All Forum Posts by: Art G.

So much more information than that is needed to compare to your answer.

What size is the house? Is it a high end house? Is it a bad neighborhood? Are you resaling it to a level that masses can afford or only the rich?

The age of the house is a huge factor, plumbing pipe replacement, electrical panels, asbestos, lead paint, rotted wood?

I have to figure out the full cost of the rehab when I wholesale the deal. I had one in a poor area and a complete rehab was $30k, another for the partial rehab was $100k.  You can guess the quality of the higher one, the kind of neighborhood and resale value.

Most contracts are straight forward. Identify parties, the land, the rents and when due. Then there are lots of other small things to include. 

But this is what I wanted to say. If you are worried about the risk then analyze it.

Cost to have a lawyer review- $200-400/ hour at most.

Cost to screw up your contract- one months rent... 2 months rent.... 6 months rent????

I think you see where I am going with this. The potential loss clearly is greater than the cost of ensuring your contract is strong.

Where to find the attorney?  Phone book, google, etc. But I will tell you the ninja tip on how to locate the best attorneys, no matter what field they are practicing.  

Go to the court house, find the court room that deals with what ever kind of law you need an attorney for, at a break or when court is not in session, say excuse me to the bailiff, "I really could use your help please.  In your opinion, who do you think the best real estate attorney around is? I mean you must see them all and know which one impresses you the most, right?"

Bailiffs have nothing to do but watch court and then chat about the attorneys with the staff.  They know who the idiots are and who the rock stars are.  And you appeased his ego by making him know that you think he is the local expert on the subject.

Good luck

Interesting question. I have looked into building on a few local lots. There really is no proper way to comp them. But this is the trick I use: 

I figure out all of my costs to build the home, include utility set up (that is a lot more than you think), materials, labor, permits etc,. Then when I am all done I have a number, lets say $300k. 

 Then I look for comps in that area for the same size home.  Lets say comps come back at $500k for 3+2 1700sqft. Given that your home is brand new, you can probably get $550k. So I subtract cost to build from comps, giving us 250k.  If the land is 150k or higher then I know my margin is very tight.  It all depends on what your builder wants to do, live in it, rent it, re-sale it.

It isnt an exact science but its the method that I use to figure out if a lot is priced too high for my needs.

BTW- I am in So Cal, so excuse my high numbers lol

Wow... my gut reaction to the whole, you pay now and we will fix it up later is DANGER! That isnt how it works. They spend their money, and work hard and fast to get it done so that they can sell it to you. If you give them the money now, where is their motivation to get it done fast? Also for that much down I think you can get into a lot more markets if you aren't afraid of distance and management.  Without running the numbers yet to know for sure, it sounds like there are a ton more good deals on this site to investigate first before buying this property. 

10% for management company is standard. Check out rents on https://www.rentometer.com/

As far as a vacancy fund, you should just let the first few months rent build up to cover any repairs and vacancies.

As to the deal itself, I need to know what are the terms of the mortgage? How many years, and at what interest rate and if its fixed interest? What are the annual property taxes? 

I have been thinking about these results all day. I had to come back and double check them. I didnt include the taxes first time, and I am sure that there will be minor costs with repairs along the way but that shouldnt effect it much as the taxes being included didnt effect it much.

I also saw you initially said 20% down and then later said 10% down. So I ran them both ways.

9 units at 30k each= 270k. making $6357/mo. HOA 1940/mo taxes 6792/yr

30yr @ 3% fixed amort., 20% down or 10% down, balloon in 15 yrs for balance

Net Operating Income Annual Gross $76284 less annual HOA $23,280 less annual taxes $6792= $46,212 NOI

(10%Down) 270k less 10% (27k)= 243k @3% Annual Payment= $12,294

Loan Constant 5.1% = 12294/243000= 0.0506

Cap Rate 17.1%= 46212/270,000= 0.171

Spread 12% = Cap rate 17.1% - Loan Constant 5.1%

Break Even Ratio 56% = (Loan Service Annual + Operating Expenses) $42,366 / Gross $76284 = 0.555

Debt Coverage Ratio 3.76 = Annual NOI $46,212/ Annual Loan Service $ 12,294 = 3.76

