I should have qualified my statement by saying that cities in CT, not CT generally, are difficult for landlords. Hartford, for example, has almost 1.5 million people in the metro area but only about 130,000 in Hartford proper. Certain neighborhoods in that city are pretty damn dangerous. Same could be said for Bridgeport, New Haven, or any primary or secondary city in the country.

At the price point in debtvulture's deal, the clientele will certainly not be doctors and lawyers. Actually collecting the stated rents, and all the headaches that go along with that activity, may be one of the reasons why the current owner is selling...and why 10 updated units are being offered for $29k each.

My premise for RE investing, admittedly elementary, is: buying a rental property is an arithmetic problem, owning a rental property is a people problem. A year or two into owning, you've long forgotten about the thrill of buying.

Being a small landlord is not just cashing checks and spending the free cash flow, even in A+ locales. It's like being married, without the sex but all of the commitment. If you can foresee your people problems before you buy in a C or D neighborhood, no rosy cash flow scenario is worth the potential headaches.

I can't tell you how valuable it is to know people in trades that are 100% reliable. So that's a massive plus. Plus I'm assuming you will get some family discount on the repairs that the market will generally over value anyway (meaning you get a bigger discount on the parcel).

That said, an inspection of the building is not going to 100% indemnify you from massive problems. Some problems don't arise until you break ground, or tear into walls etc.

At the end of the day it's your call. Personally, if something were out of my comfort zone I would want to be getting a stellar return as opposed to a mediocre one.

This thread is too long. I can't seem to find the info I need. How can a poker pro get a loan to buy a house? I have about 50K~ in stocks that I can sell. I also have another idea which I am not sure about. Can I rent a big house with 5+ rooms then rent out individual rooms for profit? As long as the landlord allows me to do that, I can do it?

I don't think you're suited to be a landlord if you can't find the time to read this thread.

YOU CAN DO IT!

"Kerri listen to me. You can do it!"

August,

Thanks for all the feedback. I haven't seen the property yet but about half of the rent is coming from Section 8 so I imagine it isn't in a great neighborhood. You mention that you would offer to verify if the rents were paid or not. I am not asking you to do that now but how would one go about doing that? Just ask the owner for historical tax returns?

Thanks again.

Getting tax return copies would be optimal, but probably unlikely unless the current owner holds the property in an LLC or trust with this property being the only asset in the trust, thereby not disclosing his whole portfolio. I wouldn't offer my tax returns unless the deal was done and tax returns were the last sticking point. I'd have less of a problem showing bank statements that show the rents being deposited, but once again, only if I had a serious buyer.

Sect 8 rents can be easily verified through the local Housing Authority without asking the owner for proof of rent. The Housing authority sends a tax form to the IRS every year, but, you might piss the current owner off by going to the HA without ok'ing it with him first.

In your deal, I'd be vigilant about verifying the non-section 8 rental income and the "tenants portion" of the section 8 rents.

You bring up a great point. Each property/business that you own should be a separate entity. This is one of the reasons why.

As a loan officer I'm going to demand the tax returns before I send the loan to one of my lenders. No verification on the property in question, no dough.

So we need both a serious buyer AND a serious seller.

fun,

Care to make a pitch to finance debt's deal? Most likely terms, most likely rate?

Secondly, what, if any, problems arise if he were to go with an LLC.

(I ask because I've had problems re-fi'ing properties held in LLC's)

Almost forgot Debt, I'd almost double guarantee that the owner pays for heat and hot water on that 10 unit. Above any other physical aspect of that property I'd want a qualified guy to put that heating plant through it's paces before going very far. With that size building, a new plant starts at $15k.

Pray that it's natural gas and not oil.

Here is my standard answer when someone asks about rates and/or terms: It depends.

I compete on the ability to get deals done, not on rates. A great rate is irrelevant if the loan won't close.

Also, commercial isn't like residential. You can't lock in a rate and you won't get final terms until just before the deal closes. They might indicate terms, but they won't be final.

