All Forum Posts by: Timothy Smith

@Jon Adamowich yeah I’m all in just over $200k. As I said, more than I want to be per unit but I needed to put the money into something and the clock was ticking. The growth potential here is really the most valuable. My cash flow on this is about $500/mo. There is a good chance this property will be a long-term flip, or I will build on the back of the lot if prices continue going crazy. The other value in that is a garage or carriage house unit for a potential owner-occupied  

Your question about what I look for is tough to answer in a short post. Will you be at the meet-up next week? 

@Jon Adamowich yes, West Side is being fished hard and maybe too much. What I've found is that prices are definitely going up, and the slumlords who have been sitting on properties out of repair for years are asking ridiculous prices because they see what's happening. I negotiated one deal that was just gross. Almost put me off the West Side altogether it we turned it around to be a success. But, just this week I put two more under contract - SFH flip and a mixed-use

I do have more pics of that project, but didn’t take enough “before” shots. Here’s a few:

Network network network. And run numbers on as many properties as you can. I filled spreadsheets before buying my first, and it taught me how to analyze. You can also use the calculators on BP, but I did most of it using a local banks income property spreadsheet and my own notes. Took a while but deepened my understanding. Plus I didn’t know about BP until more recently!

 As an advisor told me, “Fall in love with the numbers; not the architecture, neighborhood, or the lady next door who reminds you of your grandmother.” I really took that to heart as one of the most difficult things for us was learning to buy and rehab “to market”, not like it’s our own home. 

Hope to meet up sometime. 

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $125
Cash invested: $31,000

Still trying to figure out if I should wrap rehab into "Purchase Price" and figure 1031 money as "Cash Invested". Oh well. We bought this property as part of another 1031 Exchange, and it came down to the deadline. I was having a horrible time spending the remaining proceeds from a 1031 (roughly $31K) during the hot buying season in Buffalo. Looked at tons of properties, but none met our metrics. This property is across the street from one of our other duplexes, and while doing the rehab on that one, I continually noticed the house across the street was sitting vacant, under renovation, with tons of potential. I happened to see the owner one day and asked if he'd be interested in selling it to me. He had never considered selling as he was renovating it for his own family: they would live upstairs and rent the downstairs. He already did all the hard stuff: demo, new roof, new electric and plumbing, new custom windows, drywall. All that was left was to finish the spaces with trim, flooring, kitchens and baths. Previous owner also set up the HVAC for the attic, so that the owner-occupied could have a two-story apartment on top of a rental. While I'm not using the attic (illegal as a rental) this adds value for when I potentially sell to an owner-occupied. Also, the outside was hideous: red asphalt shingle siding. There is also a rear house on the lot that was beyond disrepair.

I undertook my due diligence and put together the scope, also finding out that we could demo the rear house and rebuild a MULTI-FAMILY in the future -- it was already zoned for multi!! This area is heating up big time, with large development projects around the corner yielding rents of $1500+. My projected rents for the two 3-bedroom units was $1100. I ended up with $1100 and $1200, respectively. Keep in mind this is Buffalo. So, while the total I spent on this property with purchase and rehab was more than I'd prefer, it offers me this:

1) fulfilled my 1031 Exchange obligation at the last minute
2) potential to add units
3) quickly appreciating neighborhood
4) in-demand rentals (both units rented before they were 100% done)
5) $500/mo cash flow after expenses

Honestly, we're about $6,000 out of pocket on this project if you consider that the 1031 money was never really "my" cash to begin with. It's not the return I would normally demand, but I think you'll agree the above bullet points make up for that. We spent $125K on the purchase, $75K to complete units, paint the house, build a front porch (not pictured), and another $16K on demolition of the rear (asbestos contamination sucks). ARV nearly a year ago was projected as $225K but based on the market comps I've seen, we're easily pushing $275K now. Remember that it's zoned that more units can be built!

