Posted by Carla on September 30, 2006 at 16:20:22:
Hi,
Wow thanks of all of the help. I will repost in the Commercial List.
I did the initial numbers and thought they looked too high.However, as
a newer investor I wondered what an experienced investor might do.
I appreciate all your insights!
to continue this post please see the Commercial List.
Carla
6-unit building - Posted by Carla
Posted by Carla on September 29, 2006 at 19:01:41:
Hi, If this belongs on the commercial discussion group, please let me know.
I stumbled on a motivated seller of a 6-unit apt. bldg. I am trying to see how I
can get this building. Owner is open to a contract for deed. My goal is to buy
and hold.
Asking: 365,000; dropped to 345,000; tax value: 338,000.
Owes 200,000; PI pmt 1540;
Monthly rents 3400
Monthly expenses approx: 1100 /mo.
Any suggestions on how to structure this? All help is appreciated!!
Thanks,
Carla
Re: 6-unit building - Posted by Joe Kaiser
Posted by Joe Kaiser on October 02, 2006 at 05:02:21:
What makes you think he’s motivated?
Has that been tested? Did you know that’s your next step. Do you know
how to test?
It’s easy to say “I’m motivated” or put an ad in the paper that says,
“desperate seller.” What you have to do next is determine if that’s for
real, or merely a marketing angle.
And you do that by testing for his true needs as opposed to his stated
needs. You need to determine where he’s at on the need for cash scale,
with lots of cash, and now, being on one extreme and a little cash,
later, on the other.
You’re of course aiming for the latter.
You test for both by suggesting terms on the one hand, and then
discounts on the other. Online, I do it with emails, one after the other,
and come away with a good sense of where he’s at based on his
responses.
In person, it’s even easier.
Test for motivation, and forget about numbers. You’re not at the point
where they matter.
Joe
Re: 6-unit building - Posted by John Corey
Posted by John Corey on September 30, 2006 at 05:56:46:
Financing questions can be addressed in the Finance group. A better all around group for 5 units and above multi-family is the commercial group as you suspected.
There are definitely folks who read both so you will get some suggestions here. You are likely to get more there.
John Corey
Re: 6-unit building - Posted by Lee in Louisiana
Posted by Lee in Louisiana on September 30, 2006 at 24:50:15:
Lee
SLMNosoam10000.@nowaol.com
Re: 6-unit building
Posted by Carla on September 29, 2006 at 19:01:41:
Carla said:
Hi, If this belongs on the commercial discussion group, please let me know.
I stumbled on a motivated seller of a 6-unit apt. bldg. I am trying to see how I
can get this building. Owner is open to a contract for deed. My goal is to buy
and hold.
Lee in Louisiana says
Get comps, (find out what like and kind properties have SOLD for in the area)
Both, per rental unit, considering size (and potential income for that unit) and PPSQ (Price Per Square Foot) always consider the condition of the building at the time of sale. Some have been rehabbed at the time of sale and some are junk when they are sold. Some will have been rehabbed by the time you see them. Those may have been sold needing a rehab? i.e. New Orleans Metro area Post Katrina/ Rita. Be very careful.
I think it really doesn?t matter what he/ she is asking for the property, further it doesn?t matter what he/ she owes.
I think what Does matter is, do the numbers work, for YOU?
Price you are considering to pay for the property? $345,000.00 divided by the number of units is 57,500.00 per unit. Could you build them for 57,500.00 per unit, doubtful but a consideration? I don?t know the square footage or the configuration of the building (one or two story). Is $345,000.00 divided by the heated square feet of the building ?in line? with the buildings in the area?
Monthly rents are $3,400.00 per month. (Known) Expenses are $1,100.00 per month. Payments are $1,540.00 ?PI? (Principal and Interest) I am concerned about what the ?T I? (Taxes and Insurance) numbers are. (PITI)
Right now, we are at $1,100.00 ?Known? expenses plus $1,540.00 Mortgage not including ?T I?. That $2,640.00 per month is gone, It will never be yours though you are responsible for it Every Month, until the building is paid for in 15 to 30 Years?
Have you allowed annual escrows for:
Roofing, flooring, appliances, air and heat unit replacement, , vacancies, management, uncollectable rents, repairs, tax advice and preparation, advertising and lawn? What did I leave out?
When you own your first aircraft or houseboat, you will learn the value of including the cost of operating ?it? on an annual (then on a monthly and maybe even a daily) basis and to budget for expenses that Will come.
All of these things, you Will pay for. You might as well add a little in there for grief for yourself!
How much is required down? $145,000 $345,000(asking) - $200,000.00 (debt on the property) = $145,000 down? Providing they will let you keep paying the note when they find out that the person they made the loan to has sold their interest in the property via contract for deed. OOPS! Refinance? Cost?
In conclusion, I use a quick and dirty calculation. I don?t consider buying property unless it can be bought at between 33 and 75 times the Gross monthly Rent.
I have seen times where it made since to pay up to 75 but it is seldom.
In your situation that would mean I couldn?t pay more than (Gross monthly rent of) $3,400.00 X 33 = $122.000.00
or $3,400.00 X 55 = $187,000
or $3,400.00 X 75 =$255000.00 for the building
I think the range that the property is WORTH TO YOU is somewhere between 122, and 255K
You Make Your Money When You Buy!
Don?t Pay Too Much!
Two things? This is a Marriage that you are thinking about. Easy to get into, but hard to get out of with your blouse (shirt), think long and hard about it.
How much could you earn otherwise with the $145,000.00 down payment if it weren?t put on a property? I call that opportunity cost, what you could have earned with it.
Not including the risk of foreclosure that ?Owning? puts you in.
And just a couple of other thoughts?
Wall Street is predicting 50 % less consumer spending during Christmas 2006 than the same period in 2005, and then a large slowdown in the first half of 2007 because of ?financed spending? (using credit cards to buy gasoline in 2005 and 2006), high natural gas/ heating oil cost in the winter of 2005 and high electricity cost in the summer of 2005 and 2006.
The consumer is Choked with debt, high income jobs are leaving the USA has attributed to the problem.
TWO TRILLION in debt has been financed back into?Homes? in the past Two Years! Consumers have cashed out? borrowed more than they can afford to pay back.
The average homeowner now owes more on their home than it is presently worth; much of the debt is in ARMs (Adjustable Rate Mortgages) that have and are likely to go higher.
Where do YOU think this market is going from here?
Keep your cash safe you will need it!
Do your numbers on the apartments and let us know what you come up with.
Accuracy is important; it?s Your LIFE that we are talking about here.
Good Luck with it Carla !
Lee in Louisiana
Celebrating 28 tears ? I mean years, as an apartment complex owner!
Re: 6-unit building - Posted by Chris in FL
Posted by Chris in FL on October 03, 2006 at 01:37:44:
Great post, Lee!!! Well said on many points, from the value to the headaches to what the market is doing.