Posted by jon on March 01, 2004 at 18:46:29:
so, you would not do this deal at any price?
confused
Jon
who would do this deal? How much would you pay? - Posted by Jon
Posted by Jon on March 01, 2004 at 09:28:05:
5 units (house with 2 duplexes on same lot)
Owner in distress (divorce & foreclosure looming)and is delighted that I can close quickly.
each unit of the duplexes are rented at $725 per month ($2900). 2 of the units need cosemetic repair to the tune of 10K within the next year. This rent is typical of the area and maybe slightly raised in the future.
house is empty needs repair to the tune of 25K and then can rent for $1000 per month (I do the work myself, maybe 60 days)
2 sheds on the property are rented seperately (for 15 years to the same person) for $170 per month.
owner is willing to carry back a 30% second @ 10% for 18 months, interest only payments.This makes it literally a no money down deal.
I will obtain a 1st with a local hard money lender at 9.9% for 12 months (interest only payments). After the seasoning period of 12 months my normal mortgage broker will finance the entire package conventionaly.
there is approx. another 5K worth of work to the entire site with landscape and exterior paint etc within the next year or two. the roofs on each of the duplexes will need redone within the next 2 to 4 years (approx 8K)
inspections have been done and septic (2 systems) has been pumped. everything is a GO!
this property is a non comforming use property zone R1 on 1.44 acres in the Northern California Foothills.
How Much would you pay?
any responses would be appreciated.
Jon
nowhere near 400K - Posted by Neil (MD)
Posted by Neil (MD) on March 01, 2004 at 15:12:16:
It’s a little confusing… you say the dublexes need 10K of work is that each or together?
Assuming it’s together, I would pay at the most 206K. I would offer 150K. But I wouldn’t finance with a HML. And you’ll need cash for all the repairs. What is your plan for that?
who would do this deal? A crazy man! - Posted by E.Eka
Posted by E.Eka on March 01, 2004 at 13:49:08:
Since he’s a distressed owner and motivated seller, YOU SHOULD DICTATE THE TERMS. You’re helping him out, not you. So I wouldn’t be too keen on paying the owner, interest only payments. Also, the hard money lender idea is bad b/c you’ll get hammered on fees and interest. Besides, Hard money lenders DON’T lend at 9.9%, it’s more like 18%. If you can find a hard money lender at 9.9%, then you’re the only one in the world or they must be a relative.
My suggestion is to figure out the numbers. You total revenues and expenses and compare them with a common denominator. This deal is so convoluted that it makes it difficult to see what the asking price is. Look for comps in the area if possible as a first indication. Take that amount and subtract All THE REPAIRS THAT NEED TO BE DONE. You will then arrive closer to your number.
I’m a newbie, but I’d… - Posted by tillman (DE)
Posted by tillman (DE) on March 01, 2004 at 12:41:59:
look at it like this:
Total Potential Rent $4070 or annual $48,840
Vacancy Allowance 10% $407
Insurance $108
Taxes $100
Garbage $50
Water $63
Upkeep/Maint (10%) $407
Total Expenses (excluding debt service) = $1135
available monthly cash flow 2,935 (for profit and debt service)
Based on monthly rent at 0.70% of fair market value would give a FMV of $420,000. I’d want to buy it wholesale at not more than 70% FMV so we’re talking $294,000. Subtract the estimated repairs of (25K+10K+5K+8K) $48,000 and you’re left with a purchase price of $245,000 financed 30yr@8% for a monthly debt service of $1805 and a monthly positive cashflow of $1130.
Again, I’m a newbie but that’s what I’d do.
Oh yeah… - Posted by jon
Posted by jon on March 01, 2004 at 11:40:37:
some of the operating expenses (not sure of the exact NOI) are
insurance annualy = $1300
taxes approx. = $1200
Garbage = $600
water = $750
No property management fees as my wife and I will do it.
also- I plan this to be a long term hold/ income producing property.
