All Forum Posts by: Timothy Smith

@Patty Yang Buffalo, NY. It was a duplex that I rehabbed myself in a great area, rented it, and that was going to be our only rental property. Quickly realized we had loads of equity and could turn it into more properties, so I showed it with tenants in place and an owner-occupied bought it then gave one set of tenants notice. 

@Patty Yang yes, I've done this twice. Listed my first property on Zillow and put a yard sign out front, sold it for 25% MORE than my agent suggested I list it at. 1031'd it into two more properties, one of which I sold off market 4 months after closing on it. Mutual acquaintance put me in touch with the buyer, as they were looking for what I had. No agents involved.

Best advice, don't take 1031 advice from anything who isn't an actual 1031 intermediary. Too many people (myself included) think they understand it and don't. Also, make sure your CPA is comfortable with the topic as well. I used Russ Gullo based out of Buffalo, NY as an intermediary -- spoke with a few others, but Russ knows his case law and has proven himself invaluable when we got into some non-standard situations. 

Great thread, @Caleb Bryant, thanks for starting. Very informative to see how experience, geography, and risk tolerance is effecting various member strategies. 

1. Are you still investing in real estate through the Covid-19 crisis? 

Yes, we had two deals under contract before the fecal matter hit the rotating blades. Had to cancel one as the lenders doing rehab loans suddenly pulled back and were lending on LTC versus LTV, so there was no way to BRRRR the property. Lenders were also telling me they'd be reducing from 80% to 70%, maybe even in the 60%s but were unable to lock anything in that would make me comfortable.

The other deal is a small SFH that is in a rapidly appreciating section of Buffalo, NY and we were going to do a mid/high end renovation and really push the sale price. Well, that changed fast. But there is still plenty of meat on the bone whether we fix'n'flip, or just clean it up and rent it for a year or two. It's a cash buy with private money than I got at 10% interest only, no profit-sharing, no points. It should at least be a BRRRR for the short-term, then re-evaluate the SFH market when things settle down with COVID.

2. Why or why not?

I tend to analyze deals conservatively to begin with, aside from one time I was up against a 1031 deadline. So, this is just a great opportunity for self-education. I've been listening to a lot of podcasts, varying from Gloom & Doom to encouraging folks that THIS is the time to make money. Have to trust myself to sort through it all!

3. What niches are you most focused on and why?

We're primarily in small multi-family, but I'm wondering if there will be more demand for BRRRRLO (lease option) rentals moving forward as people economically effected by shut downs will struggle getting mortgages once they are back on their feet. Just a thought that I'm exploring....

4. Is that the same focus you had before Covid-19 or not?

Yes. Just trying to think more creatively now and scale back the level/expense of renovation we have traditionally done.

Hi @Vinh Tran and welcome to BP and back to Buffalo! You've got some pretty good contacts already above, and I would also suggest you join in on the next local meet up. We just had one this week via Zoom, and I'm hoping for a bit more regularity as we all have some extra time on our hands now! I've been in Buffalo for about 11 years and actively investing/rehabbing for 4 years. It's amazing how much the city has changed in that short amount of time, and will be interesting to see what COVID and related shut-downs do to the local economy and market. Most of my units are on the West Side, but there is significant growth in other neighborhoods, as well. My advice is to link up with an agent or two and really hammer out your metrics. People who can help find off-market deals are of great value, and agents who invest themselves are ideal. I'm happy to chat with you, as well. 

All the best. --- Tim

I'm 9/10, but the last one was going to have issues anyway as their car died and they've been racking up Uber bills for commuting. They're in elderly health care so seem to be pretty solid at the moment, aside from the car issue. May will be much more telling, but I've called them all personally just to discuss their situations and so far things look good. 

It's been very interesting reading this thread. Nothing like a bit of a crisis to show you who people really are, and test your mettle, eh? I've gone back and forth on my own opinion with regard to proactively reaching out. For this month, I believe we will sit tight and see what happens come April 1 (well, April 5 with NYS grade period). We only have 10 doors at the moment, 3 of which just completed rehab and I literally gave keys in the last week -- they were all extremely vetted and seem to have job security and reserves to weather this for the foreseeable future. My thoroughness in tenant screening may be what gets us through this, and I'm surprised how little screening has been mentioned in this thread. In addition to income and job security, I try to find out as much as possible about someone's character and level of responsibility, which can be tough to glean from references, previous LL's, and employers. I feel even those tenants that could have a tough time coming up will not just roll over and ask for a handout. We'll find out soon enough. 

