All Forum Posts by: Paul Thompson

Hey @Diane Trotter

Welcome back to town. There has been a resurgence in the Central High area and surrounding "Quapaw Quarter". Specific to Central High area, Summit St has several houses that were completely dilapidated or condemned by the city that have been completely rehabbed.  The Creative Corridor Project is getting most of the attention right now. But other area neighborhoods have seen an upsurge in investments, improvements, and community involvement.

Feel free to contact me to talk about your goals and plans. I've attempted to purchase property in the area but so far haven't found the right scenario for me.

Here are several links and articles about current Little Rock revitalization efforts.

http://www.downtownlr.com/files/27/Little_Rock_Cre...

http://www.smartgrowthamerica.org/2014/07/22/mayor...

http://arkansaslife.com/13762-2/

http://www.arkansasonline.com/news/2015/dec/25/lr-...

https://www2.ed.gov/programs/promiseneighborhoods/...

@Brandon S.

There are local banks in Central Arkansas that will do 85% LTV. These are commercial loans with a 3 to 5 year balloon but are amortized at 15-25 years depending on the age of the property. My experience is they typically won't amortize more than 20 years unless it's a very new property.

What condition is the complex in? Are the units rented? And if you don't mind me asking what cap rate would you be buying at? I've noticed in this area MF are selling at very low cap rates right now. So I'd just caution you on that front. You may be at risk of buying on the high end of the cycle. You're crystal ball is probably better than mine.

But let's say you're confidant it's a good buy. One idea I've used for properties that are a little run down and need a decent rehab (but nothing too drastic) is to get a rehab loan with the same bank with interest only (with as long of a term as they'll give you). Some banks will lend you 85% of repair budget. So you could take the highest bid/estimate you get but then rehab for the actual lowest bid/estimate. This in turn allows you create 90% LTV or even in some case on smaller deals 100% financing. Just make sure to use this strategy with your eyes wide open. My banker actually recommended the strategy and he was aware of what I was doing. So no funny business or fraudulent documentation with falsified quotes. Just estimate high and execute low. You'll have to really shop banks to do this.

Another way to accomplish a similar goal is to negotiate a repair credit into the sell price. Your sell price would stay the same but the seller would agree to credit you an amount, say $30K-$50K in your example. An investor friend of mine did this on a recent deal (albeit much smaller one -- SFR) and was able to net some cash to use for his operating cash reserves.

And of course seller financing is really the best idea of all (provided the property is free and clear or has a very small mortgage). If the seller is open you get to negotiate whatever works with any specific requirements of LTV.

@Jeremy Pace made a great suggestion to use private lenders. You will likely have to give up a portion of equity. If you have private lending setup you might suggest they pay the 10-20% down payment with an option for 1/2 interest in the property. Then the plan is for you both to hold the property for 10 or so years. You enjoy the pleasure of management and cash flow. The investor will benefit from the appreciation and monthly payments required (say 5%). Hold it for 10 and sell it for cash or 1031 exchange into something else.

With any strategy do remember leverage cuts both ways. The LTV ratio requirements are in place to provide you a margin of error and protect the lender. So just make sure you're buying right and have some safety valve for cash reserves when (not if) something doesn't go to plan. I like to keep as much cash back for emergencies as possible and use creative financing that allows me to acquire a cashflowing asset.

If you want any local info shoot me a line and I'll offer whatever help I can. I'm not a MF investor but I have been shopping them for a while. Best of luck...

Paul

@Nathan Scarborough

Welcome to the community. You are thinking differently than most people and certainly thinking differently that most people your age. Any good real estate investor (especially when they're younger) should be able to manufacture a clever financial solution to their primary residence by using their real estate wiles and keep from paying retail, live mortgage free (or near to it), or buy property well above their income level. Conventional wisdom tells people the American Dream is home ownership  and that their house is their best investment. I suspect most people on BP know better. Yes there are financial advantages  to owning your primary residence (interest deduction, amortization, etc) but it's not an investment. 

I encourage you to visit the local REIA: www.carreia.com. If you are a member we also have subgroups discussions. I host one called "Deal or NO Deal" that analyzes scenarios just like this. I happen to be familiar with this very triplex you are talking about. I even considered using it as a case study in our subgroup meeting. Since it's still on the market and you're still considering it I won't go into any further details. But feel free to contact me directly and we can chat about it. 

To use property management or not?? That's a sorted question that a lot of people fall on different sides on for good reasons. It often boils down to your personal situation and goals. My only suggestion to you is to budget for it when doing your analysis no matter what. Then you bought it such that you can afford to use property management if you choose to.

