All Forum Posts by: Joel Owens

The seller many times believes the property is worth more than it is.

A 7.5% cap on a mobile home park is an awesome selling price.You can buy at a 7.5% CAP but then if unforseen problems arise you now have a 6% or a 5.5% with capital expenditures hurting anticipated cash flow.

Like I hear from many investors if I pay cash I want to buy at 10 to 12 cap so if something foes wrong I am still at 9 to 10 cap.I can't blame them at all and also can't blame the sellers for wanting top dollar.

Washington and others states the cap rates are lower and costs of living is higher.

I like my state personally as you can drive high returns and cost of living is lower.Each state will have it's pluses and minuses though.

Danny everything is about economy of time for your return expected.

Are you a cash buyer?? Are you using transactional funding?? Are you using a hard money lender?? Are you using a traditional lender??

All these factors play into holding costs and time lines. Are you trying to wholesale the property quick or do a full rehab and sell at the retail level??

What is the expected return going either route versus the risk and holding time.

Home Steps as you mentioned is Freddie Mac and Home Path is Fannie Mae. They both have a bid period preference for owner occupants and then open up to investors.

You will have to make a bunch of low offers to get the one occasional YES.Most cosmetic carpet and paints in my area you will always get beat out buy first time home buyers. The buyers love a little equity and even if the market continues down they are staying in the home for usually 5 years on average and figure the market will get better.

As an investor you have to hedge against short term depreciation in prices more because of the immediate resale factor.

Most buyers can navigate carpet and paint repairs.As an asset manager told me at a bank before they are trained that the investors first offer is usually not their last offer so they will usually counter.

So don't spend a bunch of time justifying your value.If you want it at 50k you need to start at 38k or something similar.Don't spend so much time on a property that you get emotionally attached on doing your first deal and overpay and say it's only 5k over what I wanted or 10k etc.

Then you talk yourself into a bad to marginal deal.

Tony,

There are many landlords sitting on big chunks of equity and with enough down they would privately finance the first position note for you.

You have to be clear with them upfront that you still want a DEAL.In other words for financing they WILL NOT expect to stick it to you on above market rates and loan terms.

A better solution is maybe to put 10% down and have the seller hold a short term 15% second.

You just have to find the right seller at the right time.For some it's not all about the money as they have a ton already.Instead it's about selling for an okay price and getting rid of the landlord headache so they can do the things they want in life.

The balance of time and money is hard.Many have a bunch of time but no money and then many have a bunch of money but no time.

Hitting that sweet spot is the hard thing to do.

I agree that it is not for new investors or the faint of heart and definitely has big risks.

In my area probably as is yours there is B or C value add that you can leverage into great returns in better areas before buying D stuff.

Some investors love those areas but not me personally.

I look at the land just as much as the improvement upon it.First having started out working with commercial developers before that market tanked you never look at land the same way again.

So not just the financials of what the property is but also what could it become?? (highest and best use with repositioning)

Maybe there are many apartments in the area but none that cater to senior living.By having demand and changing to senior or adult living with a light rehab and change you can then increase the rents.

Also if you have additional land you can build or add on later.

Who holds the loan on the property?? Local or national bank might not can take the hit.If it's a national bank,the fdic,or a CMBS security they can take a much greater loss on average.

Is the owner retiring?? Can they finance at below market rates??

You can go on and on.I like to look at it from as many angles as possible. I know most of the time the owners presented numbers are junk.

On these 2 points:

2. Don't buy in the ghetto...it isn't worth it

Sometimes it makes sense if you know what you are doing. For example in Atlanta they are doing the belt line project and also have assistance from the feds for the neighborhood stabilization program.

In Atlanta one block can be a war zone and 1/4 mile down can be the Coke museum and the Fish Aquarium. We also just landed the football hall of fame museum opening in 2013 which will be a newly built 55 million dollar project on an old parking lot.

The belt line will rehabilitate large areas of Atlanta.So you can pick up gut apartments for 4k a door and put 3k a door in.

40 doors for 160k,120k rehab.