The other great thing about this project was that it "legitimized" me in the eyes of some other investors and contractors. While it was not our first project, I walked a few people through this one who were impressed with the rehab, rents, and my screening process. I just secured a private lender at phenomenal terms in part to showing them this project.

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

Honestly, this was right across the street from another rehab we were doing. Convenience was definitely a factor. I had a 1031 that the clock was ticking on....loudly.

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

I literally walked across the street and asked the owner if he would be willing to sell it. He told me his purchase price and cash invested so far and we went back and forth for about two weeks. It took him a while to finally sign as it was originally meant to be for his family.

How did you finance this deal?

Commercial rehab loan through a local lender. They finance 80% of the purchase and the full rehab, up to 80% LTV. Due to my excellent relationship with them up to that point, they agreed to go 85% so I could pull more money out. I'm not worried about being over-leveraged as the appreciation of the neighborhood continues to skyrocket.

How did you add value to the deal?

Rehab. Another win for this project was discovering original clapboard in great shape under the asphalt siding. We had originally planned to vinyl-side the house, but upon this discovery, I consulted with several realtors about the value of painted clapboard vs. vinyl siding in this neighborhood. The consensus was that paint added up to $10K in value, and my contractor was willing to do either for the same cost.

What was the outcome?

Both units rented at and above projected rents, prior to even finishing the entire project.

Lessons learned? Challenges?

Identify replacement properties BEFORE selling if you are doing a 1031!! Honestly, I already had another one identified and under contract, but had to spend the remaining funds. This was a good place to park the money for a while, and benefit from some cash flow and appreciation.

Hey @Jon Adamowich, I didn't realize you were there, but then again, that was a really big turnout. My wife introduced us both in the opening, and I kept my mouth shut (rare indeed). The rest of our properties are on the West Side but looking to spread into more "path of progress" neighborhoods. Those properties have a wider variation but some of them have crazy equity projections and even zoned to build more units. 

Hi fellow landlords,

First post over on this side of the forum, so allow me to introduce myself quickly. We own 10 units in Buffalo, NY and are growing aggressively through rehabs and the occasional "opportunity flip", while working full time careers and raising a young family. Our main focus has been small multi-family, and continuing to play a small role in the resurgence of these historically down-trodden neighborhoods.  

I've been reading BT's book on landlording, and was curious as to how many of you provide your tenants with a packet or binder that includes your (or your companies) information, house rules, copy of the lease, etc etc. I can certainly see how this could be helpful, but wondering if it is worth the work as how many tenants refer to a paper copy of anything?!

If you do this, do you mind sharing what you provide, how you provide it? My thought would to also include all the manuals for appliances, thermostat, water heating re-lighting instruction, and possibly even copies of the move-in property condition photos. Too much? Thoughts?

Thanks for your constructive comments. I tend to overthink, but then again, it's served me well so far. 

@Jon Adamowich and @Adam Wigdorski, I really hope to meet up with you both eventually. I read one of Adams post a while back introducing his properties and process, and one of the takeaways is -- and Jon, this is important to acknowledge -- this is what works FOR HIM. He knows the area, he is close to his units, and he can make it work beautifully for him. This is awesome! But...just because the model works for him, doesn't mean it is what you should be compelled to do it. I personally would never spend that much on a duplex (aside from the one I did because I hit a 1031 deadline and it's zoned that I can build another multi-family on the same lot) but it works. $1500/mo rents in North Buffalo originally shocked me, but it is a family friendly neighborhood that benefits from the explosion of Hertel Ave. However, I also think that rent range is volatile in Buffalo should/when the next market downturn take place, as the folks paying $1500-1800 may be looking for $1000-1200, but that is really tough to predict. All the new development along Niagara Street, for example, with rents $1800+ is a tough pill to swallow, but I'm watching it closely to see how it pans out. I hope for our sake (and Buffalo) that it is successful.

