Posted by Rod Hanks on June 21, 2001 at 21:11:28:
Although I don’t have an answer for you, I would like a copy of the spreadsheet that Marc Coan sent you. I am just beginning in this business and need all the tools I can get.
First Property: Did I get it right? - Posted by Jeffrey (TX)
Posted by Jeffrey (TX) on June 21, 2001 at 13:53:39:
I am getting closer to my first deal. I have been reading on the boards here off and on for the last few months and evaluating properties I come across. I have yet to find a ‘motivated seller,’ but I have finally come across what looks to be a good deal.
Property and neighborhood is in good condition. I will be taking a walk through the property tomorrow. One unit rented @ $1100/mo until Feb 2002, second unit vacant (owner moved out this week). Rate is in line with the market according to local paper. I think the second unit (slightly larger) will rent for $1200.
Property: Duplex, built 1981. Asking: $205,000. Property taxes show value at $165,000 (tax rate = $27.79/1000). Owner advertising 10% down, they will carry 90% @ 8.5%. I have not started to negotiate on rate or price. From the conversation so far, the seller is not desperate but wants to retire without worrying about the property or tenants. My first guess is she wants some cash in her pocket and a regular income from carrying the note.
I have run the numbers through a spreadsheet provided by a few months back by Marc Coan (Thanks, Marc!) and the deal seams solid.
Issues: I do not have $20k in cash. My wife & I make plenty, but have spent it all. I am looking for an unsecured line of credit and/or will partner with my brother or parents for the downpayment. I do not know my credit score, but it will likely be poor and just starting to improve over the last 6-12 months.
Question: I ask because it is my first deal, do the numbers really work? (It’s hard to believe I finally found one that does.) Second, any advice on the 10%/20k down payment? I plan to hit the seller with a desire for lower price, lower rate, and/or lower down payment, but I want to be prepared and I want this deal to go through.
Fringe Benefits: She has three more properties she is planning on unloading in the next year or two. I want a shot at them but I expect similar requests for a down payment. Any suggestions here?
Re: First Property: Did I get it right? - Posted by Ronald * Starr
Posted by Ronald * Starr on June 21, 2001 at 22:30:16:
Jeffery TX--------------------
Well, each investor has to invest in what he or she wants to invest. Personally, I do not find that price attractive, given the cash-flow. You say you ran it through a spread sheet, but I feel as though I am missing 'way too many numbers to be able to guess whether this is a reasonable or attractive deal.
What is the cashflow after all expenses, vacancy calculation, and saving money for major repairs?
The seller carry-back loan does not sound like great shakes to me. Interest rate about what you could get from institutional lenders. Down payment is not low, even by institutional lender standards. Probably you can save some money not having to pay points and so on. That is a plus. How long? Institutional lenders will go out 30 years. Perhaps the seller will not look closely at your credit, as would an institutional lender. Do you really know what institutional lenders would think of your credit? Better not to guess, find out specifics. How long is that owner-carry loan? I’d never want less than seven years. What if interest rates are up at 15% when you want to or HAVE TO refinance to pay off the seller?
What are the prospects for appreciation? The cash flow does not seem very good to me, based on looking at the gross rents only. Could appreciation make up for that?
Since you say you are making good income, does that suggest that you could take good advantage of the tax benefits of this property? Or are you making so much money that you will not get much tax benefits? Have you studied this issue? You don’t mention it in your post.
How will you make money with this property? Cash flow? Ok, how much? Appreciation? Again, what do you expect? Tax benefits? Is it good for you in this regard? Then the tough question: could you find a better deal?
Apparently you have looked at several properties and this seems good compared to them. Bill Green in his book “Think Like a Tycoon” suggests you look at a hundred houses before making an offer to buy one. This will allow you to know the market values. Have you looked at about that many duplexes in your area? Opps, why did I ask that question? You haven’t, have you? What a silly I am. If you had, you would know if this were a good deal and wouldn’t have posted the question. Right?
Finally, I got the answer to your question. Or rather the advice you need. You are not, in my opinion, ready to make an offer on this or any other duplex. You are not knowledgeable enough about your marketplace to KNOW that it is right for you. I suggest you look at several dozen more possible investments before you start committing yourself to written offers. When you really know your market, you will probably not have to pose a question here. You will know that a property is a good deal or not.
I know the markets where I invest. It would never occur to me to ask on CREONLINE.COM other people’s opinion of a simple purchase. When you are in a similar condition, you can buy real estate comfortably. In my opinion, based on your post, you are not there. Sorry to deliver the bad news. But better that you buy from solid knowledge than plunge in with hope and little more. There will be other properties for sale when you are knowledgeable enough to buy comfortably.
Sorry it took me so long to get to the point. I was typing rapidly but thinking slowly.
Good InvestingRon Starr***