All Forum Posts by: Timothy Smith

Great place if you are smart about neighborhood selection and feel confident with your contractors. Lots of old buildings that need maintenance so be aware of that at the outset! We’ve been successful here for the past 4 years, but we also live close to our properties. Khaled and Matt above are excellent resources, and upstanding guys. 

My main caution at the moment is to get up-to-speed on NYS laws and be wary of purchasing occupied properties without verifiable pro forma. 

@Kaja Baum, I'm happy to report to you that that's not how ASB construction loan works!! The reconstruction loan through ASB is a "one stop shop" so to speak. They appraise your property based on ARV, taking into consideration your scope of work. So, you know your ARV from the beginning. The downside is your only way to add value is aggressive appreciation. After your final construction draw, the loan converts to a permanent mortgage with no additional closing costs. No seasoning period as it doesn't apply.

I've done several of these with ASB and would be happy to talk offline if you would like. Just shoot me a message. 

Hi Kaja, you mention ASB and the rehab loan — there is no refinancing with this product, to my knowledge. The rehab loan is one closing (at purchase) then conversion to a mortgage once you take your last draw. Am I missing something?

Try Upstate Bank, as well. Haven't worked with them yet (due to their 54321 payoff penalty) but the terms are good — IF they take you on. I'm in the middle of working with AmeriCU out of Syracuse on a BRRRR here in Buffalo but they are moving sloooowwww. Nice product, though.

@Nicholas Bossert my condolences on your mothers passing, and also congrats to you for savvy thinking as a beginning investor. First of all, slow down! I agree with the others that you should finish the house hack that you've started. One, it gives you credibility and the learning experience is invaluable. Two, it's an asset free & clear of sentimentality.

The red flag that stood out to me is "...I love this house..." When I got into this game, it was hammered into me by a mentor that you must fall in love with the numbers, not the property, or the architecture, or the fact that it reminds you of your Nana's house. I get it -- I really do. But fall in love with the numbers and make your decision that way. Now, have I chosen some properties based on other factors than just numbers? Yes. Such as quality of structure, location, fitting our business model, etc. But in all of those cases, the numbers worked first.

I agree with an above point about showing your dad a successful investment through your house hack, then go from there. Showing someone how something works is often more powerful than explaining it.

This may not be helpful, but I have heard of situations where owners manage to have their own building qualified as "Uninhabitable" by the building and/or health department. Could invite a host of other issues, but depending on how big your renovation is, they might be things you are addressing anyway. Might be worth exploring, but could open you up to other liabilities. Just a thought, as we are all trying to be constructive with this mess. 

Investment Info:

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

Purchase price: $68,000
Cash invested: $35,000
Sale price: $134,000

4/4 duplex in stable Class B-/C neighborhood. Bought it off-market, updated all the windows, kitchens/baths, fixtures, floors, cosmetics. Rented each unit for $975 and $875 to long-term tenants. On paper this was a home run in every way, but we decided to sell and focus our energies on opportunities closer to our neighborhood and properties without a crawl space! This was purchased as replacement property in our first 1031 Exchange, so we are now identifying property to replace this one.

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

This was the first property we bought after learning how to formally analyze NOI, financing, and contracting the entire rehab. The cash flow and debt service coverage was great.

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

This deal was brought to me off-market by a savvy young agent wanting to build a relationship. I was not familiar with the area but did some quick research and knew that it could be in the path of progress, especially with a new Tesla battery-manufacturing plant less than a mile away. The seller was out-of-country, and was tired of dealing with managing it from across the border. There was a long-term squatter in one unit that was rehoused by the seller's agent, and the other unit was vacant.

How did you finance this deal?

Commercial construction loan with a local bank.

How did you add value to the deal?

Fully rehab of the kitchens and baths, new floors (LVP and refinishing wood floors), paint, fixtures, and cosmetics.

What was the outcome?

This property cash flowed roughly $800/mo after expenses, which for an all-in of $105K was pretty good. The real value of this property was that it carried the holding costs on two other rehabs, and appreciated over 30% in two years. We sold it after holding for two years and will be exchanging for 1-2 more rehab projects that will be worth at least double what this property was worth.

Lessons learned? Challenges?

Lesson learned: don't get involved in inter-house civil issues. Tenants did NOT like each other, and I managed to get involved. This was also the only time I used a leasing agent, rather than advertising and screening myself. The tenant selected did not treat the property or neighbor with respect, though paid in full and on time. I also learned that crawl spaces suck.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes I did. The lender we did this with has now financed 3 more rehab projects, and will most likely be doing our next 2.

Agreed with @Matthew Irish-Jones on all points above. I almost froze at your cabinet and countertop budget. That's way overpriced for the property you are describing -- either you are getting ripped off or seriously overspending. Given your rent numbers and ARV, you should be doing the kitchen cabinets and countertop for well under $3K. If you are only supplying a stove and fridge, rather than a full 4-piece kitchen, my assumption is that this is a C or B class neighborhood, so there is no need for solid surface countertops or anything above builder grade cabinets. This is not to diss the tenant base at all! But simply put, you need to build to the market rather than overspend on something that isn't going to A) increase your return via rent, or B) increase your ARV significantly.

My advice is to research local chains (we have Barton's Bargain Outlet here in Buffalo) and find materials comparable with the Home Depot "Hampton Bay" line. Honestly, the prefab countertops at the back of Home Depot are probably the way to go for this place. Again, I'm not saying to "cheap out" but these are places you are overspending and won't see a return. Often times new, clean, and bright looks $$$ but it's not.

@Kaja Baum and Robert -- welcome! Buffalo is a great place that has managed to stay off the national radar for quite a while. I keep hearing that we are getting an influx of people that left NYC during the pandemic, but have yet to witness it myself. I've been investing and rehabbing locally for about 4 years now. There is a lot to understand about the local neighborhoods and some really great opportunities if you buy right -- but that goes for anywhere. There is a monthly BP Meet-Up; I believe the 2nd Wednesday of each month. I've missed the last few but prior to that, made some great connections (including Khaled above) and it's definitely helped us grow. 

Happy to connect if you'd like, and we also have a local BP facebook group. I think a simple search will find it. Best wishes!

Joe,

About to start this process here in Buffalo myself. Where is your property and what kind of property is it? We can take this convo offline, if you'd prefer. Thanks.

Tim

@Kyle Alberry welcome to the BP community! If you haven't already done so, check out the local meetups that happen the second Wednesday of each month. There is one this coming Wednesday on Hertel Ave though I'm unable to attend. This at least helps to build your network with fellow investors, contractors, and lenders. I must say I wish that I had your financial appetite when I was your age -- congrats on taking control of your financial future now, starting with this first step. 

Have you spoken with any lenders regarding your situation yet? To me, that's the best place to start. Your status as full time student/part time worker might close some doors for you, but without knowing all the options out there, I don't want to comment much further on that one. One thought I have off the bat is to use a private money lender to buy the property, then you can count the rental income from the other unit(s) as income when applying for a traditional mortgage. 

The other idea is owner financing. Find someone to sell you the property and hold the mortgage for a few years -- there is a lot of information here on how to approach a seller and pitch favorable terms. 

Lastly, getting out of your current rental to move to a cheaper area will save you more downpayment money. You're spending over $1000/mo, which is reasonable for most, but given your goals, you may need to tighten up to secure a heftier savings. 

Many people on this forum would be able to give you better advice! But, those are my initial thoughts after reading your post.