All Forum Posts by: Bradley Benski

@Chris Kenney 

Welcome to the group.  There is a post from Brian Pellerin that lists many of the local Real Estate Club meetups and his thoughts on them.  Disclaimer: in another life Brian used to be my Boss.

Dallas Area Real Estate Clubs list

@Brian H. 

For marketing, there are usually Crew Rooms at the airport where the pilots report before flights.  Always little flyers around marketing crash pads.  The key is finding a pilot and having him spread the word.  Most that i've known about were owned by either Pilots or Flight Attendants.  Speaking of which FAs are also looking for crash pads, but the major in Louiville doesn't have any....

The last crash pad I was involved in revolved around a friend from Detroit.  His grandfather could no longer live by himself, and he just got based DTW.  So he swaps with Grandpa.  Grandpa gets his room at parents house, he get's Grandpa's house and turns it into a crash pad.

Another friend had one around DFW and the parking was becoming a problem for them if too many guys were there at one night.

To me it seems like a lot of risk for just $3000 in the end to do a flip.  It may have some potential as a Rental as a quick 50% analysis appears to show that the property will cashflow with some money put in.  If you were to purchase for a long term cashflow would you spend as much on the renovation as a flip?  Generally the renovation to make ready for rent is less than that to sell. 

@John Montgomery 

If your deal is as good as it appears in the post you shouldn't have trouble doing any of these options.  As far as which one to do that really depends on your goals:

I'd figure out what you really want to do, what you want to be as a real estate investor and pick the one that makes the most sense. For me, I'd use it as an opportunity to learn more about flipping/renovating and try to partner with an experienced flipper. There are a lot of folks from Illinois here at BP so it shouldn't be hard trying to find one. Get out to some local REIA Meetups in the area and make the connections.

However, if you need money to pay the August Rent/Mortgage then wholesaling may be the best option.

@Joe Gravelle 

What you provide:

Ask Price: $310,000

Offer price: $290,000

Cash at close (20% Down plus 5% Closing costs): $72,500 (OK my estimate)

Rents: $1300 per side or 2600 per month

50% Rule for ballpark analysis NOI: $1300/Mo or $15,600/Yr

Mortgage ($232K) 30 year 5% = $1246/Mo or $14,952/Yr

Net Cash Flow = $54/Mo or $648/Yr

Cap Rate = 5.38% (NOI/Purchase price)

Cash on Cash Rate = 4.33% (Net Cash Flow/Cash at Close)

What you ask:  Should I buy this?

Doesn't look like a good deal to me, but your mileage may vary.  Your Cap Rate and Cash on Cash rate are very low in this deal.  There is more analysis needed, but you'd have to confirm expenses by getting the past 2-3 years of books on the property!  Then you can start to see what it actually costs to keep the place rented, what the rents are etc.

Some quick math trick to get a ballpark offer price:

Cap Rate = NOI/Purchase Price so Purchase Price = NOI/Cap Rate

If I want an 8% cap rate than purchase price = 15600/0.08 = $195,000

If I want a 10% cap rate than Purchase price = $156,000

Or if you want to make $100 per door per month or $200/Mo $2400/Yr it ends up being approximately 6% cap rate on this NOI or $256,137 offer. Did I mention I love the Goal Seek function of Excel.

Can you get the property for that?  Maybe, maybe no.  Since Duplexes are treated more like Single Family Residences and not specifically commercial properties their values are typically driven more from Housing Market forces instead of Income Production.

Do you even have to offer them a renewal?

I'm going through something similar, but a long time tenant (4 years) is now having trouble paying the rent.  He's been on a month to month for a long time, but we raised the rent $50 in January and he's had trouble for the past two months paying on time.

In your case this couple seems to be more trouble than you would want to deal with, I'd find some tactful way to not offer a new lease or raise the rent rate to a value that they would not want  to pay and let them make the decision to move out.

For 30 day notice period if they are still in the property today then September is the earlist you would get the vacancy, unless you did some type of Cash for Keys offer.

@Account Closed 

Welcome to Bigger pockets.  Congratulations on taking the plunge and purchasing that first property.  Do you plan to live in one side and rent the other?

