one plan to get started

[brightond]

Hello, this is my first post but I'll try and keep it as concise as possible.

New to real estate investments. My partner and I have been trying to establish a formula/model that will allow us to break free of the 9-5 and use our time more wisely. We intend on doing real estate investing "full-time" and would like a little feedback on getting started.

Our first formula consists of purchasing a 8-12 unit apartment building. The building will rent to professionals who pay on average of 1000 per unit. The buildings we want will be already renovated and 100% occupied. Our goal is to use a very conservative analysis of cash flow (the JScott spreadsheet as been incredibly valuable) with vacancy rate, modest repairs, proper managment etc. Our NOI will cover the mortgage along with the "private lender" financing that got us the down payment. This will leave us a small amount of actual cash flow left in the building. The most important part is the "cash out" terms that will be part of the deal. We are looking to get 50,000 to 75,000 from the seller to finance us until the next purchase. These buildings are million dollar plus buildings and our goal is to obtain 5-10 within 1 year.

Private lender note.... we have a significant source of private financing who will probably give us gentle rates why we are getting started.

It does not seem that equity is a viable option for getting cash out of these apartments because 1. Unless the rents go up a significant amount the Appraisal is relative to the purchase price (the place is worth what you bought it for.) 2. An appraisal to start the refi is over $4000 and the costs of refinancing a million dollar property make taking any money out counter productive.

I will start with that.

THANKS

 

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[randallg99]

put up your analysis #'s and you will get constructive feedback

 

[brightond]

Thanks for the reply.

Our market is Baltimore City and our demographics will support income growth.

I realize that the tight cash flowing scenario puts us at risk. Without a lot of our own capitol we can't think of a way to avoid the private lender funding which is basically the reason for tight cash flow.

I have read about having sellers finance the 20% down for two years with interest. Can anyone elaborate on how this scenario works? It seems risky if you have to come up with a large amount of money at the end of the two years.

Are there any suggestions for getting cash out of a purchase? Like I said before we are trying to make this our line of work and need to support two incomes. A property that cash flows 1700 a month will not be sufficient.

thanks

 

[MrPink]

You want to get 5-10 8-12 unit apartment buildings within one year (range of 40-120 units). Have you thought about buying one large place instead of many 'smaller' apartment buildings?

I don't know your area so maybe there are none for sale (or a place to build), but just a thought.

Mr. Pink

 

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[lightning]

With all due respect, (and with no offense intended ), a million-dollar + deal seems a little aggressive for two guys who have NO experience in real-estate investing. Have you ever considered starting off on a little smaller scale just to learn the ropes and get some experience under your belt?

Just remember, the repurcusssions of mistakes made on a smaller scale, will always be smaller then the repercussions of mistakes made on a larger scale. (just something to think about in the "what IF" factor).

 

[brightond]

Absolutely, we would begin the process of buying under the heavy supervision of a large real estate investor.
Could you offer any suggestions for getting cash out or significant cash flow to support two incomes from making small deals.
The market seems to fragile to try any buy and sell on the quick. Equity lines are also less attractive right now so we have moved away from thinking along those lines.

Any models for beginning a profitable real estate investment would be helpful.

Thanks

 

[slim_jim]

If the property has good management and 100% occupancy, where is the opportunity to add value? It would seem that all you are purchasing is the cash flow, which most of would go to servicing the debt. And you want it to support two salaries/incomes?

Have you read some of the commercial property threads from SteveO? Maybe he will chime in here.

 

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[April]

I am in DC and Baltimore has a lot of opportunity. I am not new to real estate but I too am looking to purchase my first apartment building (but my goal is 6 months and I'm doing it alone) Although I understand wanting to lose the 9 to 5 you have to understand what your getting into before you get into it. Whom ever is supervising you guys or mentoring you should have told you that the objective is wealth building and cashflow can help with that but the plan needs more focus on the long term....I mean, if your looking at 8-12 units in BC that are renting to professionals, 100% occ and fully renovated, you are talking closer to the Harbor and you are talking around 2 million plus and these places are going to be at least 150 years old...which mean you may have plumbing, sewer, electrical, ect. issues that may not be visible, which also means you need a nice reserve plus you 10-20% downpayment in the bank. To achieve the cashflow your looking for you may want to look at buildings that are not in bad shape but could use some improvement; look for poor management (rents are to low, poor landscaping, ect.) and slightly higher annual operation expenses so you can come in and correct problems; therfor increasing your cashflow and most importantly your property value. If you have equity now you can take some of that equity out (where the renters are paying you it) and purchase another cashflowing property and have some leftover, tax free money in your pocket...in another post I talked about a friend who did this and walked away with 500K as his pocket change...just think it through