What I am doing, however, is sending each tenant a simple text just asking how they are doing and empathizing. We're small enough that I can do that with relative ease. I've already been thinking about a response to each tenant if/when they come to me with difficulty, but so far, everyone seems to be on track. Eventually I'll put something on paper that will apply across the board, but reading forums like this really helps formulate those ideas and language until I need it.

I agree that May is going to be the month of truth, especially since the quarantine in NYS is already on Week #2 in my area. None of us are going to navigate this completely unscathed, whether directly or indirectly. A balance of business and compassion up front is going to be very individual based on your situation and quality of tenants.  

What kind of loan are you looking for? Commercial rehab loan? Conventional? There are some great lenders around here that go up to 80% LTV.

Good morning, Jon. I'll be following this for creative ideas, as well. I also use 1 year leases, but have been considering changing to MtM. My initial reason for 1 year leases was false information consultants gave me that banks required seeing long-term leases for commercial loans and lines of credit. So far, not a single bank with which I've spoken has confirmed that! 

One thing you may want to consult your attorney about is the legality of requiring a 60-day notice. To my knowledge (from a meeting with the housing court judge, actually) all time frames are reciprocal, so those imposed on tenants are same for LL. I guess that depends on who is interpreting. 

Hey @John W., good to 'meet' you and hope to run into you around town some time. Can you be more specific about what your concern regarding lack of notice is? Scheduling work to turn unit around, lost projected rent, potential damage, all of the above?! Do you use MtM leases or longer terms? What class of rentals do you have?

You could write penalties into your lease, but would you really expect your tenants to be held accountable? This isn't a rhetorical question -- you know your tenants and class of units, so do you think if you built in penalties, they would pay up? Furthermore, would it be worth it to pursue legally? 

Are you familiar with the new 30/60/90 day law in NYS? At one meeting with the housing court judge, he stated that this did not just apply to the LL but also Tenants -- they need to give the same notice depending on length of tenancy. That's all well and good, but what will really hold them to it?

Or, is it simply easier to have some contingency money set aside for unit turn-around, and hope that you can get it re-rented quickly. For me, I'd rather go the drama-free route and eat a month of rent, fix/upgrade/clean the unit, and get it marketed ASAP with tighter screening requirements. Honestly, I'd be happier to be rid of someone who skipped out than to pursue damages.

Full disclosure, I haven't had this issue. The only time I had someone leave unexpectedly was an inherited tenant and it was a blessing. But, my screening is extremely thorough and my units are all freshly rehabbed and rent $900-1200, if that gives any perspective. 

I'd love some feedback as I shop mortgages for a mixed-use building I just put under contract. The plan is to convert the commercial space (currently 1 of the 4 units) to a residential unit, which I've already cleared with the city permit/inspections office and have spoken with an architect regarding the process. There are a few local lenders offering construction/rehab loan products, each with slightly different requirements and perks. I've worked with one of them four times already and have an excellent reputation with them, but I'm not sure they will work for this particular project. I'm also close to my borrowing limit with them. Here is the breakdown:

Purchase price $110K, rehab estimate $140K. Projected ARV $275K+

Lender #1 (with whom I already have a relationship)

80% LTV (as complete) lender for 1-4 family residence, will finance 80% of purchase and 100% of the rehab

75% LTV lender for mixed-use, should I decide to not convert the commercial unit to residential

5 year note/25 year amort

rate is locked at commitment

no prepayment penalty

7% interest only during construction period (up to 12 months), 5-5.5% locked rate following permanent mortgage conversion

one closing

no bids, estimates, or invoices required from contractors after we submit the initial Work Scope. Construction draws are paid directly to me, and I pay contractors from that. If I'm able to cut costs during the project, it's more cash recapture. If I go over budget, it's out of my pocket. 

Lender #2

80% LTC lender regardless of property type (this would cost me roughly $30K more and eliminate possibly of BRRRR)

5 year rate reset/25 year amort

current rate roughly 4.2%, but doesn't lock until just before closing. Rate for permanent mortgage locks after construction period is complete (up to 1 year)

5-6% interest only during construction period

cannot remember if there is prepayment penalty

one closing

requires documentation during construction process. Invoices, estimates, and contracts monitored by 3rd party

My initial take

Even though the rate of lender #1 is higher, the difference between LTV and LTC gives more opportunity for cash recapture (BRRRR). Plus, the paperwork required during construction is significantly simpler. I would have to commit to converting the commercial space to residential during the loan application process, but I should know that anyway!

Lender #2 has better rates and a 25 year commitment, but won't offer the opportunity for cash recapture. Interest saved on the same mortgage amount is $36K ($120/mo) over the life of the loan. 

Hmmm.....just writing this all out pretty much gives me my answer! Opinions or questions I should ask greatly appreciated -- thanks!