Comments (142)

 
Jan 5, 2020 - 3:54pm

How much are you putting in as Equity? How are you financing these properties?

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Jan 5, 2020 - 9:39pm

We've got about $110k liquid between the two of us, so we've got a decent war chest. That is able to get us about $500k loan if we decide to go 80% LTV.

Theoretically, we could get a hard money loan for an acquisition for a redevelopment, then finance close to 100% of the construction costs, then just refinance it. No money down, that's the dream. :)

 
Jan 6, 2020 - 2:18pm

REmonkey2:

We've got about $110k liquid between the two of us, so we've got a decent war chest. That is able to get us about $500k loan if we decide to go 80% LTV.

Theoretically, we could get a hard money loan for an acquisition for a redevelopment, then finance close to 100% of the construction costs, then just refinance it. No money down, that's the dream. :)

Crazy. I just bought my condo for similar #s

 
Most Helpful
Jan 5, 2020 - 5:09pm

Word of caution, just really know the numbers, the market, what you're doing, the exit strategy, etc before you jump in. Have owned several properties for close to 20 years. Both good and bad experiences. Trying to unload some commercial lots right now and it is not easy.

RE is a great investment if you know what you're doing and can carry the costs for an extended period of time (at some point you will have to - would be unusual otherwise).

Go in with your eyes wide open, assume some crazy crap will happen, and have a plan. It can be lucrative and it can suck depending on the circumstances.

Don't rush.

 
Jan 6, 2020 - 9:19am

REmonkey2:

Yeah, we're dealing with section 8 and affordable housing, so definitely not class A and B class tenants. Turnover will be rough, but vacancy will be super full and HUD is willing to pay more than market rent in my investing market.

What asset class of property did you buy and where?

Are you prepared to deal with the paperwork that comes with income certifying tenants and all that? Or have a property manager who is experienced in it?

Also, be very careful if you aren't 100% Section 8. Yes, vacancy will be marginal, but arrears and missed rent payments are going to be a lot higher than you think, even with Section 8. You're still probably looking at large tenant shares here.

 
Jan 30, 2020 - 8:38am

Section 8 can be good or bad but do not get lost in the guaranteed rent cloud as only the government portion (which can range from 10-100%) will arrive every month. While you might get slightly higher than market rents, there is also the bureaucracy associated with it as well. When you are renting on the affordable side I have found that tenants are typically harder on units and turns can take 2-3+ weeks instead of the 24 hours that many A/B properties can. CHA inspections are another issue as their demands can be substantial. Finally 100% occupancy is not guaranteed as units must be vacant for the initial inspection before you can start the move in process. In Chicago it takes anywhere from 3-6 weeks to get approval for a new move.

While there are perks to Section 8 please do not assume that the buildings will operate just like a Class A/B property.

 
Jan 23, 2020 - 8:03am

Educating yourself is a great idea. There are tons of articles (just google something like "learning about investment RE"). Like anyhting else, it starts with vocabulary. Learn the terms and the issues. I can't tell you, you have to do the research so you learn it.

After you get comfortable with the language, decide if you are interested in commercial or residential. Different set of issues. Both can be lucrative or horrible depending on many variables.

Do a Ben Franklin (Pro / Con list) on all the imaginable issues and see if it's worth the risk. If nothing else, you're IDing things that will ultinately happen. (for xample - have owned a restaurant building for 15+ yrs. Becoming a headache with revolving tenants. Want to sell. County is making sounds like we need a new septic permit and they won't issue one until we do X which will cost Y - never thought that would happen but those are the types of things that do happen.) really cut in to your profits.

Not all doom and gloom. Have had yrs where we made substantial profits flipping properties (well in to six figures) so it can be great. Just get comfortable with the risk, assume it won't go as planned (at least not exactly), be able to cover the carry cost without hardship, and most of all - be realisitc. We have a managing member who is so pie in the sky it's laughable. Whatever he projects I knock off at least 30-50%.

 
Jan 5, 2020 - 11:43pm

Yes! Second year analyst here. I'm not paid a crazy amount, but I saved half of my take home pay and lived frugally. Bought my first rental one and a half years out of college and am now in the process of renting it out. Residential is so much more straightforward and I feel that by starting small, I can still learn, but my mistakes (which I will make) will end up costing less.

 
Jan 9, 2020 - 11:35pm

Yes of course! Saved $25K and bought a studio condo in Long Beach, CA, literally two blocks away from the beach. I picked up a property that ended up on the market for a very long time because the seller was trying to 1031 three properties all at the same time. Her attempt fell through and she finally decided to sell them separately.

