Hi Jimmy -
Yeah, I hear ya.
I know the cap sucks. This isn’t about the cap, it’s about the future value and balancing the current GOI.
I wasn’t too far off on debt service of 30K
What is appealing, about these properties is the owner carry.
This is a great opportunity for someone who has 140K, liquid, to put into an investment like this.
Seller is willing to take 10% (140K) down, 1.4M (280K each X 5) and interest only payments for 60 months, amortized by 360 months.
5 year balloon.
That enables the buyer to stay inside the current GOI, though the rents will surely increase, over the next 60 months.
I already have the seller tentatively agreeing to allow all payments to stay within the NOI.
So, even if the buyer does not put any cash in his/her pocket, for the 1st 2 - 5 years, pay day comes with a refi or partial/full selloff of interest (In the properties).
There’s $$ here.
Now, I’ve been considering an equity partner that puts up the 140K.
I manage the properties at 15K a year and we agree on a contract of terms, before entering into a legal agreement.
I need someone to understand the potential here, even at just a 5% appreciation, per year, the money is there.
I have an opportunity to purchase 5 Duplexes, all sharing a 1 acre parcel of land in Snohomish County, WA
******** The Logistics *******
Seller wants 1.8M (360K per)
Current rents are $767.50 X 9 ($6907.50 = $83K GOI)
Current Debt Services = 30K YR
NOI = 53K - NOT a good cap, but there’s value here.
Seller wants to sell all, as a package
Owns the properties free and clear
Is willing to owner finance for 5 years
Would like a 20% down payment
3 duplexes are 2/1.5 baths
2 duplexes are 2/1
All are 910 - 960 SqFt
9 out of the 10 units are currently rented/10% vacancy
Homes appear to be well maintained
******* Needed Updates *******
Need new vinyl windows and paint
******* Comps/Value ************
Comps, for the area, are 260K - 350K
My offer will have 4 contingencies:
I’ll need last 2 years taxes, relating to these homes
I’ll need copies of the leases
Satisfactory Home inspection
8 week feasibility
My Current Offer:
5 offers at 280K each/1.4M for the package
50K down (This will cover all closing costs)
$4000. a month, interest only for 60 months (240K)
Leaves $2500. monthly for debt services
Leaves $407.50 slush fund - for maintenance
******** My Problems ********
I’ve never structured a deal, this large
I don’t know “everything”
I don’t have the funds
Re: Need Help - Offer on 5 Duplexes - WA - Posted by Brian (WA)
Posted by Brian (WA) on February 12, 2007 at 10:27:31:
I have to agree with the prior responses. You make your money when you buy. I don’t think it is a good transaction. Yes, I agree that a seller carrying the financing is appealing but if the debt service is way too low than any conventional financing wouldn’t work so he/she would be forced into carrying the note if the sale price is too high.
Re: Need Help - Offer on 5 Duplexes - WA - Posted by Ed gGarcia
Posted by Ed gGarcia on February 10, 2007 at 12:40:11:
New To YouMobiles,
Listen to Jimmy.
You?re trying to make chicken salad out of chicken you know what.
I can see that you?re not to far from Seattle which is HOT, HOT, right now because there is no affordable living and major growth is still on the increase. The market is not inductive of what?s going on in the rest of the country and I?m aware of that.
So if you?re part of that market that?s one thing, if you?re in the suburbs that?s a different story.
However, with your thinking, I can buy any looser on the if, come, maybe and wait 5 to 10 years for it to go up.
The idea of a successful REI, is to be an opportunist, prudent buyer, making their money on the buy and it should have positive cash flow. Do you realize how many good deals there are out there to be found and made in the period of time that you?re talking?
New To YouMobiles, This is only a deal in your mind.
When purchasing Commercial properties, the values are based on income.
If this property is affected by the Seattle market, then I would look at it as a condo-conversion and then it may make sense.
I agree with Jimmy. This property is an alligator that will eat you up. I wouldnt pay anymore than 77k for each of those dulexes. If I am correct they are each only taking in $1534 gross each?
Hold on, Cowboy. Without even lifting a pencil, it is easy to see you are going to be in EXTREME NEGATIVE CASH FLOW TERRITORY. Your gross scheduled rents are about 6.5% of your purchase price. I won’t touch a deal unless the gross is above 20%.
Look at it on a monthly basis:
Gross Rents $7675
expense Load of 35% (insurance, taxes, repairs, maintenance, vacancy). everything except debt service. This load is real. Ask anyone who has ever owned properties. this kills 2686 of your rent.
debt service. if you get your deal at 1.4m, and finance 80% of it for 30 yrs and 7.5%, you are looking at a $7831.20 monthly note payment
I want to be clear about one thing. I am not discouraging you from investing on the West Coast. But understand that YOU will carry the property at all times until you sell it. In other places, properties carry themselves.
I prefer the latter.
I lived in SF Bay Area from 85-05. I lived with the same kind of numbers you are facing. So I limited my local property holdings to my own home, and did my investing 2000 miles east. I could have purchased 2 and possibly 3 rent houses in my area in Cal, but would have had to stop at that point. The cash flow is severely negative, and I would not have been able to borrow any more money. Contrast that with places where cash flow rules, and each deal makes the next deal easier. Cash flow gives you sustainability and repeatability.
[to be fair, those 2 or 3 rental properties would have doubled over a 5 year span. but they wold have been getting into my pocket for 3-4Kper montha along the way.]