All Forum Posts by: Trent Stone

I've been meaning to make a formal list, so this is a great question. It's all part of your due diligence period. I'm sure if you check for a due diligence check list you can find something better, but here's what I look for:

-Get an inspector to get you a full inspection. Make sure everything is up to code and has permits. If you plan on doing any expansions or repairs make sure they will be permitted as well

Ask the city for any and all information they have about the property, it's free and should take ten minutes.

Have the title company run a title search for you and get title insurance so nothing comes back to bite you later.

Get your contractor to walk the property to look for anything your inspector might have missed and get a quote for any repairs you may need. 

Talk to a property manager to make sure it will rent for what you need it to. Ask if there's anything you should be aware of about the neighborhood that will impact your rent prices. ie. new construction, gentrification projects, a new Amazon plant opening, etc.

you MUST get the rent rolls and a 12 month rental history and P&L. Make sure that even in the worst month you would still be positive cash flow. Find out your rental demographics. Are you going to inherit any section 8 tenants? You'll definitely want to know that information. Is there an HOA? They take a lot of your cashflow and a lot of control you have over your property, buyer beware.

Have multiple exit strategies if you need them and make sure you are conservative with all your numbers so you don't get caught with your pants down. I would say at a minimum, have your Realtor, PM, and another investor look at the numbers. Make sure the cap rate is realistic for the area you are in. ie. If you found an 8.5 cap in a A neighborhood, it's probably too good to be true. So just be aware that the numbers can be explained and make sense.

I'm sure I'm forgetting something but I hope this was helpful. 

I would talk to the smaller banks and credit unions to try and do a "portfolio" loan, meaning they lend their own money, not like the big banks like Wells and Chase. They can take all your houses and treat them as a single property ("Blanket Loan"). Depending on your credit, income, history, etc. you should have no problem pulling out 70-80% of the equity. Find yourself an investor savvy mortgage broker and ask them to shop around for you. I would also interview 10-12 banks myself to compare rates and find someone who is willing to give you the type of loan you want. One downside is if you ever plan on selling any of the houses then it's hard to break them up and get new loans for your buyers. But if they are positive cashflow and you want to hang onto them, then I'd say go for it. I don't see a point in keeping all that equity tied up when you can borrow on it for around 4% right now. My 2-cents. Good luck!!

Take the money you have and use it as a downpayment for a hard or private money loan. You can find a lot of them that will take 10% of the purchase price down (plus some points and fees) then they will finance the rest of the purchase and 100% of the rehab. Once you are ready to refi they will count 70% of the gross rentals as income towards your dti for a traditional mortgage so you shouldn't have any problems as long as your credit is good.

We have been able to find partners who have put in 100% of the money for our deals. Network with wholesalers and investors.The key is to find a GOOD deal. Ideally 65% ARV all in. That way even if something goes wrong your investor is still protected. By month 5 you should start the refi process so as soon as the seasoning process is over by month 6 you can get your equity out and pay back your investor. I would keep all of your money out of the deal and keep saving during the project in case you can't pull out all your money on the refi, then you can pay your investor out of pocket and keep your equity in the project. Win-win for all. Don't be afraid to walk away from deals if the numbers don't work.

I know it's a lot to digest so let me know if you have any other questions. Good luck!!

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Yeah, the extra supply isn't always a bad think, but be keenly aware of how it will affect the supply/demand curve. Also, make sure you are comparing similar asset classes too. If they are multimillion dollar highrises and you are looking at $1,000/mo, you probably won't be impacted as much. But, as Grant Cardone says, "If the cranes are at play, stay away!". He's a big advocate of staying away from the new construction for the most part just because of how it will change the rental market.....It's not a no-no, but just be very aware of how it will impact your property.

Yes, %100 something to look at. The new construction will completely change the rental economy and you need to plan for it. Right now in a small city by mine in Utah they are on track to put up 35,000 new doors in a 5 year period. Sure rents look great now, but you couldn't pay me enough to invest there because I know a market correction is coming and I know there will be an enormous amount of excess inventory soon. Know your market, make sure you have a very solid, conservative cash flow to account for fluctuations in the sales and rental markets, and make sure you have more than one exit strategy. Plan a few years out at least. Pay attention to gentrification projects, housing growth and appreciation, job growth, and economic growth, etc. i.e Are any big companies planning to build or shut down near by? Very important to know, but not hard to find out.

Get EVERYTHING in writing. It's not that you don't trust the person, it's just that people almost always have a difference in expectations and there will always be problems. Decide what is most important to you. The first time I started a business with a friend I told him, "your friendship is more important to me than any business". Did I lose a little bit of money when we disagreed? Sure. But we are still great friends to this day and I don't regret it for a second. I was willing to lose everything I put in the business to keep his friendship. Get a solid joint venture agreement, have the tough conversations if crap hits the fan, and be sure you are on the same page and I think it could be a fantastic experience. I hope it goes great for you!! 

Yes, absolutely you can, not technically a BRRRR, but yes, it's possible.

The way to do it is to pay cash or get a hard-money loan then refinance after the rehab is complete. If you go the traditional route you would have to wait 6-12 months for "seasoning" before you could refinance the property and get a traditional mortgage. Alternatively you can buy the house by whatever means and have the title company include your rehab costs in your closing statement. Then you don't have to wait for seasoning and you can refinance %100 of the money you put in or %70 whichever is less the day you are done with your rehab. If you go this route, just make sure you get a GOOD deal, or the appraisal will come in low and you will have to pay a lot more out of pocket than you would otherwise have to. Feel free to PM me if you have any other questions. Good luck!!

All that matters is supply vs. demand. If there is insane demand, then don't worry at all. If a giant Amazon plant just closed or something, then yeah, run for the hills. How long have those rentals been sitting? If nothing has been sitting longer than a month, then you're golden. If those have all been sitting for a year, then yes, be concerned. What I did when I first started investing was to contact 5 property managers and ask them for market specifics about the type of rental I wanted in specific areas. I quickly learned who was a good manager and I got invaluable market knowledge for free. I HIGHLY recommend doing the same thing, they will tell you exactly what the rental market looks like for your property. Good luck!!!

If you are more concerned with cashflow, I would absolutely recommend going to a different market and getting a mfr. I've heard so many horror stories about the deadlines for 1031's, just make sure you have all your ducks in a row and have a great 1031 intermediary before you pull the trigger. Florida has good cash-flow markets, KC, Indianapolis, Dallas/Austin, Birmingham, few other places. I'm doing all my investing in Indianapolis right now. Just my opinion. Best of luck to you!!