For Texas it's actually a Tax Foreclosure.  You get a Sherrifs Dead to the house.  The former owner has a 1 year or 2 year redemption period.  Also, each county handles their auction differently.  Dallas county demands payment right after that particular property auction ends, while Grayson county allows you a couple of hours to pay after the auction so you can go collect your funds.  As a friend says "Every County is Different!"

@James Z. 

The concept I presented is really the same as flipping at its foundation. Buy a property for less than its full value, do the things that will make it worth its full value, sell to realize the full value. However, instead of trying to sell the property instantly you rent it out for a year (or so). By keeping the property for at least a year you get the advantage of taxation of the capital gain at the long term rate, an advantage of up to 19% savings in taxes depending on your nominal tax rate. Ultimately, using the capital gain to help purchase a property outright that can start to provide serious money to your pockets. After a few years of doing that, you accumulate wealth. You’d be surprised what an extra $100, $200, $1000, $2000, $3000 per month can mean to your bottom line.

For the write-up I chose to use the term 70%ARV as most of the site understand it. I could of just as easily say to buy at a 30% discount to the Retail/Neighborhood price point. How you achieve that is your specialty. Maybe instead of purchasing distressed properties you find other motivated sellers. Perhaps divorce settlements. I've known several couples going through divorce when the house is awarded to one spouse, but that spouse cannot qualify for a mortgage and to settle they’d be willing to take less than the full price to get it “out of their hair” and move on. We’ll take 7 dollars today instead of $9 in 6-12 months….  If you only need to find 3 properties a year that could work.

@James Z. 

I too am working on my business plan and hope to have it posted for review online before July 29.

My belief is that you cannot buy at full retail price and make returns in line with the risk in SFH rentals. You will also h ave to target a market where the rents will allow you to meet your targeted Cap Rate. In my case I’m defining the target market as 150K-200K (primary) at 70% ARV, with rental NOI in line with a 10 % cap rate. From there, it’s a matter of plugging in your financing and getting cash flow.

To compare two properties I own:

#1 is in Southern California and currently the ARV is approx. $270K. Several houses in the neighborhood rent for $1350. Tax and Insurance run about $4500 per year. A negative Cashflow if purchased at full retail, and if purchased at 70% ARV ($189K) it would cash flow about $139 per month. Not a good market to be a buy and hold as the rental income is just low vs. the price of the house.

#2 is in the DFW Metroplex and has an ARV of approx. $170K. (However, from 2005-2013 it was about $150K) and a similar house on the street rents for $1600 per month. Tax and insurance run about $5000 per year. Better, but if I buy it for $170K and do a conventional 20% down and 30 year, then the property only cash flows $108 per month. However, if you purchase it for 70% ARV ($119K) then with conventional 20% down and 30 Year the property cash flows $320 per month.

It takes a lot of houses to make a lot of money when they are financed. Additionally, if you purchase say 3 of the DFW based houses, and after a year sell 2 of the houses and roll the appreciation and all cash flow into paying off the remaining house, then with the mortgage paid off the house starts to cash flow up to $800+ per month. So it’s now a cycle of buying 3, hold for a year or more, sell two and pay off the remaining.

The bottom line is you have to set targets and develop your strategy on how you will meet your goals, which is the point of the business plan.  I think you're at the "Ah hah." moment that real estate is not a get rich quick scheme.  By the way, I have found 3 ways in which I can replace my work income in a 6-8 year timeframe as a Real Estate Investor.

@Joshua McGinnis 

You have to make decisions based on your values.  In your case you schedule an inspection and then get a call the property isn't ready.

In the end you decided to back out due to communication problems.  I read what you posted and when given "Don't worry the wait will be worth it" type of emails, that sends a warning sign.  Instead a "The rehab is behind schedule, we expect XXX days to be ready, we are laying carpet and need to get the utilities turned on." is the type of response I'd expect.  Although I'd of pushed for why I wasn't informed more about the status of the project.  Again pointing to potential communication issues.

Just extrapolate the type of communication being given to you pre sale and imagine that going on after you bought.

In similar situation I too would of bailed on the purchase.