280k going in.450 X 40 = 18,000 X 12 = 216,000

by 2 = 108,000 NOI at 10 cap stabilized
sell price 1,080,000

As the area gets revitalized rents will improve but I didn't count on that for this basic calculation. So the ghetto makes sense if you know what you are doing and if the area will turn around.

There are some buildings and locations that at any price do not make sense.

5. Interview competent property managers in the area to make sure the owner is distressed and the property isn't distressed due to the market. You can't really do much with the market!

This also depends on what you can buy it for.

If a property is struggling and needs rehab and is a 60 unit say at 50% occupancy with rents at 460 a month.Then if you buy at such a low price you can reduce the rents below market to fill up fast and stabilize.So reduced rents could be 360 a month.

You have bought at such a low cost that now you can undercut the other landlords that are strapped with heavy debt service and make a huge profit.

You aren't charging top market rents so you have much less eviction and turnover costs.

So as we all know there are general guidelines but every property is on a case by case basis.

Every listing I take a learn a lot from each seller.Not really about the transaction side but how each of them 10,20,30 years in the business have run their properties and why.

It's pretty interesting stuff.

Not all properties pre-1978 have lead paint.What the EPA rules require is that you test and have a certificate showing no lead is present.

For your offers though more times than not home before 1978 will have it so always include with a lower offer and if it's not there it is a bonus.

Many investors believe the FEDS don't have the manpower to enforce the new EPA rules so they will chance it.

Recently in Georgia the EPA is handing regulation over to the state as they can manage it better on the local level.This means more enforcement and fines.If you are in compliance there is nothing to worry about.

Yes it seems everyone is trying to do it.

If you buy cheap enough you can wholesale.This goes back to the whole argument that If I list a property for sale as a broker and market it properly I DON'T need a wholesaler.

There will be plenty of people banging down my door to buy the deal.This perception that banks are DESPERATE to unload properties is not true.They are MOTIVATED and there is a huge difference.

My sellers are not interested in people who don't have a pot to p*ss in.I tell them if you are a cash buyer then show me proof of funds valid within the last 30 days.If you are a corp of llc show me the documents along with the banks statement of POF that you are authorized to make decision for the corp and control the accounts.

If you can't do those things and you are trying some guru's half baked seminar crap I don't have time for you.Especially when the next call I receive is from another buyer who does meet all the requirements above.

If they are using a HML then it is cash but tied to an ARV condition so it's not an all cash AS-IS deal.

Don't worry about competition as it will be there in any field.In every field you have the top class that makes most of the income and then some that make a decent wage and then those that are in poverty.

Don't know because I am not there.

Many times I can tell you as a listing broker the asset manager demands the property stay active in the system even if an offer is accepted.

Usually you upload to a portal and the asset manager has already verbally accepted an offer or countered by e-mail.Then it can take up to sometimes a week before the bank gets back their addendums to sign.

I had one verbally accept on Thursday of last week and just got back addendums today. So sometimes when it's active really their is an accepted offer or the AM chose to keep negotiating with that one offer already.

I agree with J Scott. Realtyman I don't see that happening at all in my state.

National banks will always use a listing broker to give maximum exposure.Now if the bank is selling the note,or a short sale,or a bulk sale of reo's or an auction then that might be the case.

Local and regional banks might not have their properties listed.I contact these banks directly and yes they will deal with you.

I have found on the commercial real estate end many of these banks are selling way overpriced assets. I will see a 18,000sq ft retail strip center brand new off the corner with just the shell. They are asking 2,800,000 to which I say they are insane.

In a situation like that you have to finish out the space for the tenants,lease concessions for being off the corner and not anchor weighted to drive traffic.Once you run the numbers they are way overpriced.

They tell me my numbers make sense but they just can't take that kind of hit right now.So banks go through a process before they are ready to be realistic.

The commercial side is very different from the residential side in that the loss amounts are usually much greater to the bank.

Big national banks with asset managers have hundreds of files to work and use a listing broker.Typically they take 10% of list price with markdowns every 21 to 45 days depending on the bank.

I used to track which banks got real aggressive with list price.Bank of New York Melon would always dump really cheap and other banks would overprice and take a really long time to get realistic.

So by collecting this data you know what you are up against when the property hits the market.