I went through the traditional finance route, but half way through realized my parents sold their house this year and are looking for ways to reinvest their capital. My dad was hesitant, so my mom invested her own money with me. I offered my mom $4.2% and 30-year am for a $200,000 loan, but my mom was happy to do a lower rate for me, since their alternative for a fixed income fund is trash.

I have a really good working relationship with my mom because I care more about helping her retire, and she cares more about helping me succeed. I made sure her name is recorded on the deed and we did all the paperwork correctly, even though I would never, ever want to default on her. We ended up with a 3.6% loan with 3 years of interest only. She's happy getting a check from me every month, and I'm definitely taking her on another vacation some time soon!

 
Jan 6, 2020 - 8:45am

I would also be interested to know what type of financing people are getting. I own two properties and have financed both with FHA loans at 5% down (had to live in each of them for a year to qualify). I'm hoping to get away from making myself personally liable on the next deals I do.

 
Jan 11, 2020 - 10:43pm

I used a commercial lender that does asset backed loans. He's able to get me quite a few types of loans, from conventional financing, hard money, and construction loans, Freddie and Fannie loans.

I've spent close to ~$2k on a lawyer to create an LLC, ask questions about structuring, operating agreements, payouts.

Lenders don't really have an issue with lending to an LLC as long as you fund it with your reserves. I'm getting rates from 4-5.5%.

 
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Apr 22, 2020 - 1:59pm

I'm going through process of making offers on some smaller investment properties via LLC/commercial loans now, and I am wondering how competitive I can be going up against FHA/conventional buyers who will get ~100bps better rates than I (was quoted around 3.3% conventional and 4.5% / 20-25 year amort for commercial). Do you find it difficult to make competitive offers using LLC financing? How have you gotten around this? are there certain loan amount thresholds where the financing is more competitive?

 
Jan 11, 2020 - 10:46pm

Bigger Pockets is a good place to start learning about regulations.

As for zoning, we call the city zoning department directly for any questions. Tax laws, we asked a real estate CPA and my friend has an affinity for tax law, so he dealt with that. Financing options, we talked with at least 5+ lenders and I like to look at different loan options through agency debt (Freddie/Fannie/HUD).

All in all, we've spent 5 months planning including talking and forming our team. We've been to the area once and we're probably trying to go back only 2x a year.

 
Jan 6, 2020 - 9:32pm

I own a lot of properties everything from single families to small buildings. I do quite a bit of section 8 and realize going into this that it is anything, but passive investment. The maintenance/damage alone is a killer with many of those tenants and the properties tend to be older. Just to give you an idea, cracked cast iron sewer pipe (very common in properties 50-60+ years old) starts at 2k for a small leak and goes up to over 10 depending on how involved it is. Units haven't been rocked? Cracked plaster and lead paint laws are a real pain. Yearly inspections with the housing authority will place all the repairs for damage to property done by the tenants on you the landlord to fix. Older systems in a property? You will be amazed at what HVAC repairs cost. The tenants generally also always fall behind even on section 8.

Private payers in each property class have their own pros/cons etc.

Real estate is a good business to be in, time and time again though people go into it and are not prepared for the realities and over leverage themselves. Find a property that is recently built that you can get a solid tenant for if you are starting out, even if the return on paper is less. Things will go wrong, but with a new property, there's a lot less to go wrong.

 
Jan 7, 2020 - 5:11pm

My understanding is they pay a % of their income, usually around 30%, and the Sect 8/Housing Assistance program pays the remainder. So the landlord receives the subsidy from Sect 8 but the tenant may still fall behind on their share. So for example, say the "market rent" is $1,600, the tenant may pay $600 and the housing assistance program may pay $1,000. But if the tenant falls behind... you get the point.

If someone else here is familiar, feel free to correct me if I'm wrong but that's my understanding. Some investors & prop mgmt companies specialize in these sort of investments but as some others have eluded to, it can be a tough business

 
Jan 11, 2020 - 11:06pm

Oh, 100% it's not passive investment. My dad invests in apartment syndications and that's true mailbox money since all he does is collect a check.

For maintenance and damages, we obviously build R+M and capex as 7.5% of monthly budget for each and factor that in. For lead and asbestos, there are government programs from the city that give a landlord money to go ahead and fix that.