Since you're new to this read the links @Account Closed provided and then go look at a bunch of properties (if you haven't already). You need to start getting a feel for property condition you are comfortable with, surrounding neighborhoods, what is the market doing in your micro area (i.e. near your school), what are small multifamilies renting for, how fast do they rent, etc. Drive your area and call every for rent sign you find and ask questions and listen.... In just a weekend you'll get a really good idea what the rental market is like.

Wish all the best and hope to see you at the next REIA meeting. It's on estimating repairs which is a great topic for someone getting started.

Cheers!

Hey Chris check out the local REIA website: www.carreia.com

Good place to learn and network.

Call, text, or email me if you want to talk shop

Paul

Hey @Mario Monge

Welcome to BP. The local Real Estate Investors Association (REIA) can be found here: www.carreia.com Come to the meetings and introduce yourself, learn, and network.

Best of luck

Paul

Hey TJ

welcome to BP. you're in a great market. I went to school up there and visit whenever I can. I really like your intro. You stated your goals. I'd like to pull on a thread from your statement: "I'm currently seeking multifamily properties as I assume they offer more bang for the buck."

Do SFR or MF offer more bang for the buck? That's the question that would be interesting to analyze. You make an assumption but do you have any data to back that up. I suspect it changes per market.

Anybody have any thoughts? What does an investor need to know in order to determine in SFR or MF are better investment directions.

Paul

Hello @Michael James Brooks

Welcome to BP. There's a lot of great content here. But I agree with you it helps to know someone locally. Feel free to call, text, email or private message me on BP.

There is a local REIA in the area you can visit. www.carreia.com is the website. I'm an active member. Most of my deals are sourced from fellow investors from the REIA. There are several experienced members and several more newbies that are eager to learn.

Cheers

Paul

Hello @Gina Worsham

Welcome to BP. If you aren't already aware there is a local REIA. you can find us at www.carreia.com

@Brian Ewell Why pay more for the same return?

Because you don't know what you're investing in. You are only hedging your bets against the stock market. You can find similar returns in any market if you take the time to learn the business. People do it in every market. In Real Estate rarely are the deals out on the vine for you to easily pluck. You have to learn your market, farm it, find the opportunity and create a deal. This is what turn-key providers are doing. They've manufactured a deal and then look for outside investors to fund it and then take their cut, I assure you. Not to say that's a bad thing. They are providing a service. But by electing to take their offering you are outsourcing the expertise to a 3rd party. So you fundamentally don't really know what you're investing in. You could invest in a REIT for similar returns. Or ETFs or Vanguard index funds for that matter.

I only say this to caution you, and others who are considering their investments choices (myself included), that investing with a turn-key solution is not really being a real estate investor (in my opinion). You have your money in real estate, agreed, but you are treating it like a stock certificate. So only if asset class diversification is your goal then it may have merit. It's a value and risk judgement based on your situation and goals. Just don't fool yourself into thinking you know real estate because real estate is a location specific business. And it's very difficult to really know a market unless you live and/or spend a lot of time in the area.

And I suspect if you were to be really honest with yourself and really know your goals... you want to create wealth with these investments and "have enough passive rental income to be able to retire in 10 years" (that's from your profile... kind of cheating...). You don't want to just stash your cash somewhere as a small hedge over inflation or against the stock market. I suspect you want to invest in real estate to create wealth and financial freedom. If that's the case, passively investing in turn-key real estate, mutual funds, REITs, or any other actively managed asset class will take many, many years to create wealth. There's no shame in this by the way. Just make sure your actions are in line with your true goals.

If you really want to create wealth and attain financial freedom in a relatively short amount of time with real estate (5-15 years) then spend the time and energy it takes to become a real estate investor that learns the market you are in, master it, and dominate it.

Those are choice words... what do others think?

Best of luck in your investments. My goals happen to be very much in line with yours as it happens and this is as much advice to myself as it is to you. This is why a forum like bp is so valuable.

Cheers!

I vote Detroit... oh sorry wasn't on the list.

So seriously, @Brian Ewell why invest out of state at all? Someone is making money with RE in every market. Unless you're part of a hedge fund or a really big time investor why go outside of the market you live in and know the best, especially if you want to be hands on?

What's the argument for going so far afield if you're just investing for yourself and not as part of a REIT or an institution? I don't know your market at all but based on your profile goals and background I don't see the driver for leaving your market. Sounds like you have a few properties, have learned some lessons, but aren't doing horribly so far. I suggest don't learn another lesson the hard way by branching out beyond your experience level and scope of understanding. Find great deals in your town, get them on good terms, enjoy what cash flow they generate, and wait for them to double with appreciation in the next 10-20 years. That's a solid plan that can work in most any market.

John Schaub has a book on Amazon called "Building Wealth One House at a Time". I think its a very good book for someone in your situation. I've attended a few of his courses. It's really good, common sense advice without the hype or the pitch. And that would be his advice to you.

Best Wishes on your investing and feel free to reach out to me to talk shop.

Paul