hey what's up you guys it's Sam Kwak here once again and in this video I'm
gonna go and break down and show you guys my four-unit apartment building
that I did no money down on my own you probably saw my other video of which I
did twenty five hundred dollars down on a single-family residential missed that
go and check that out but I'm going to show you how I found this property the
four unit I'll break down the numbers and now since how we negotiated it in
fact the negotiation process was a really long process and I'll give
you a little rundown on how we close it so going let's go and cue the intro and
let's go and see the property alright welcome back guys so this video is a
continuation in the last video that I did where I showed you a house that I
bought for twenty five hundred dollars down into rental property and I broke
down how I found it how I ran the numbers how I analyzed it the contract
the whole nine yards so if you guys like to see more of these types of videos be
sure to hit like and also subscribe to our YouTube channel so right now I'm
driving to our another rental property that we oh it's a four unit apartment
building I'm gonna show you guys how I found it now break down the numbers show
you going through the contract and give you a little tour of the property I
won't be able to go see all the units because there are tenants inside I will
also show you his bonus content of me collecting coins from the laundromat
that I have with this four unit so how I found this property was that I found it
through driving four dollars and what that means is that I was driving around
the neighborhood looking for opportunities where I can acquire a
rental car brief now this particular neighborhood it's on the far southern
edge of the Chicagoland area and I was driving around and I saw a for sale by
owner sign now typically I don't get motivated by for sale by owners merely
because I know it's available for other people to go and take a look at it and
call it and so forth but I was like what the heck let's go
and call this number anyways and see if they'd be interested in some of the fun
owner financing and creative options that I have
and they were initially not so what happened next was they sent me the email
with their numbers on a Word document and I'm gonna show you the numbers on
the screen right now and that's what they sent me over the email and I got to
work as far as analyzing numbers right there and then
alright everybody behind me is the rental property that you're looking at
it's before unit apartment building so I'm gonna go and give you a little tour
around the building show you guys what it's like and afterwards I'm going to
collect the coins from the laundromat so here we go
all right everybody that's gonna break down this property I'm gonna show you
guys how I ran the numbers and show you how I analyze the deal so as always
let's go and start with the gross rent which is $4,000 a month across all four
units and not to mention we have also the laundry machines that are so
generating revenue so every month it a verge is about fifty to eighty dollars
I'm gonna take the loan number just to be conservative
so the combining the the laundry revenue it's actually about four thousand and
fifty dollars a month and this is our gross rent in revenue every single month
okay now from there what we're gonna do is we're gonna take both you know with
the gross rent we have to account for the vacancy allowance right so the
vacancy allowance I got here is two hundred dollars a month again I'm taking
5% vacancy allowance so five percent of the gross rents right so - 200 bucks for
vacancy allowance okay next we're gonna go and put in the property taxes which
is six hundred sixty nine dollars and 86 cents again welcome to Illinois our
property taxes are really high so property taxes I'm gonna go and put that
in there okay and then next we have to account for the insurance cost okay
insurance cost and by the way these are all the numbers that I got from the
seller so the sellers are paying we're paying for the insurance and they were
telling me what the data is so one hundred forty one dollars and 84 cents
is the monthly insurance cost next thing we have to factor in property management
cost right so property manage costs a percent of the gross rent p.m. cost and
the property management cost is three hundred and twenty dollars a month okay
next thing as you guys may have guessed it we have to factor in maintenance
right we have to make sure the property's well-maintained there might
be repairs every month or they may not be so we go we go in factored in ten
percent for maintenance reserves so 10 percent maintenance four hundred bucks
for maintenance now again we may not have 400 bucks of maintenance every
single month this might be you know this will get added on and later down the
road it might be a thousand dollar check here two thousand dollar repair
they're right do it this is just me setting aside in case something you know
like a major repair that I need to do in fact a couple months ago I replaced a
bathroom floor of one of the units and that was 950 bucks right so I had to
draw the fourth money somehow somewhere so this is where we build in the
maintenance reserve maybe we do have 400 bucks of repairs every month but in most
months be done so this is very very important the next thing is because this
is a four unit upon building this there's something called common area
utilities this is water or electric that I pay as a landlord for like the balcony
lights can be better example hallway lights so you know for the hallway
lights has it has to be paid somehow right so as a landlord I have to pay
