Numbers - Do they matter when the deal is overwhelmingly good?

25 Replies

I had a deal that went south for one of my clients.  I personally thought the deal was a home run but my clients had another view.  Numbers not aligning was the deciding factor for them.  I'm not a pushy realtor and never will be.  The deal just seemed so great from my end and totally shocked me when they backed out.  

Can someone please explain why numbers are so important. 

Cashflow was great as the properties were.  Yes they needed repairs but they didn't need them right away.

How do you know a deal is overwhelmingly good without numbers?  Isn't it the numbers that determine if a deal is good or not? 

@Austin Fruechting I know this because I’m a realtor in the area.  When the rents on the 6  units bring in 4K and it has low taxes, no water or sewer bill because it’s on a well(3 total) and 2 brand new self cleaning septic fields.  Fully occupied with long term tenants. Yes they need repairs but the seller was offering seller financing ( land contract) with only 15 k down and 1500 a month payment with a 5 year ballon.  You’re not making 2500 after payments. 

They’re more concerned about repairs to add value (for refinancing purposes) 

I get it you want to be able to refinance but wouldn’t you rather gain 6 income or producing units? 

I think that’s  a good deal.  

What is your definition of overwhelmingly good. Do you invest in income properties yourself.

Maybe your numbers are wrong.

What was the price of the property?  Give us all the numbers so we can analyze and provide proper feedback.

If numbers are not good - it's nothing.

We have plenty of deals which look good but not everyone is taking on them.

For me, personally, I wouldn't buy septic tank and well for investment - it could cost you fortune if need repairs or replacement.

Cash flow might be good until you do all it takes to fix the deferred maintenance.

To know the answer, you have to get the numbers:

1. Price total

2. NOI

3. How much to bring the property to good condition for the next 20-25 years (roof, well, septic etc)

Count your numbers.

Also, for people who are long term in the business, prices on labor might be much lower. But if everything need licensed contractors (well and septic for sure), you can't save money.

Land contract is still your liability - you can't back out of it without losses.

Originally posted by @Paul Steward :

@Austin Fruechting I know this because I’m a realtor in the area.  When the rents on the 6  units bring in 4K and it has low taxes, no water or sewer bill because it’s on a well(3 total) and 2 brand new self cleaning septic fields.  Fully occupied with long term tenants. Yes they need repairs but the seller was offering seller financing ( land contract) with only 15 k down and 1500 a month payment with a 5 year ballon.  You’re not making 2500 after payments. 

They’re more concerned about repairs to add value (for refinancing purposes) 

I get it you want to be able to refinance but wouldn’t you rather gain 6 income or producing units? 

I think that’s  a good deal.  

 Not sure what you mean by "you're not making 2500 after payments". They aren't either. 

What's the purchase price? How is the $1500 a month structured? Interest only? Principle only? Normal loan structure amortized over time?

How much in repairs need done to add value? What would rents be after the work is done? What would the value be after?

I'm just pointing out that it's all numbers. That's all that matters. Numbers determine if a deal is overwhelmingly good or not. I'm not saying this deal is or isn't good, great, ok, bad. I'm just saying it's all about the numbers. You may be right and this is a home run. If it's a home run and overwhelmingly good why don't you just take it down for only $15k since your clients are walking?

I second @Brian Garrett suggestion.  Show us your numbers so we can provider you feedback.

@Irina Belkofer

1. 200k

2. 48k

3. Depends on who you ask.  The septic fields have been replaced within the last 5 years with proof.  There are 3 wells on the property. 

The land contract deal was ideal and actually there idea.  

@Austin Fruechting

There were a few typos in there. There take home after paying there LC payment (at 5.7% interest  amortized over 30 years ).

The repairs are dependent on the person.  I don't think half the repairs were necessary to gain control of 6 properties (4 being condos that you can actually sell and create your Condo Association)

I'm actually communicating with the seller now to buy the property with the same terms.  It's just difficult because i'm a realtor and the contract I have with him includes at 3% commission and I don't think he's ok with that.

From the limited info you gave... it's probably not the right fit for your clients. They'd probably rather do some value add, pull their money back out, and make limited cash flow (with no/little of their own money invested).

Cash flow is nice, but it doesn't make the deal good or bad.

200k price

4k monthly in rents

2500 in taxes

(40-75k max in repairs)

Ok, now we're getting somewhere. My guess is your clients didn't think they'd be able to afford that amount of repairs.

What would rents be after you put in the $40-75k?

What would the value be after the repairs? 

I agree with @Matt K. they probably were wanting a BRRRR type deal.

They wanted value add to cash out refinance and pull their money back out to re-invest.

If that is the case, regardless of the good cash flow, it wasn't the right buy for them.

@Paul Steward your gross income is $48K, you have to factor not only taxes but capital expenses (roof, wells, septic, maybe roads since it's 6 units). Besides, there are some property management unless your clients intend to be landlords rather than investors.

So, your NOI (Net Operating Income) will be much less than 24%. After repairs ($40-75K) you might not get much higher rent since it's long term Tenants.

If you think it's a good deal, make it yourself and forfeit your commission - just negotiate the price down like it would be for the regular buyers

Good luck!

Could be alot of things, maybe just property type or area. A lot of people dont like well and septic. They wont buy for that reason. On a property like this you would want a generator too because electrical outages mean no water. Did your cliente agree on repairs needed? Maybe they saw more to be done sooner. It is about what you want to own as much as it is about the numbers.

Numbers do look good.

Some investors are scared off by septic and well water.

They’re not afraid of well and septic.  They have land 2 miles away.  I’ve done every deal with them from the start. We have a great relationship. 

From where Im sitting with the info given, its a $275K investment for $48K gross. Napkin math here, but you should look at 10% vacancy, taxes, maintenance etc. Id give it a true $24-30K True Net Operating Income. 20% down leaves roughly a $1200/month PI payment. So true cash flow is $800-$1,300/month. That's a close to 20% IRR on Cash, that doesn't suck. However, what is the price appreciation like? Client may have issue with property not appreciating further, limiting upside and refinance opportunities in the future.

It could have been the balloon payment that scared him off.  He is putting down only about 13% of the purchase price which means outside of forced appreciation he is going to have a difficult time finding a lender to refinance with once that massive balloon comes due.

That is like saying it was a really bad/good deal.  Hung?

If you thought it was so great I would suggest buy it 

No deal is good if the numbers aren't.

Why didn't you buy it?

@Alexander Felice @Michael Plante I’m actually in talks with the seller now to make the purchase.  I’m not an investor, I’m a realtor. I was coming to get information form savvy people not to be down talked to. I appreciate your thoughts but if you actually read the thread you would’ve seen that instead of jumpin to conclusions.

Repairs is huge door, I walk away from major foundation repairs they tend to get worse with time. Some flippers will jump in on foundation issues because they jump right out of it unload the issue to someone else.

Talked down too? Take that as a learning experience dealing with personalities.

Originally posted by @Paul Steward :

@Alexander Felice @Michael Plante I’m actually in talks with the seller now to make the purchase.  I’m not an investor, I’m a realtor. I was coming to get information form savvy people not to be down talked to. I appreciate your thoughts but if you actually read the thread you would’ve seen that instead of jumpin to conclusions.

I read the entire thing. 

I simply answered your question. The numbers ALWAYS matter, and if they are good, it still doesn't mean someone has to purchase it. No one talked down to you, Toughen up 

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