All Forum Posts by: Chase Gochnauer

I own a small business that manages bank foreclosed properties. Clean them out, change locks, repairs, etc. I'm looking to supplement this with purchasing vacant NPN notes with the intent of foreclosing, basic, minor repairs and then resell. Much focus is on getting notes to re-perform, but this better suits my current business.

I'm looking at a basic one in my home state, BPO of $29k, $11k purchase price on vacant 1st lien NPN. Looking to foreclose, take possession an resell.

Has anyone else focused on this side of NPNs rather than getting them performing?

Yes P&L was -$3000 for the year based on rents. This was fully managed by a larger property management firm. Total rents for the year were $52,000. Fully rented with 0 vacancy my guesstimate would be $70,000 in total rents

Some of the expenses seemed extremely high, and I think there's opportunity to get them reduced but I think it should be closer to purchase price $225k not $330k. 

Basically I'm not missing anything. Per broker, this would best fit a hands on manager and there is an opportunity for raising rents. AKA, it's not making money now but if you do everything yourself you can make a profit. As it's operating it's essentially a 0% cap rate. The difference between 2014 rents and property taxes/insurance is about a 9% cap rate, assuming zero maintenance or management. Crazy how they can list it at a $27,900 NOI when that's completely bogus. This is an established commercial broker.

Received detailed P&L.

NOI for 2014 on their Income statement shows $-3,171.03. Even subtracting out the $3k in professional management fees, that's a $0 NOI for 2014. This does not include any of their financing costs. I might be missing something but I don't think so, other than the fact some of the maintenance costs such as snow and lawn seemed to be a little steep(we could probably cut in half as my other business performs lot maintenance) , but I'm sure that's due to a large property management company handling them.

I'll ask the broker what I'm missing.

Makes sense on the interest rate. I have some lower priced investment properties free in clear I can leverage against too. I'll look into this deal further and any others out there and see what I can come up with on more detailed numbers. It just seems to make much more sense for me from a management standpoint to manage one $330k property than say (3) $110k homes if the cap rates are comparable.

I will check into that Lee. Thank you. 

Thanks for the quick response Joel. I am having trouble deciding at what level to try my first deal in the commercial arena. I can go higher, but I'd rather have some of my "learning experiences" on a lower level property.

When you say 5 year, are you referring to a sort of balloon type payment?

I do some residential rehabs, looking to get into a some longer term properties as part of diversification.

Property is two buildings side-by-side. One building is 6 residential apartments, other building is 3 retail/office spaces and 3 apartments.

$329,000 purchase price.

$27,900 NOI from 2014 Pro-Forma.

Roughly 8.5% cap rate. If I can finance at 20% down w/ 5% interest, that's approximately a 14.6% ROI on cash outlay. Even higher if there's a little negotiation room available.

I haven't seen 2014 pro-forma, but obvious concerns are that this may not include any sort of capex amounts or maintenance could have been abnormally low.

Any other things to look for, or thoughts on the deal?

Thanks
Chase

List it and give yourself(or realtor) a deadline of 30-60 days if it doesn't sell, rent it. Worst case you're out $1300-$2600 in potential rent, best case you just made a nice chunk of change and can move on to the next deal.

We have a lot of them here that were converted to multifamily years ago. It's no longer allowed, but they are zoned multifamily. You just can't convert any new ones over.

Is it a SFR that was converted to a duplex, or an actual duplex? I would imagine the original building permit would have had to have been approved by the city.