All Forum Posts by: Trent Barga

@Trent Barga

First question.

1.) Are these two four unit buildings on one tax parcel or two? The reason why I ask is because I bought a MF deal that had several buildings 2-4 units spread over several parcels. I ran the after rehab value on an income capitalization approach. When I went to refi, I got hamstrung by the sales comp appraisal approach even though I increased NOI dramatically. Which forced me to bring cash to the table $100k worth, just to take out my hard money lender lest I get foreclosed upon by them for going beyond term.

2.) A D property in a B area seems like a heavy value add. You are probably going to need to push out all the old tenants, which will take time. B tenants and D tenants don’t mix well. My idealistic old self thought that people of all incomes and backgrounds could coexist in harmony. I got bit by that lesson real hard! You’ll need to have some cash to float the property’s cash burn during that transitional period.

3.) On the subject of down payment, financing etc. This deal seems small enough in terms of money size that you might be able to get a hard money loan if the deal has enough upside. If you are buying it right, you might be able to get the whole thing, acquisition and rehab financed by a hard money lender. If that doesn't work, raise the down payment and rehab from friends and family. I would treat your HELOC as a buffer only if things go sideways.

Either way, good deal, mediocre deal, or bad deal, you’ll learn a lot from the process. Your future investment partners want to partner with an operator that has got some battle scars!

This seems extremely like spreading yourself too thin, and you'd be better off building up more cash so that you can use actual cash for your down payment as opposed to using the HELOC- this seems very much like a project that will be longer and more expensive than you hope (most are like that, but this one especially so) and so I'd want to finance it an awful lot more conservatively than it sounds like you're considering doing. If the mechanicals (plumbing, electrical, HVAC etc) are older than 15-20 years, you're going to have big ticket replacements. If the roof is older than 30 years, you may have that too. Now you've exhausted what's left of your HELOC and you haven't turned a single unit yet.

Is this still possibly a deal?  Maybe.  Increase your CapX budget by like 75-100% and do the numbers then.  Also extend your turn time (time you will be drawn on your HELOC) by 6-9 months more than you think.  Is this still a deal you want, or could you find something else with less risk and equal reward?

Is $50k enough to get the property updated? Have you confirmed some of the potential big ticket items like roof, plumbing, electrical, etc? What's the vintage and condition on those things? You say it's a D property and they haven't managed it well, so expect some really massive deferred maintenance. I don't think you have enough of a buffer. Please with a HELOC, with current housing valuations, be careful that your bank doesn't shut that down if your house value starts slipping.

Don’t have time at the moment but those are the worst numbers I’ve ever seen for Dayton, OH. I know an off market 24 unit in a top area with $900-1600 rents for $1M. Don’t do this deal. Anyone who has said anything positive, don’t ever talk to them again. Just trying to help.

Hi @Trent Barga - thanks for posting this here. I think there are some good points brought up in some of these comments. One thing I would caution against (because I have done it myself) is when I get so close to the finish line after doing so much work, I start "wanting to make it work" despite numbers and new data suggesting otherwise. I can't make the decision for you, but I would suggest the following:

1. If you haven't already, take a day to breathe and then dedicate some time to analyze some other properties. 

2. Check the comps in the area for this particular property. Are you paying top dollar given the condition? 

3. If you do get it under contract, do NOT waive any contingencies. Get a real quote from a contractor and a home inspection during the investigation contingency period so you know how much work you are looking at. 

4. Make sure you don't walk away without any cash in the bank. If you do decide to pull the trigger, try to make sure you have 5-10% of the purchase price in the bank to handle "whatever comes up". Oftentimes, there are surprises lurking that don't show up until after we record...

All of that being said, I recognize that B+/A neighborhoods prove to be super-safe investments given the tenants that usually are able to afford the units. Take your time on this, do your due diligence, and don't force anything. Better to start over than become cash poor in a poor investment. :) 

Here if you need anything along the way! 

Trent,

I own MF properties in Dayton and at first glance paying $87,500 per door is expensive. The going price is $50k per door for a property that does not need much work. I know of a 6 unit that you could buy for $285k near Wright Patterson AFB

Let me know if you have any additional questions.

Dave Sailors

@Trent Barga well done! Love to read these stories of folks doing things pro-actively. What market is this property in? Is this an appreciation play or cash flow or both?