What do you think about this package deal???

Question

Hello People, Just want to run this by folks to see what you think.

Just want to tag a few to get your specific opinion, cuz you rock, and I respect your advise!

@Steve Vaughan

@Joe Villeneuve  (I know you are not going to like all the cash I put in)

@Jd Martin

@everyone else...

Looking at property number 7 and 8.

SFR 1 Bed, 1 bath, 800 sqaure feet, built in the 70's

Listed on MLS at 110k, reduced to 90k over the course of 1 year.

Smoker house!!! reeks bad. Other than that it is in excellent condition.   We are in negotiation right now and they have come down to 87k and just found out that that is their "pay off" amount. they are in early foreclosure.

20% down (17k) conventional put my payment at $435 a month PITI

Property will rent for $650 a month, after we clean up smoke smell, ($1000 paint and ozone machine)

Not a killer deal as is but... NOW for the other part.

Property comes with an extra 50' wide city lot that is zoned for Manufactured homes. The lot is NOT developed and will cost another 10k-12k to bring utilities in and set up fees on a mobile.

I believe I can get a good used mobile in our area on craigslist for 5k-10k, so for an extra 20k on this property it will add another $750 in rent.

I have done this exact same thing before on another property. And it worked great. rented for $800

Cash invested 37k cash (sitting in the bank from a flip we just did)

Total rent when done $1400

PITI payment $435

Property is 5 blocks away from where i live and i do all management and repairs while i still have less than 10 properties.

Should cash-flow well and I can sell each property seperatly for close to 90k each when I am done.

Boy it helps to type all this out, I feel like I already know that i'm going to buy it!  Thanks BP your the best!

Anything I am missing?

Joe Villeneuve · Answer

...Option #2:

Here is what I see as a summary based on your numbers after you buy this:

Total ARV (both lots) = $180k ($90/ea)Cash In                     =  $  38,000 (inc. $1,000 paint/ozone)Total Rents               =  $1,400/mNCF w/loan              =  $  965/m

Do this:

ARV                         =  $180kCash in (rounded)   =  $  40kNCF                        =  $   965/m

Buy in the name of an LLC, and...Split ownership into 5 equal parts worth = $45k/eachNCL Splits into the same 5 p[arts worth =  $193/m each

Now, sell off "Memberships" of the LLC based on, ...well, that's up to you.Selling the first Membership for $45k gets all of your cash back (+ $7k profit) and you get to keep $772/month CF.  Sell of the other Memberships as needed/wanted.

This also means potentially have access to $45k chunks of money as needed in the future...or,

Just sell the whole thing once developed for a $140k profit and "compound" the future cash flow by compounding you current cash flow position....I guess that's option #3.

Steve Vaughan · Answer

Thanks for the mention @Joshua D.!

My first thoughts - a 1 bed house that rents for $600 could be a higher mgt PITA.  Higher turnover and lower tenant pool.  It in itself at $87k won't pencil long-term as I'm sure you know.

Have to run comps for what it is to see if you are getting value at this price point.

Is the extra lot an actual extra lot?  With it's own parcel #?  May run in to density issues if it's the same parcel.   If it's separate, I like your idea.  Amazing how renters will pay the same for a stick-built or mobile.

If an agent wasn't involved, I would definitely try to buy sub2 with an 18 month refi goal.  Save some DP and keep your cash working for you.  Please keep us posted about this journey!

JD Martin · Answer

A 5 second review on my end here doesn't look terrible with the extra lot and mobile, questions that jump to mind:

1. Why would the trucked-in mobile rent for more than the house?

2. Can you sell a used mobile+lot for 90k when the nice house + 2 lots is 87k?

3. What's the value of the lot if prepped for mobile/another house, without the used mobile and assuming you were selling it separately?

Joshua D. · Answer

@Joe Villeneuve

Wow, Mind blown!

I think this is why I love real-estate.  There are 15 different options and 25 variations of each of them!

I have never seen the LLC membership sales done on properties like this. Have you done this before?

I am even more in awe of you experienced investors.  Thanks for your well thought out feedback.

I will carry on with the deal, and keep you posted!

Joe Villeneuve · Answer

My turn.  LOL.  I have two ideas...here's the first:

@Jd Martin brings up a couple of valid points that can be answered with simple research, so I will assume all is well, and approach this as if all the original numbers are accurate.  They are not far fetched by the way.  When was "wearing my Architect's hat", I used to do lakefront properties.  They cost more for a vacant lot than a developed lot, because the vacant lot was priced based on it's potential...the developed lot was "saddled" with the house and it's value.  What @Joshua D. is proposing is typical of how we got lots...but we'd tear down the house and get the equivalent of that empty lot...for about half the price.

Knock down that existing 1/1 and put up two "mobiles" at 750/ea....or, (see next post)...

Joshua D. · Answer

@Jd Martin

Thanks for your great feedback!  It helps to have other options for the moving parts here.

1. Mobile will be a 3bed 2 bath, and the house is a 1 bed 1 bath. That is what our other one is that we bought, and it rents for $800 I just want to be on the safe side when predicting numbers. Our other one is a 1976. paid 6k for it.

I have no idea why the cap rates are so ridiculously high on these things in our area, but they are. No land to build on??

2. Yup, people do not want to develop??? 1 mobile and lot just sold in town for 97k. I was a 1960s mobile and UGLY! This property had a garage.  MLS

3. Lot across town just sold for 45k as is. Off market.  Investor removed the ugly home and then sold the lot. I think that was high but they sold it... I would say 40k to be safe.

This is causing me to think of other options. Thank you.

Joe Villeneuve · Answer

Thanks...if you're not having fun, why bother?

Joshua D. · Answer

@Joe Villeneuve

I love it! thank you for the clarification. There are some deep principle thoughts in there that are pure gold.

Thanks for sharing them.

Joe Villeneuve · Answer

There's a specific order of when you use cash, when you don't, how you use cash, and when you do leave it in..."for a rainy day".  The order is important because they build a series of steps where the "exits", are specific to the next "entrances".  This means you may come across a great cash flow deal that is a very good flip deal...which do you do?  The answer depends on where you are ion your overall plan.  You may have to flip that house...and watch that CF go away.

Have no fear, that same house will appear again with a different address.  Now you buy it for the CF.

Expand your cash position first, then use that width to flip, and use the profits to buy those CF properties.  This means you will have developed a Pez Dispenser of profits from those continuous flips from that expanded Cash Base...that you never spend, just use to infinity.

Spend you cash and leave it in the deal, you get one use from it, and you need to remanufacture it for the next deal.

Use your cash (meaning you get it back  quickly...with friends), and spend your friends/profits only, and you have funding for life.

Joshua D. · Answer

JUST GOT IT UNDER CONTRACT!!! Signed at 85k!  We have been texting back and forth with our Realtors during this conversation.

ready or not... here we go.  just saved 2k off the analysis.  Now to get it closed.

What do you think about this package deal???

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