that that's a common area utility so the common area Tilia type a water and the
water for the laundry machine and electric for the hallway you know lights
and stuff like that together it's a hundred thirty two dollars a month okay
100 3200 and this is common common area access okay
comma an area there we go so total that's going and calculate our net
operating income again be this is these are what's called operating expenses I
need to pay for these to keep my rental property functioning so I subtract
everything and I got a number of two thousand one hundred eighty six dollars
and thirty cents okay that's my net operating income after I deduct all the
expenses that I pay for on this property this is what the net operating income is
now this is not the same thing as cash flow okay cash flow is when you you got
to subtract the monthly mortgage payment or monthly owner financing payment
that's how you get the cash flow so this is how a breakdown typically with the
numbers with multifamily with anything that's more than single-family you got
to keep that in mind the common area maintenance the common area you know
until it cost that's all gonna be an expense to you don't forget that okay so
let's go and calculate the cash flow on this which I'm gonna erase the itemized
portion of this and then just bump this up so my net operating comes to one
eight six thirty cents okay this is my net operating income now
we're gonna factor into financing part how I negotiated for this deal now
originally of course the seller was asking for cash or I go into my own get
my own bank financing but I pointed out the seller has owned this property for a
very long time and if they sell this property by cash or they sell this
property with my you know I have my own bank financing they may end up having a
fairly large capital gain taxes bill so with owner financing this is some that
we teach and Daniel teaches is pretty well is that owner financing is a
phenomenal method to help the seller defer some of those capital gains taxes
so that they don't have to pay it right away so that's something I pointed out
to the seller of course I told them hey I'm not an accountant check with your
accountant right verify what I'm saying to you because I could be lying
don't check with your accountant make sure that what I'm telling you is true
so I offer the option of okay so if we gave you seller financing not only do
you get to collect interest on the financing itself but also you get to
defer some of those capital gains taxes that you would have to pay next year
when you go and report the sale of the property so because anytime you sell a
property you got to report that in the IRS so I offer that they were like oh I
guess we're interested in that it's let's hear what you let's see what you
have to you know say and I've explained you know my term so here's the offer
that I made of course I got to have the monthly payment but my mortgage payment
my seller financing payment fit inside the 2001 or eighty six dollars and 30
cents and a wine if it's up if my mortgage payment is above that I have a
negative cash flow situation so I got to make sure that it fits underneath that
so here's the initial term that I offer when I put this in a nice little letter
of intent and I'll throw that in the screen once again the the asking price
was $275,000 again you guys know me I don't like to finagle with the asking
price unless it's like outrageously ridiculous and it's way above the you
know reasonable rate for the area so this was the asking price okay
automatically I'd go into the 15-year amortization
mode because I'm earlier my stage in my investing career I always I was always
thinking how do I protect myself in cases another recession I don't want in
a situation where I owe more than what you know what the value of the property
is plus you know if I need to go refinance this a couple years down the
road I don't want the the home to fall and you know I have a
huge note I have a huge debt that I'm carrying at the seller financing that I
can't you know go get financing again so I was always concerned again with a long
term protection how do I protect myself in the long term
I put a fifteen-year a musician down okay and I knew this couple it was a
couple that was selling it they didn't want to hold onto the note forever so I
was you know I was trying to be nice to him said you know I'll give you a
seven-year balloon I don't usually give up this easily with the balloon stuff
right I only take it out when I have to but I
did a 15 year amortization okay it's a 15 year financing and work at
seven-year balloon okay and the reason why I did seven years
bloom instead of five year bloom like the last time was this is a little
bigger amount than you know the the ninety thousand dollar property bought
last time this was a little bigger amount plus I wanted I was kind of
anticipating a interest rate hike the following year which it did happen I was
right I predicted correctly I bought this in 2017 2018 alone we had four
interest rate increases by the Federal Reserve so right yeah I was right so
with that being said some 15 years Asian 7% ear balloon I give him five percent
interest okay five percent interest which is not
terrible I mean it's higher than what you could probably get now but you know
it's owner financing right if five percent interest was pretty darn
reasonable especially with the 15 year amortization not too bad
so my payment actually ended up being which by the way that the down payment
was 10% $27,000 and $500 and I'll get to the part where I actually didn't have to
