HELP! I CAN'T LOSE THIS ONE!!! - Posted by Nate

Posted by John Butler(Stl) on December 03, 1998 at 17:23:38:

I just received my tax bill and the property I just bought for $57,000 has an assessed value of $7800! Just goes to show you that the assessed value has NOTHING to do with the FMV. BTW, this building has $1600 monthly gross rents.(I wish I could have gotten it for the assessed value!)


HELP! I CAN’T LOSE THIS ONE!!! - Posted by Nate

Posted by Nate on November 30, 1998 at 15:52:58:

I would appreciate anyone’s advice on this property…

I have recently found a 7 plex in my hometown, with a seller that’s fairly motivated.

It has an existing mortgage of 141,000 @ 8% being held by the original owner (70 year old man who had owned it for over 40 years)

The current owner (seller) would like cash for another business, but is willing to carry some of his equity in a second. I originally made him an offer, and this was his counter (not bad at all)

Keep in mind the tax assessed value is about $182,000

$169,000 sale price

$3,000 credits for deposits

$7,000 down

take back note for $159,000 at 8.75% balloon in 10 yrs

Not bad. This property brings in $2500 a month in income and only about $422/mo in operating expenses. Even after debt service (mortgage payments), and a 5% vacancy rate, I would have a NICE positive cash flow here.

After I got this counter offer, I got a bright idea and offered him the following:

$185, 000 Sale price
-18,000 "improvement credits"
141,000 assume original mortgage at 8%
-2,900 credit for deposits
-2,122 credit for rents (prorated to close on 4th)
-250 credit for taxes for 2 months
20,228 CASH DOWN

You can see, by getting him his cash at close versus having him hold a mortgage, I actually would be buying the property (185,000 tax assessed value) for about $161,228 (141,000 + 20,228). He accepted this offer in a flash.

My trouble has come with trying to get a second mortgage…my plan was to get a second for $32,000 and give him his 20,288. This way, I would walk away with about $12,000 at close, and have financed the property for 173,000 total (141,000 + 32,000).

That’s great, but I can’t find anyone who will do a second and I can’t find anyone that will lend more that 75% LTV on a commercial property (if I wanted to just refinance it all together). I thought I had it all worked out, only to find the financing to be a big obsticle. This is my first deal so I’m a bit flustered…

Any advice?

Is there a better way to buy this property?


Re: HELP! I CAN’T LOSE THIS ONE!!! - Posted by Kevin(OK)

Posted by Kevin(OK) on December 01, 1998 at 11:19:51:

I think your expenses of $422 per month is low (only 17% of operating income). This would be a good figure for a SFR, but it should be about double that amount for a MFR. Remember, their could be major repairs (roof, parking lot, painting, etc.) that may be needed and you need to budget for a major repair in your figures. The deal doesn’t look so good if you factor in a 34% for expenses - $2500 gross - $850 exp. - $1251 debt serv. = $274 net per month (ouch!). Sorry. I didn’t mean to put a damper on things, but with this being your first deal, you really need to make sure all of your bases are covered, otherwise your first deal may be a bad deal.

My 2 cents.


Re: HELP! I CAN’T LOSE THIS ONE!!! - Posted by Redline

Posted by Redline on November 30, 1998 at 20:28:15:


I would not be relying on the tax assessed value to come up with FMV. They have little to nothing to do with each other. Are you sure this property is worth what you say it is? You need real numbers, comps - not tax assessment numbers.


Re: HELP! I CAN’T LOSE THIS ONE!!! - Posted by Lee

Posted by Lee on December 02, 1998 at 17:17:25:

RL, I couldn’t agree more…

Our state law requires each property to be reassessed
every four years however, try as they may I don’t think
they get around to all of them on time.

I have seen property assessed 30% under sales values
and up to 30% over the sales values.
It’s a dangerous thing to assume that assessed values
are the market value.

Get recent “like and kind” comps., pronto, through the
courthouse, appraisers (and or) real estate agents
or all three.

“Measure Twice, Cut Once”…
(Make shure you’re right)

I love this site !