I agree to your point about real estate being a good business to be in. Too many people get into it, expecting no work to be done and collecting checks but that's not the way the world works.
It requires a lot of work and dealing with people!

 
Jan 6, 2020 - 11:38pm

Interested as well. Two additional questions for those who have experience (if they're willing to share):
* Why real estate over passive stocks? Stocks seem to have higher returns and more liquidity. What returns have you generally targeted to justify?
* How have you dealt with hassles of operating with tenants and evictions? Any states you would recommend avoiding?

 
Jan 7, 2020 - 9:32am

AZMonkey:

Interested as well. Two additional questions for those who have experience (if they're willing to share):
* Why real estate over passive stocks? Stocks seem to have higher returns and more liquidity. What returns have you generally targeted to justify?

Leverage, my man. Leveraged returns in real estate are much higher.

Also, you have control. I can do all the research in the world on an equity but one boneheaded decision by the CEO and that could wipe me out. I have much more hands on control over my real estate; I hire contractors, I file returns, etc etc. From that perspective it's much safer.

 
Jan 11, 2020 - 11:13pm

I do invest in stocks as well through my 401k and I've got a small stock portfolio in robinhood that's mainly consisting of ETFs, tech companies, and some blue chip stocks. I have a separate account that I trade options from (it's my "fun" money).

Real estate allows me to lever up and the tax laws are favorable for it. I work in sales and my W-2 is taxed heavily, so I can use depreciation and a cost segregation study to reduce my taxable basis.

For example on leverage, I buy a house worth $100k with a down payment of $25k. I fix up kitchen and bathrooms, new floors, paint. Let's say I'm able to get higher rents and the bank appraises it for $125k. You're able to refinance 80% (or more, depending on your lender) out, pay off your old loan, and you've got your initial down payment back + extra.

Old House - $100k, $25k down
New value - $125k, refinance out $100k.
Pay off old loan of $75k, you're left with $25k to reinvest in whatever and you've got a cash flowing house.

Obviously, I'm simplifying the math, but the point is that you can keep refinancing.

 
Jan 15, 2020 - 11:00am

anticipating beginning little in my own market. expecting to begin with 8 units and ideally scale to 100+. simply dreaming however I am not racing into anything.

Affar Baksh is top Real Estate Attorney in Queens, New York. Most 5-star ratings in New York city area demonstrate his qualifications and skills.
 
Jan 16, 2020 - 1:47am

I originally wanted to go with Columbus, OH or Phoenix, AZ. Phoenix was too expensive for me and I was also eyeing deals in Columbus.

Cleveland appealed to me because it was cheaper than Columbus and excellent rent-to-price ratio. It spits out cash flow and cash flow is good for multifamily investing aka wealth building.

The added bonus is that there are pockets of gentrification that are still affordable. Plus Section 8 and other government programs pay more than market rent.

 
Jan 16, 2020 - 10:18am

indeed, got into various things like that while attempting to concentrate on a salaried CRE employment, and it was extremely irritating yet in addition genuinely beneficial. I wouldn't have exchanged it for the world

Affar Baksh is top Real Estate Attorney in Queens, New York. Most 5-star ratings in New York city area demonstrate his qualifications and skills.
 
Jan 22, 2020 - 9:51am

You will need fairly significant equity in the project, liquidity, and net worth to get non recourse debt.

Affar Baksh is top Real Estate Attorney in Queens, New York. Most 5-star ratings in New York city area demonstrate his qualifications and skills.
 
Feb 1, 2020 - 10:41pm

Waiting to hear back on an offer I sent few days ago. Offered 60k, needs 140k worth of work. 45k pro-forma NOI and cap rate of 10% stabilized according to CoStar comps.

Looking at an 11 unit as well for 50k and would need about 200k worth of work and NOI would be closer to 50k.

Financing plan is HML, do improvements, then I can refi once I have leases in place (according to my lender). Takes time, but will be well worth it.

 
Jan 28, 2020 - 8:32pm

I used to buy in Cincinnati, OH during the 2007-2008 recession while I attended college there. In these types of areas (C or D class neighborhoods), you just have to be careful - I used to run pro formas on multi-family properties and on paper it looks good (like 25% cap rate good), but realistically you're going to face higher eviction and turnover rates. Quality of tenants is lower as well. Then I started buying in more desirable areas -near shopping, transportation, higher ownership rates - at lower cap rates and did much better. I go into the deal knowing that there's virtually no appreciation - you make your money on the buy. This is unlike a top-tier city like NYC - where its hard to get much equity since theres a ton of competition - so you're pretty much banking on appreciation.

