest in a private equity fund or a DST.

Hey @Account Closed, I'm pretty familiar with the Laconia, NH market (especially downtown) and would be happy to share some insight.  This property is not as promising as you'd hope.  I'm going to work my way down your report and provide feedback on each section starting with the "Property Information".

Purchase Price:  $265,000 - list price, no comment

Purchase Closing Costs: $5,300 - purchase closing costs + due diligence costs are higher for an 8 unit.  Commercial appraisal is around $1500, inspection is around $1000, attorney fees are $2000, transfer tax is $2000, title insurance around $1000

Estimated Repair Costs:  $30,000 - you're underbudgeting by a very large factor on this.  A quick look at the siding shows that it looks pretty rough... especially on the upper level.  If you wanted to vinyl wrap (which would be cheapest) all of the siding going 4 stories up with such narrow spaces between buildings, you'd be looking at least $30K just to do all that... maybe more.  The roof is still tar and gravel according to the tax card, so unless that's been replaced very recently, expect to put on a rubber membrane roof (once again, four stories up) in the next five years.  This doesn't account for any interior unit renovation... this repair cost estimate should be doubled, if not tripled to account for the deferred maintenance.

After Repair Value:  $350,000 - Unfortunately this might not be too generous of an estimate.  4 story apartment buildings with no elevators are not very desirable.  The location of this building is also not desirable and the resale value may not be there.  I just helped a client buy an 11 unit in the Weirs Beach area of Laconia and that sold for just over $450,000 and that was in as turnkey condition that older buildings could be... in a super location.  

FINANCING - Your loan assumptions are should look more like this: "75% LTV , 20 YR amortization, 5 YR term, 5.5% interest = monthly P&I of $1,367.18

RENT -   Not sure where $6700/mo is coming from...  The current rent roll is: $700/mo, $750/mo, $750/mo, $750/mo, $750/mo, $600/mo, $800/mo (was vacant at the time rent roll was submitted), $750/mo.  This totals $5850/mo rents or $70,200/yr gross rents.  

EXPENSES - Vacancy (4%): too low. Downtown Laconia is a tough market and considering more than half of these tenants have been in the building less than 6 months, and almost all of the tenants no more than 1 year, its clear turnover is a problem. Vacancy should be at least 10% until stabilized. CapEx (3%): too low. See notes on Rehab Cost Estimates for why this is too low... should be at least 5% + amortizing the cost of any major capital items coming up in the next 5 years. Management (6%): too low. I struggled to find a property manager for my client in his property in Laconia. Best deal I found was 9%... worst was 15%! I'd factor in 9% here. Property Taxes ($3,442): accurate. Insurance: ($2,848): accurate. Repairs (6%): accurate assuming you renovate units as needed with initial rehab. Misc ($8,880): ? I'm assuming this is all of the other expenses which is slightly low. Snow = $600/yr, Heat = $4,929/yr, Electric = $3,343/yr, Trash = $652/yr, Water/Sewer (not listed) = approx. $1500/yr. In total "Misc" should be $11,024.

ANALYSIS -

Gross Rental Income = $70,200

Vacancy (10%) = $7,020

CapEx (5%) = $3,510

Management (9% of effective gross) = $5,687

Taxes = $3,442

Insurance = $2,848

Repairs (6%) = $4,212

Snow = $600

Heat = $4,929

Electric = $3,343

Trash = $652

Water/Sewer = $1,500

Operating Expenses = $37,743

Debt Service = $16,406

Net Operating Income = $32,457

Cash Flow (after debt service) = $16,051 or $1,338/mo

Purchase Price = $265,000

Cap Rate (of purchase price) = 12.25% 

Cap Rate (of price + rehab) = 9.55%

Total Cash Needed = $66,250 + $75,000 (rehab costs) = $141,250

ROI = 11.36%

Final analysis - While this property isn't the fantastic homerun deal you hoped, it is still a reasonably good investment assuming your rehab costs (which are just estimates) stay under $75,000 and you can come up with the cash out of pocket to perform all necessary improvements to the property over the next few years. Your actual cap rate (because you have to consider the cap rate of your price + rehab costs) ends up being just over a 9.5 cap. Not bad, but not over the moon. Be wary of any unforeseen issues with the building that might create a lot of rehab cost. Judge this based on the interior of the unit and how much work they need. If they're all in rough shape, then you need to be budgeting $10K/unit to turn them over in addition to all exterior work/systems work needed. Also, take note, if you finance any renovation costs rather than pulling cash out of your pocket, your debt service becomes more expensive and your ROI goes down. The New Hampshire Lakes Region can be tricky for investing sometimes... so be careful where you buy!

Hey @David Park, just like with residential real estate... you can start really small in commercial real estate and scale up or if you have lots of money and a desire to get big properties, you can jump right in to large deals.  

