Posted by sims on August 31, 2005 at 12:15:06:
thanks
Motivated Seller: could this be a deal? - Posted by sims
Posted by sims on August 31, 2005 at 09:39:11:
I’ve ordered a L/P course which I haven’t received as of yet. I do not know if this is a L/P deal, but it would take a creative approach however it’s done. I have a relative who will be moving across country in 30 days. she has a inherited home w/o mortgage. however, both of her duaghters are hiers also. My cousin would like to sell her home and cash them out. right now i don’t know the buy out cost. she has been trying to sell for 2 mths at 225k. it’s a duplex that i think she overpriced. my thought is to take out a small (?) mortgage to cash out her children (one’s an adult) while paying her monthly to subsidize her new mortgage. i would want to make 200-400/mth profit. I believe that the rent would command 700-900/mth per unit, probably closer to the 900 mark. Does this make since? how could it be structured? were should i start? i would not be surprised if the appraised value is 180-200k. any ideas is greatly appreciated as she is desperately trying to do something bf the end of sept. She would probably also welcome the opportunity to cash out as soon as she could, hence some sort of L/P. thanks…
Re: Motivated Seller: could this be a deal? - Posted by Natalie-VA
Posted by Natalie-VA on September 02, 2005 at 08:45:44:
Sims,
I see that you received some advice to analyze the cap rate on this duplex. I think that’s a good analysis tool. I also believe that your first assumption was correct in that it might not be the appropriate tool to come up with a value for a duplex. Ask a local appraiser which method he would apply the most weight to. I think he’ll tell you that you should be looking at comparable sales of simlar duplexes.
–Natalie
Re: Motivated Seller: could this be a deal? - Posted by Randy (SD)
Posted by Randy (SD) on August 31, 2005 at 11:06:35:
The first thing you need to do is determine the total expenses, as that has a direct impact on the market value.
Gross rents $900 X 2 = $21,600 Gross scheduled rents. Guessing at other expenses:
trash = $300
utilities (for common areas or vacancies) = $100
insurance = $350
taxes = $2000
vacancy rate = 5%
Gives you a net operating income (NOI) of $17,770, expecting a 10% cap rate makes the market value $177,700. A far cry below her “asking price”. So determine what the “actual expenses” are then do a cash flow analysis to support your lower offer. A common mistake is to perceive a good deal because the seller appears to be motivated, she’s motivated because no one is buying this dog. Unless you are buying for your primary residence, the property must cash flow, cover all expenses and contingencies and provide a profit otherwise YOU will be a motivated seller soon.
Re: Motivated Seller: could this be a deal? - Posted by sims
Posted by sims on August 31, 2005 at 12:01:04:
thanks for your thoughtful reply. i’ve been told that the cap rate is not of importance if it isn’t a commercial property (i.e. multi-unit). does it apply to a duplex?. otherwise, i must consider your points as they provide me w/direction. thanks again.
Re: Motivated Seller: could this be a deal? - Posted by Randy (SD)
Posted by Randy (SD) on August 31, 2005 at 13:24:34:
On multi-units (4+) determining the Cap rate is essential, since it is such an easy calculation I use it for any multiunit (2+) and even as a barometer on SFR (Hint you can download a free property evaluator at results now.com) this allows you to plug in “known” figures-asking price, gross scheduled rents, vacancies percentage, expenses it will quickly calculate your effective gross income and net operating income as well as annual cash return. Click your desired cap rate and it will tell you the market value… all in about two minutes.
Re: Motivated Seller: could this be a deal? - Posted by James Harris
Posted by James Harris on August 31, 2005 at 12:06:08:
Perhaps the only time when cap rate would not apply is when you are purchaseing a single family residence.