 
Feb 1, 2020 - 10:51pm

Yeah, we're targeting C areas mostly for Section 8 and other government programs. I've walked around the areas at 11pm and I didn't feel unsafe, so that's a good sign haha.

As to quality of tenants, key is to screen them. We placed "feeler" ads on Craigslist and gotten several hits. Our basic requirements were 650+ credit score, last 2 paychecks for income verification, no evictions & felonies. We're shooting for an average resident to stay for 18-24 months, but no guarantees obviously.

I used to work in property management some A, B, and C class locations so I'm very familiar with how tenants can absolutely ruin units.

 
Feb 1, 2020 - 10:23pm

I'm 29 and currently working a full time day job in the real estate industry here in NYC.

I started purchasing properties a few years ago, I currently own 6 properties (20 units). Most of my properties are between NJ/PA, but I do own one property here in NYC -- all multi-family assets. If anyone is in the NYC area and looking to network let me know I'd be happy to chat further.

 
Feb 5, 2020 - 12:31pm

It's a small multi-family (3-units) in Brooklyn.

I would not recommend buying in NYC as a first time buyer. The properties just do not cash flow. But if you do, I would suggest multi-family properties with 5 units and less so you are not restricted by the rent regulations.

I prefer other markets, particularly secondary and tertiary markets in PA. Very Landlord friendly and I have purchased deals that generate in excess of $2K/month in cash-flow (20%-30% cash-on-cash).

 
Feb 2, 2020 - 3:42pm

First year analyst here with not much saved, but can't wait to start investing myself. Realistically will be starting very small with a SFH or duplex.

Not sure if I should go in alone on this or start with a good buddy of mine that isn't in real estate. Pros would be I could start quicker since we will both putting contributing capital (he has more $ saved as well), cons would be the learning curve for him (even though most of the math and knowledge arecommon sense).

 
Feb 23, 2020 - 8:04pm

Hey guys - just wanted to post an update. Finally under contract. 6 unit in a C/C- area for 220k.

Putting 20% down on a conventional. Current plan is to let tenants ride out their leases, then bump up rents to section 8 Fair Market Value. So this is from 750 to 1100.

Assuming I can get it stabilized at 1k/unit monthly, NOI would be 36k and lender said he'll refi at a 9-10% cap rate, so 360k appraised.

Putting down 44k plus another 6k for lawyer, closing costs, financing, LLC etc - so startup costs were 50k.

Also put in an offer on a house to flip with my contractor and agent. 52k PP, 26k rehab, comps run for 120-150k in the area.

 
Apr 20, 2020 - 6:49pm

So I figured I'd keep this thread updated as an accountability sheet.

Bought 2 properties, a 6 unit apartment complex in a C/D area, plan is to do section 8.

Buying for 217k, NOI 27k as is. Can be bumped to 36k NOI after switching tenants to section 8 (takes about 6-9 months). Should reappraise at 350-370k after it's done @ 10% cap rate. Was under contract 2/24 and closing 4/25 hopefully.

Bought a single family house in class A neighborhood. Purchase is 53k, rehab is 53k. ARV is 160-180k given the current circumstances. Closed 4/14 and began work 4/16.

Current project: Looking to build tiny home community for homeless veterans in rural Ohio, close to Akron area.

 
Apr 21, 2020 - 10:58am

REmonkey2:

So I figured I'd keep this thread updated as an accountability sheet.

Bought 2 properties, a 6 unit apartment complex in a C/D area, plan is to do section 8.

Buying for 217k, NOI 27k as is. Can be bumped to 36k NOI after switching tenants to section 8 (takes about 6-9 months). Should reappraise at 350-370k after it's done @ 10% cap rate. Was under contract 2/24 and closing 4/25 hopefully.

How are you planning to convert these units to Section 8? I'm not familiar with any market except NYC metro, but getting a new contract is almost impossible here; maybe that isn't true elsewhere? Or is it tenant based?

 
Apr 21, 2020 - 6:37pm

Once the unit is vacant, the housing authority comes in and inspects the unit to make sure it's up to code. Usually takes about 30-45 days for an inspection.

This was just renovated in 2019 and it should pass all inspections.

This is in the Cleveland, OH metro.

There's a shortage of good HUD housing in Cleveland, so getting an inspector isn't a huge deal. There are also other nonprofits & programs in case if Section 8 doesn't go through. Take a look at Shelter Plus, Frontline, and EDEN.

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