By comparison to those $200-300K duplexes, my best performer is a South Buffalo duplex that I was all in at $105,000 purchase + rehab. Its NET cash flow is $900/mo. I nearly had a perfect BRRRR before I even knew that BRRRR was a thing. It is a true unicorn and I wish I could copy it 50 times. Looking at re-appraising it soon for some truth, but I don't expect it to top $120K.

I feel it apropos to acknowledge your comfort level and lifestyle goals. Some folks talk about house-hacking (which, again, I fell into by accident myself) and lay out these crazy inconvenient things like turning a living room sofa into their bedroom and renting out the rest of the house. Maybe that would have worked for me a decade ago, but not now. I'd rather my family enjoy our own four walls and space, and have a slightly slower growing process with my properties than be a "prisoner in my own home". However, if you can make it work for you and pursue it like an adventure (cue the BP podcast with Jocko Willink) then more power to you!

The beauty of it all is that you do what works for you. The most important thing is that you do something! Oh yeah, last thing before I turn in -- Adam makes a great point about the ~$50k houses. They are not in areas you may want to live in, and/or require a LOT of work. If you don't feel comfortable in the area and don't have the rehab knowledge yet, saving up for something a bit better is a good idea. One of my last projects was a $64K duplex purchase that needed nearly $80K in rehab to stabilize. It still performs well, but not as well as I originally projected. However, the saving grace there is the rise of the neighborhood values. 

There is definitely something to be said for quality, as it will probably yield less headaches down the road. 

@Adam Wigdorski provided a much more thorough answer for you, which is all great. I personally write snow removal into my leases, so it's on the tenants. That is certainly a factor here in Buffalo! You may also want to look into the water metering, as some properties don't have meters and are billed at a flat quarterly rate. I found this out the hard way with a triplex I bought (1/3 occupied at the time) and the quarterly bills were $400!! That was not a fun surprise, but not necessarily a big-ticket expense, either. But, those small oversights can add up. The water/sewer line insurance is a brilliant purchase, as well. Sometimes it comes with the property insurance so ask your agent the right questions. My primary residence is covered under our homeowners policy but we opted for the extra coverage through Dominion (or whatever they are now) for the upgraded sidewalk and landscaping replacement coverage should we ever have to dig. 

As long as we're being thorough, add the city rental registration in there, too, at $50/yr. 

@Jon Adamowich sounds like you need some networking with agents to find some off-market deals, or find an MLS listing that has been sitting for a long time because no one wants to touch it -- then again, don't we all!! I would start talking to some contractors and even throw a few bucks at one to come look at potential properties with you. It takes a while to get comfortable with eyeballing rehab numbers, but you'll get more confident each time. The rehab is the only way you'll get your money back out quickly, and also leaves you padding in the LTV.

Speaking of padding, yes I factor in property management, 5% vacancy, and high common utilities (water/sewer/trash) to give myself a rather conservative view of the metrics. This way, if values level off or even dive, I've built in some padding even if I'm still self-managing. Use the online calculators so you can quickly change the figures and see your range of returns in both best-case and worst-case scenarios.

Looking forward to meeting you all at the meet-up -- it will only be my second but have already significantly networked with people from the first one. @Jon Adamowich, to answer your question, I think everyone looks for different numbers and prioritizes different aspects of their investment. For me, cash on cash return was originally the most important, as I could get my money back and into the next project faster. But, I also look at the area and how much appreciation there will be. While I do not use property management, I factor it into my metrics as a worse case scenario, or for when I no longer want to self-manage. My last couple buys were through 1031 Exchanges (look it up in the glossary if that's new to you -- pretty cool concept though not necessarily the simplest!) so I was also dealing with deadlines and some of my priorities had to shift with regard to numbers. If I had to average my handful of properties, I would say my cash on cash returns average 40-50% and  cap rates range 12-22%. 

My advice to you is to find some lenders that offer rehab loan products (I have an excellent one) that will finance 80% of your purchase and the entire rehab, as long as they are not in for more than 80% LTV. There are a few smaller banks around here that do this, each with slightly different terms and "red tape".