Re: nowhere near 400K - Posted by jon
Posted by jon on March 01, 2004 at 15:59:25:
Neil- I live in a somewhat upscale Northern Calif. foothills community (this is also where the deal posted is) where you don’t buy squat for 206K let alone 150K ( a friend of an acquantance of mine just bought their first home here, 802 sq ft 2/1 in ok/good, not excellent, shape for 229K). No offense intended but the seller would have laughed me out of town if I offered 150K. Subsequently the seller had 3 full price or above full price offers behind mine. that is how hot this market is.
the duplexes need 10K which would cover all 4 units and I do not make a habit out of using HML’s but in this particular situation I was needing to purchase this with no money out of my own pocket because of current cash is tied up, so a conventional would not work.
I will have cash for the repairs in 2 weeks when 2 of the REI’s I am selling close escrow. I plan to re-coup this cash when I refi entire package in 12 months (seasoning).
side note- a major fixer upper duplex that I made an offer on a few weeks ago (my offer was 5K under the 169K asking price) sold for 10K over asking price. a 1/1 on one side and a 2/1 on the other that I estimated fix up costs to be approx 50K or slightly higher. current rents were 450 & 550. future rents after fix up could be approx 650 & 800 maybe.
thanks for the response
jon
Re: who would do this deal? A crazy man! - Posted by jon
Posted by jon on March 01, 2004 at 15:32:31:
E. Eka-
Call me crazy if it makes you feel better. please clarify a couple of things for me.
1- I am dictating the terms with having him carry back the 2nd (no money down deal for me). so you know, this seller had 3 full price/above full price offers behind the offer he accepted from me (the listing agent is my friend and partner in a couple of other REI’s). I offered to close this deal in less than 30 days with little contingencies/fees which appealed to him due to his financial situation. I simply have too much money tied up in 3 other REI"s at the moment that I could not use cash to better negotiate so I took the option of purchasing with none of my own money.
2- If using a hard money lender is bad (by the way the int. rate is exactly 9.9% but with all fees involved it totals 13%, if you would like the name and number I can supply it for you) what do you suggest when a conventional lender will not loan on this property because my intent is to come in with nothing out of my pocket?
although I did not state so in the original post, I did do a rough GRM method of comparing value using 6 comps (2 tri-plex, 2 duplex, 5 unit, and a 6 unit) that recently SOLD in my area. 4 out of the 6 sold for above asking price. The GRM indicated market value to be Low end 451K, high end 564K (one comp was much higher but it was thrown out of the comparison because it was unrealistic). I would say the low end comp is more indicative of the value due to the condition. I am purchasing well below this indication of value even after the repair deductions are made.
My post asked “who would do this deal? How much would you pay?” so, I was trying to provoke feedback that gave me different points of view in regards to market value (value to a typical investor) and investment value (value to a particular investor) without noting any comparables that I came up with or any hard numbers as far as what I offered and the seller accepted. I gather from your response that you would not have done this deal.
My intention is not to flip this property but to hold for long term gain. I may not have stated this in my original post.
I am a successfull RE investor (full time now) mostly in the pre-foreclosure (equity buyout)and foreclosure auctions arena. I have done some REO’s and some listed fixers. I own a couple of rentals and I know what I am doing when it comes to SFR’s (and eagerly learning new things, avenues and investment style), I have simply never invested in a multi-family thus far.
So, E.Eka- call me crazy if it makes you feel better!
Jon
Re: Oh yeah… - Posted by Ronald
Posted by Ronald on March 01, 2004 at 12:49:48:
Jon, If the value is 420K and its in California, expect your taxes to be closer to $4000 per year and not $1200 as stated by another poster.