________________________________

(20%Down) 270k less 20% (54k)= $216k @3% Annual Payment= $10,928

Loan Constant 5.1% = 10928/216000= 0.0506

Cap Rate 17.1% = 46212/270,000= 0.171

Spread 12% = Cap rate 17.1% - Loan Constant 5.1%

Break Even Ratio 54% = (Loan Service Annual + Operating Expenses) $41,000 / Gross $76284 = 0.537

Debt Coverage Ratio 4.23 = Annual NOI $46,212/ Annual Loan Service $10,928 = 4.23

@Eli Kallison I took a class on crowdfunding, to be honest it was super hard to understand. But I did catch a few critical things, like all the major crowd funding sites vet the day lights out of people they allow to post on their site. They know that a bad venture could kill their reputation. There are tons of hoops to go through to get legit, like SCC approval, filing forms with them, paying fees and bonds, a waiting period, then the site does back ground checks and looks over the books and basically puts the proposed fund through the ringer.

Google- how to vet a fund or private investor fund.  Then when you find one that gives good returns in a time manner you like, google the heck out of them too, look for consumer complaints.  Granted almost everyone has something bad to say on the web, so you have to look at volume and what they are complaining about.

As for as the fund I told you about, they are listed on a major site, set up by an attorney that specializes in this, & SCC approved and compliant.  I know they give you all your investment back after 4 years, and will shut down the fund.  They have a target period in mind to work there then they figure numbers will start to decline so rather than hang around they plan to get out, refund investors, and close fund.  But I cant recall if dividends are paid out monthly or annually... something in my brain is saying annually. So check with them to be sure.

Your question could have a ton of different answers. The one that will generate good returns, without any labor or management, is for you to invest in a solid private lending fund. They will pay you around 7% on your money, which for $400k works out to $2,333 a month returns, but that all depends on the company.  

In one of my REIC clubs I know a super smart guy that is setting up a major fund to rehab homes in New Jersey. I do not work for him and receive no benefit from this, but I am always impressed with his mind. He is a very solid option for you to look into. His fund is offering 9% returns ($3,000/mo return on your $400k) with an upside 50/50 split.  His projections are an actual return of about 12% ($4000/mo return on your $400k) to his investors.  I think I recall he said the fund will be done in 4 years, with a complete payout of the investor's buy in money at that date, dividends to be paid out prior of course, but you can verify all this on his website.  He has set up a major fund, I know the attorney that set it up, she is amazing.  If you want to check it out, here is his website. 

For fund: http://www.jbfundservices.com/

General Site: http://www.alpinepremierinvestments.com/

@Amir B Erez Well it just goes to show you always got to run the numbers, at first glance it didnt look safe but the math is solid on this one. 

4417/ mo NOI x 12= 53004 NOI/ 270k= 19.6% Cap Rate

30yr @ 3% amor= Loan Constant 5.06%

DCR= 4.31

BER= 46.63

Ideal DCR is 1.2 or better, ideal BER is 80% or lower. Excellent spread at 14%

Nice find! I ran some projections with a higher down payment to see if that helps your security and there was very little change, except a drop on your ROI. Current ROI is 150.46%. With numbers like that you should be able to get a bank to refi balance in 15 yrs, although probably at a higher interest rate...

Great work locating that deal. Now go get it under contract ASAP, lol.

You should check with the local planning and code department. They would let you know if you are even zoned for that.  Honestly, it sounds like a lot of work to chop up your home like that. Its hard to visualize without seeing a floor plan.  But my first thought was do you live near a college? You could rent out each room individually to college students.

You need to join a local REIC. I go to REICLA. You meet lots of local people from all aspects of the business, both experienced and new. It is so worth it. They meet once a month, 2nd Tuesday of the month. Also there is Prosperity Through Real Estate Club, they work with the first one but meet first Tuesday of the month.  Both meet off Howard Hughes. 

I drive all the way down from Ojai just to hang out with all of them at the meetings. You will also get a ton of education as well as net work with locals.

As far as working with out of state... the answer is the same for any deal... it depends on the deal. 

My best advise is to be PATIENT. Do not rush into a deal. Trust the investor math and wait for the right deal to come along.