The barrier to entry is typically complexity and lack of knowledge in the industry... but you really can start small and simple. I have an office condo on the market in Amherst, NH for $150K that could rent for about $1500/mo... that's really cheap money for someone to get investing in CRE and its pretty simple. One tenant usually signs for a longer term (3-5YRs probably in case like this) and depending on how you structure the lease, it could be pretty much hands-off. On the flip side, you could look at the mill buildings in Manchester which boast millions of square feet of commercial space, have dozens or hundreds of tenants, and have eight digit price tags.

As a broker, I decided that I wanted to learn more about CRE and started at the bottom of the totem pole in terms of real estate work. Leasing low-end offices and retail spaces between $300/mo and $1000/mo. That helped me scale up into doing larger leases such as 5YR+ retail leases in the $2000/mo - $4000/mo range. This led to me working on helping businesses buy properties for their business and I continue to scale up by landing larger leasing contracts and selling bigger buildings.

With investing... start small... ask a lot of questions... read as much as possible out there... and stay focused!  

@Russell Brazil @Nathan Gesner this advice makes sense traditionally, except in the market that @John McKinnon is looking in.  We live in a state where the big multifamily construction boom happened a hundred years ago.  The vast majority of properties in the biggest cities are built pre-1978 and simply saying to buy "post 1978" properties doesn't make sense for an old New England state where new construction costs are extremely high and the number of old buildings is plentiful.  Most sellers simply don't accept offers where a buyer is intending on performing a lead paint inspection and certainly don't accept offers with a buyer that has factored in abatement cost into a purchase.  

According to an ACS Housing report for Manchester, NH (the largest city in the state with the most potential rental properties) approximately 70% of all buildings were constructed prior to 1978.  Most of those post-1978 buildings, are single family homes being built on the outskirts of the city.  

Further, if you run the numbers on multifamily sales that took place on MLS in Manchester, there were 286 total sales in 2018 so far. Of those 286 sales, only 14 of them (less than 5%) were with buildings built post-1978, 13 of which were duplexes and 1 of which was a 6 unit. The reality of the market does not allow the vast majority of investors to purchase post-1978 buildings and simple advice to not buy pre-1978 buildings isn't feasible.

The steps that @Chris Luksha outlined are simple ways to reduce your risk by a huge factor that don't require professional abatement.  

@John McKinnon I'm intimately familiar with this law... it was a huge hot button issue in NH last year.  A lot of large landlords I know, testified to the State Congress against the initial proposal and ultimately it got boiled down into its current form, but it still has somewhat changed the perception in the market.  

Here's my two cents.  First off, its always been a law (since 1978) that you have to abate lead paint if children test lead positive above the threshold.  That's been the spirit of the law to ensure kids don't get lead poisoning.  For reference, the bill is SB247 if you want to read the full text of it.  However, the trigger events for this have become easier to have occur (they lowered the required lead level from 10 micrograms per Liter to 7.5 micrograms per Liter in a child's blood) and universal screening was implemented, causing the number of tests to go up.  This translates to a perfect storm causing a spike in proof that lead poisoning is happening and by design, should be increasing the number of lead abatement orders issued on properties.  

With that being said, its not all doom and gloom.  Let's be real... as much as the government wants to make lead paint disappear tomorrow, there's absolutely no way to make it go away tomorrow, next year, next decade, or maybe even in the next century.  The sheer cost associated with lead abatement at the scale required to ensure ALL lead paint disappears from housing would be astronomical and would bankrupt almost every landlord in the state if an order was handed down to make it all happen.  The vast majority of rental properties in major cities in NH (Manchester, Nashua, Concord, Rochester, Lebanon, Keene, etc.) are built pre-1978 and in many cases, pre-1920.  There is some value to buildings being sold that are lead free and have certificates showcasing that, however, that's still a rarity.  

Property management is really a risk management business.  As long as you understand how lead poisonings occur and you take steps to reduce potential lead hazards, you take a lot of the risk out of lead paint and create a safer environment for children.  Its rarely economically feasible to fully abate a building... but what it is feasible to do is spend a few hundred dollars or thousand dollars extra per "turnover" and deal with high risk areas.  Triple coating windowsills in a lead encapsulating paint... repainting "friction points" (think doorjambs, old cabinet doors, etc.)... repainting old wooden porches/decks... all of these things can reduce the potential lead hazard without breaking the bank.  

Obviously the 100% safest option is to fully abate, but the costs associated with it aren't always feasible when it doesn't make you any extra rent, barely adds value to the sale of the building, and isn't a requirement by the state.  

I'm not an expert on the law... always seek advice from a lawyer if you want the 100% legal and correct answer... but this is what I've seen from personal experience and from experience with property managers I know and work with.  I could go on and on about this for hours... but if you have more specific questions give me a shout and I'd be happy to talk more about it or direct you to people more knowledgeable than me.