Re: nowhere near 400K - Posted by Neil (MD)
Posted by Neil (MD) on March 01, 2004 at 17:45:15:
Jon,
To me it doesn’t matter where you are located. If it doesn’t cash flow it doesn’t cash flow. I’m only going to buy propereties that cash flow. If you pay 400K you won’t cashflow positive. I understand you have an overheated market. But, I’m not betting on the “come” (appreciation)… appreciation is gravy when it happens. I want cashflow or i don’t invest. Negative cash flow is a killer. It can suck the life out of you. I think it’s important to be able to pass on a project if the price is too high. I passed on Amazon when it was $400 a share. I pass on these properties (with your numbers) at 400K. When a correction happens, and it’s only a matter of when… having positive cash flow will allow you then to buy properties that no one else can or wants at severly reduced prices.
Just my opinion.
Re: who would do this deal? A crazy man! - Posted by E.Eka
Posted by E.Eka on March 01, 2004 at 16:17:06:
I don’t understand why people need to recite their whole REI resume to me. It doesn’t matter if you are Donald Trump or a newbie. The point of the matter is you asked a question on “Who would do this deal” I told you. Then I told you why I felt that way. If you’re not going to like the answers you get and plan to take everything you read personally, you should keep your questions to yourself.
If the seller has full cash offers at and above asking, why would he be interested in you? He gets to cash out right away rather than carrying 30% of the note and wait for a year or so before he is cashed out? If he does your deal, then there’s something really wrong with that picture, and it won’t be because you’re such a great salesman.
Granted, it’s California and the inmates are running the asylum, but that’s besides the point.
Re: who would do this deal? A crazy man! - Posted by Tillman (DE)
Posted by Tillman (DE) on March 01, 2004 at 16:06:33:
So, how much did you offer?
I’m thrilled that, as a newbie, my estimation of FMV $420K wasn’t that far of from your GRM 
Though in my analysis of what I’d offer, I did discount FMV by 30% and subtract the amount of estimated repairs from what I’d offer and get a $245K offer.
Do you care to comment on my reasoning, as you are a successful REI and I’m a newbie I’d love to learn.
Re: Oh yeah… - Posted by Tillman (DE)
Posted by Tillman (DE) on March 01, 2004 at 14:23:59:
the $1200 taxes were in jon’s original post.
Re: who would do this deal? A crazy man! - Posted by jon
Posted by jon on March 01, 2004 at 16:34:53:
Because my friend…they were offers that happened to be made the day after my offer was accepted which was the very first day he signed the contract with my friend the agent. and I did not say they were all full cash offers. One was full price owner carry entire note for 1 year, I believe the second offer was 20% down owner carry balance and I forget the other.
I did not take your posted comments personally I just wondered how many great real estate deals you let slip away because of your black or white approach to investing.
Re: who would do this deal? A crazy man! - Posted by jon
Posted by jon on March 01, 2004 at 16:40:21:
Tillman- I want to wait until I get more feedback before I post what I offered. Also the Appraisal is coming in in a day or too and I will post that also.
I know a successfull REI in DE, I forget his name at the moment because we have not spoke in many months but when I think of it I will give it to you, he could be very helpfull to you as he knows the laws in DE which are different than here in CA and so is the market.
keep my email handy and remind me If I do not get back to you in a week or so.
Re: who would do this deal? A crazy man! - Posted by E.Eka
Posted by E.Eka on March 01, 2004 at 16:38:22:
What are you talking about?
YOU DON’T KNOW ANYTHING ABOUT ME. How can you say that I have a black and white approach to investing?
Forget it, don’t answer that. Next time, don’t post your questions on this board if you want to spend your time finding fault in the answers.
this is the last time I respond to you E.Eka… - Posted by jon
Posted by jon on March 01, 2004 at 19:36:51:
because another poster on this board put it most beautifully…and I quote a poster named “Nike”
“E.Eka you make me laugh- you have the unfortunate need to respond to nearly all posts- often with inaccurate/inane remarks- so your contribution here is not surprising and as always useless.”
Thanks Nike!!
Jon