fold that over now I'll show you how I did it so the monthly payment on this
the term was 1957 so in 1902 $7 a month was due to the
seller for the seller financing so notice that two thousand one hundred
eighty six dollars - 1957 my cash flow is anywhere around two hundred
twenty-nine dollars and thirty cents okay not the most exciting cash flow in
the world but keep in mind guys 15 year amortization I'm paying down more
principal limit that increasing my well okay my equity
position but in case something crazy happens by the time you guys were
watching this you know we're middle of this corona virus pandemic so I've
calculated things correctly so with that being said let's get to the twenty seven
thousand dollars fine the ten percent down part let's put it that way and how
I didn't have to forego that money so what I did was I put this deal together
got to sell it to say yes and and the negotiation process was actually pretty
long it took me about two months I believe for the negotiation to happen
you know the sellers are still contemplating they were going back and
forth with their attorney and their accountant you know they were sort of
hesitant on this but I think they understood that they can save a lot of
money on the capital gains and they could also earn quite a bit of interest
along the way and by the time I I've refined instance out by the end of the
seven-year balloon I would have already paid all the interest by then because
again amortization front-loaded interest you guys know what I'm talking about so
what I did is I put this together when I put together a nice little what's called
executive summary package now this exactly summary package basically it
shows off the deal right how I found it what the terms are how profitable it's
gonna be I talked about the area so think of this like a as a business plan
but for your specific property so what I did is at that time at a pretty good
network of people who did have money and what I did is I started handing this out
to them say hey let me know I'm putting this deal together right now let me know
what you think about this deal I'm not asking you to invest in it just tell me
what you think as a third party I I would like your opinion and they said
you know the only out - I'll take a look you know a couple of them said no I'm
not interested but one person came back said you know what Sam tell me about
this deal like how does this work how did you get on and fawni and saying
we're where are we making our money yadda yadda yadda and I explained to the
person - hey this is how it works this is how it ago she ate it this is where
we make money and that's that person said you know what this sounds this
makes sense let's go with the twenty seven thousand five hundred am payment I
got you buddy so my partner ended up footing the
entire bill in fact she ended up putting twenty eight thousand dollars to cover
the closing cost as well pretty darn cool and this partner ended up getting
50% of the deal so we ended up creating an else
see and then she had 50% of the LLC I kept 50% of the LLC what that means is
that cash flow the equity the principle we get to split half half so $229 30
cents I get to keep half of that and my partner gets to keep the other half so
for me the return on investment from my position is infinite because I didn't
have to put any money in yeah I have to put in some time analyzing the deal
driving to the property and negotiating the process sure I did the sweat equity
right I worked for it but I don't have to put any of my own
money down which is pretty cool part so my partner M they're putting all the
money down me I got infinite return on my cash on cash
return it was a pretty sweet deal for me and this is how I go using the go she
ate at all my for all my owner financing deals and this model actually worked
quite well when we bought our 24 unit which I'll have Daniel talk about it if
you guys want to see that video going comment down below I want to see the
video we're going make a video on our 24 unit a part building use a similar sort
of setup for the purchase of that if you guys want to see it
comment down below so if you guys love the way that I broke this down very
easily going like this video turn that like button to blue and help us out with
our YouTube algorithm so as I said this is a four unit apart building you can
see it behind me there there are four tenants all occupied all pink rent on
time which is amazing I can't ask anything better than that
there are some repairs going on on the second floor unit which we're working on
right now so I'm not gonna stand out here to hump because it is snowing I'm
gonna go ahead and take you guys to the basement where we had a laundromat
all right so this is how he get into the laundromat we're gonna go into a storm
cellar so it's typically pretty nice and warm down here and here are the laundry
machines you can see right there there we go all right so I have here one of my
washers I'm gonna go and open it up see there we go we've got some coin from
that and from the dryer so it's going too far up see right there we go put
that back in the dryer it's knocking get to go and same thing with the washer
let's get to go so I hope you enjoyed that video where I broke down the four
unit apart building showed you guys the numbers how I found it glimpse the
contract as well as some neighborhoods around this rental property so if you
guys found this valuable be sure hit the like button as well subscribe to our
YouTube channel we're all about property management landlording growing our cash
flow through rental properties as well as personal finance I'll see you guys in
another video