Fair enough.

I guess I wasn't looking for a drop dead, this is what I can do type of thing, but more along the lines of a broad brush average example.

From an income approach it looks like Debt's deal would get financed. My guess would be his initial cash requirement would be dependent on his ability, proven or not, to manage a property this size, whether or not he has any other pieces to cross-collateralize, current cash, etc.

I said earlier he's probably looking at a 25 year note with the first 10 fixed, maybe I was looking for corroboration. A further guess would be the best he could do on a fixed note would be by going 15 years max which brings into play another layer of the commercial loan onion.

Commercials, in my experience, are not like conventionals where a round peg has to go into a round hole. The commercial loan guys usually look at who is applying for the loan as much as they look at what they are financing, as long as that property makes sense to them.

Yes, you are spot on. There is actual underwriting in commercial, much more so than in residential.

The reason I always say "It depends" is because there are so many factors. There is no "broad brush average example" because every deal is unique.

I have access to over 100 different lenders, each with their on appetite in terms of deal size, deal structure, the types of businesses that interest them, geographic restrictions, etc. Sometimes these things change weekly.

Here's the basic story right now--a deal can survive one weakness, it can't survive two. And some things are non-starters.

No experience for the buyer of a 10-12 unit multifamily? Probably a deal killer. It's not to say that someone, somewhere won't do the deal, but you might have to call 50 banks.

Also, you have to understand my role. My job is to protect my clients from making bad business decisions, to protect my lenders from making bad loans, and to protect my reputation as a straight shooter.

As such, I'm going to ask the tough questions before submitting the loan to a lender. I want to understand the deal (especially any weaknesses) before I submit it. That way I can point out the weaknesses to the lender and then say, "But here's why you should do the deal anyway." (Of course, I'm only saying this on loans I believe in. I'd never try to talk my lender into a bad deal because it is ultimately bad for everyone involved.)

The very LAST thing I want is for a lender to come back to me with a deal-killer that I didn't know about. Now I've wasted everyone's time because I didn't do a good enough job of due diligence.

My view may well be outside the norm for loan officers. So be it. I'm the one who has to sleep with my conscience every night.

Sorry for going off on a tangent there, but I feel very strongly about doing things "the right way."

fun,

Yes, I have no experience managing a piece of real estate besides my current residence. That would really be a deal killer for all of 1 in 50 banks? Wow. In that case, what do you suggest someone starting out to do, look for a duplex/triplex to own first?

Does the fact that I am 40 with a comfortable net worth have any sway with the banks? And by comfortable, I mean I don't need the financing but if I can get it to boost cash on cash returns it would be nice. If that doesn't matter, then I guess I have to start out smaller. I realize that banks aren't exactly being loose when it comes to credit nowadays (despite the gov't's best efforts).

Thanks,
DebtVulture

A ten-unit building as your first property is way too big. Yes, start much smaller. Get some experience and build up.

Do you know your credit score? If you don't, you should.

If your credit score isn't at least 700, work on that first. The higher you can get it (there are no shortage of Web sites offering advice for boosting your score), the better off you'll be when you go to borrow.

If you have the capital(assumption; stocks, bonds, etc) , and have no issue with using it as collateral for a loan, I would see no reason a lender wouldn't want to do business with you. Its not like you're planning on a signature loan with no skin in the game.

If the deal blew sky high, they(or you) would liquidate the pledged collateral to pay out the debt. You don't want to place your net worth on the line but you are in a position of strength.

Bad credit is usually cleaned up with cash. And bad deals become good deals with cash. And from what you have posted you have some cash. Remember the old rule, the best financing arrangement goes to he who doesn't need it.

