4 x Fourplexes (Part 2): Investment Timeline and Numbers

 

4 x 4’s… Part 2: Investment Timeline and Numbers

 

Investment numbers napkin math

“Napkin Math”… Analyzing a rental property can be done in 2-3 mins!

 

But first, 2 quick stories:

 

1. Yesterday I found 2 x new fourplex properties for sale in my target area. These are GOOD deals. Since I’m not in a position to buy, I forwarded the listings and numbers to 3 friends and connected them with my agent. All 3 friends pursued the deals, 2 made formal offers, and we’re waiting to hear back from the seller. As much as I love making money personally, it’s much MORE satisfying helping and watching my friends grow wealth!

 

2. Three days ago I wired off $49,300 into a black hole. Well, kind of. I’ve officially entered a new partnership with another real estate investor I met online (BP forums). We have plans to buy, rehab, rent & resell a small SFH in a small town in Alabama. More on this as the story unfolds!

 

OK, Back To the Fourplex Saga:

 

Jump to section:

Back to Part #1: Why Multi-family if you missed it.

How I Found The Deals

Timeline and Financing Overview

Yay! So, What Do I Do Now?

 

Finding The Deal:

Finding Real Estate Deals

 

Probably the coolest detail in this whole story is that this Fourplex package was found and purchased off-market. Meaning, nothing was listed for sale publicly on the MLS, and I was the only investor who knew about it. No competition, no worries.

One of the biggest mistakes new investors make is thinking that services like Zillow, Redfin, and the MLS are the only ways to find properties for sale. Even worse, most people sit back and think that awesome deals will magically appear in their inbox without effort on their part.

 

So how did I find my deals?… I simply ‘asked’ for them.

 

“Ask, and you shall receive”

 

A few years back when I started researching Texas, I was still pretty new to RE investing and didn’t have any contacts. Since I didn’t know anyone, I started just making a lot of phone calls to realtors, property managers, and friends of friends. I began each call with a standard introduction, then asked them the same set of questions.  (I’ll share my call script and question set another time)

 

Calling realtors for investment opportunities

At the very end of each phone call, I would finish with this:

 

“Before we get off the phone, I’m curious if you know any successful real estate investors or old friends that are looking to sell some of their investment properties. I’m growing my portfolio, and want to learn from others who have had success in the area. Can you connect me with anyone like this?

 

As the years went on, I repeated this same statement/question over and over to the same sets of people. I did this to stay front of mind and so that I might be the first phone call if they found anyone interested in selling a portfolio of properties.

 

Well, That’s Exactly What Happened:

 

In March 2017, I got an email out of the blue from a property manager in TX. She said that one of her older family members was selling a Fourplex and will be listing it soon on the market. I jumped at the opportunity! I quickly asked if she could set up an introduction phone call with the seller.

The next day I had a call with the seller, and learned that he was actually selling 2 x Fourplexes (not 1), and I offered to buy them both. We made a verbal deal right there and then. We settled on $195k, per building.

 

So is that, like, a good deal or something?

 

Oh yeah. Shortly after we made the agreement, the seller realized his mistake. We agreed on $195k each, and later that very day the exact same property next door listed and sold immediately for $289k ALL CASH.

I was effectively buying each building for $94k less than what they were worth!

 

The seller and I eventually became good friends. I later found out he had 2 more fourplexes on the same block (total of 4), and I agreed to buy those also. Still under market value, we agreed on $250k each building. 🙂

 

 

Timeline and Financing Overview:

 

investment loan approvals

Since I didn’t have the money to buy the fourplexes all at once, I asked the seller if I could purchase one at a time. We ended up agreeing to purchase 2 x in 2017, and 2 x in 2018. This worked better for me so I could work out financing, and worked better for the seller and his ‘tax reasons’.

 

The first purchase was relatively simple. I used financing from a large, national bank, and qualified fairly easily. Most lenders make you put a minimum of 25% down for investment properties.

The second purchase took a little longer. Large, national banks become difficult to work with when you have 4,5,6+ mortgages, and the documentation required is more complex. Red tape, miscommunication, and lack of bloody common sense held up the second deal a little. It took around 50 days to close with lending delays.

 

In Search for More Flexible Lending:

 

Later in 2017 I started to get smarter about financing. Instead of calling just a few banks to compare rates etc…, I scheduled calls and meetings with about 20 banks and lenders. Again, I asked them all the same set of questions, and gauged who was the most investor friendly.

 

I ended up finding a niche, national lender who came highly recommended by the Bigger Pockets community.  One of the best things about this lender was they took into account rental income from the new property I purchasing. Because these fourplexes are cash-flow positive (rent income exceeds the mortgage/tax/insurance payment), investor-friendly banks see them as good investment opportunities, and want to partner up.

 

The fourth and final fourplex was the easiest. I worked out a win-win situation with the existing owner for seller-financing. This way I didn’t have to go through all the bank/lender process, and the seller is able to make a good % return every month on his money.  I’ve never done a seller-financing deal before this, but it was very simple and we closed in less than 14 days.

 

Numbers, Rates, Income, Etc:

 

Purchase Price Rental Income Mtg Term Rate % P.I.T.I
F1 $195k $2585/m 30 years 4.875% $1245/m
F2 $195k $2625/m 30 Years 4.500% $1246/m
F3 $250k $2515/m 30 Years 5.125% $1509/m
F4 $250k $2505/m 25 / 5 Term 5.500% $1817/m
TOTALS $890k $10,230/m n/a n/a $5817/m

 

 

So… What Do I Do Now?

 

“I want my down payment back!”

 

OK so we have 4 x fourplexes. All with separate loans, all bought under market value, all paying for themselves with some nice positive cashflow each month.

It’s the slow road to building wealth. What now?

 

I have a few problems:

 

  1. I now have a lot of “equity” tied up in these properties. Sure, the money is working hard for me, but could it work even harder???
  2. As time goes on, my return on equity will continue to decrease. This is because the debt is being paid down. Remember, this is good debt – it actually hurts me to pay down good debt. (example here)
  3. I have to save up new cash all over again to buy any more properties. This takes a long time to save.

 

I want to keep expanding my real estate portfolio, but it sucks that I have to save $50k – $75k for a down payment each time to buy new properties.  Being that these fourplexes were purchased for less than their appraised value, I might be able to tap into the equity and withdraw money.

 

A Hypothetical “Bundle” Refinance:

 

Let’s say I can find an investment bank who will give me one new large loan to take the place of the 4 x small loans. If they can loan against all 4 x buildings in one bundle, and offer a LVR of 75%, we could potentially withdraw a large chunk of cash to purchase a more investment properties.

Something to work on later this year!

 

Questions/comments/thoughts?

 

Look out for Part #3 of this story when I talk about ongoing maintenance, property management, and all that other crap included in the “hold” part of “buy and hold”.

 

Until then,

Joel

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