Yeah, I have no idea what my credit score is but I assume it would be well above 700. I have no debt - NONE. My credit cards are paid off in full every month, my cars are paid off and I have no mortgage so I didn't bother to get my credit score when I purchased my home. I am fortunate, I realize that but I also save like a mofo and probably have passed up many things I should have taken advantage of. Anyway, the point of this post is not to insert a badly disguised brag but to ask when can one do non-recourse loans in RE? I assume if I wanted to go ahead with this 10 unit purchase and was willing to guarantee it a bank would have no issue doing the loan due to my collateral. However, I would rather do it non-recourse obviously? Can I just post x amount of collateral to cover the loan and then not issue a personal guarantee? Can I put 40% down and tell the bank I don't want to do a personal guarantee? I would think that I didn't want to guarantee it, then experience becomes a much bigger factor, right?

Be aware that if someone will do the loan non-recourse that your rate will be higher. That's the price of risk.

[QUOTE=fun160;17525566]A ten-unit building as your first property is way too big. Yes, start much smaller. Get some experience and build up.


I disagree that an 8-10 unit building is too big for your first property. If you hire an effective property management team and make sure you base your purchase price on conservative figures, it does not matter if it's a duplex or 30-unit apartment complex. IMO, you should not be managing these properties yourself anyway, so a larger property will actually limit the temptation of self-management, which can be a real headache. As long as you are not personally managing the property (marketing units, handling maintenance issues, collecting rent) then what does it matter?

But remember, always over-allocate CASH RESERVES. You will absolutely face more problems than anticipated and you need to be prepared to spend on improvements or you risk getting under-water on your loan.

I'm always open to constructive criticism so please let me know if you disagree.

[QUOTE=OriginalCrew;17535726] I disagree with snap hiring a management team. If it is your first property I think owners sould know what it takes to manage a property so that they will be better equipped to judge the cost and performance of a management team should they choose to hire.

I am NOT a real estate investor, but approach this using common sense and my perspective as a lender.

I believe you are spot-on here. I think an investor should "get their hands dirty" with at least one property.

Hiring a property management team does not remove the investor entirely from the operations of the property. In many ways you can learn a lot from your property management team (review budgets, receive quality contractor referrals, know how to handle various tenant issues, etc.) and be better equipped to handle problems in the future.

As someone with experience in property management I recognize how beneficial this knowledge can be when investing in real estate, but I cannot imagine diving headfirst into investing without support. You don't think it would be extremely beneficial to have an experienced, professional, insured, and accesible property management group in your corner as you encounter unforseen tenant and maintenance issues?

I assume these posters are not looking to make this a full time job. When you go at it alone, you are on call 24-7 and essentially handcuffing yourself to the property. I know that if I invest in a property in hopes of cash-flowing $XXXXX a year, I do not want to be woken up in the middle of the night because of a leak, or have to call my lawyer to evict a tenant for not paying rent. Budgeting for management fees = much better sleep at night.

I can definitely see where you're coming from (you want to learn the business from the ground up) but I feel it is kind of an irrational argument. Would you invest in a technology startup where the CEO said "I don't know anything about computers so I am just going to wing it" You don't want to hire a management team because you don't know anything about property management?

Maybe I'm just rambling but I wanted to be sure readers saw both sides. I'll probably have to clarify some of these points in my next post.

Crew, you make some good points. My bias is towards starting small, getting you hands dirty, and making mistakes that don't cost you much.

Interesting you mention technology start-ups. I have a friend who is a serial entrepreneur, primarily in the Internet space. He is now running an incubator in Chicago with the backing of a $100 million fund. One of his early projects was the first file-sharing service, call FreeDrive, which he sold to Motorola for $45 million.

Anyway, when he started his first Internet project he didn't even own a computer. But he teamed with a hacker and said, "If you build it, I can sell it."

Being a CEO isn't about technical expertise, it's about having a vision and being able to motivate your team to execute that vision.

Here's a great article on what VC firm Andreessen Horowitz looks for in a CEO.

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"But he teamed with a hacker and said, 'If you build it, I can sell it.'"

I think you are arguing my point here- He teamed with someone with experience.