All Forum Posts by: Henry Clark

Ok.  Look for property that has roads on two or three sides of it.  Contact your county zoning and see how few acres can you split the land and subdivide.  Internet.  Trees and slight hills.  Valleys for ponds.  Bus routes.  Side where the town is growing or towards a larger metro area.   etc etc.  Look for attributes that when you are done with the property if you choose to sale you can add value very cheaply and where over time, the property value will grow on its own.

Success story.  Bought land for $500 in 93.  Valued as ag today at $7,000.  Subdivided and selling for $50,000 per acre.  A lot of people have the $500 to $7,000 story.  What is different is our ground was located properly for further escalation.

Do you like to gamble?  Save $307  versus losing your house.  Its just part of home ownership.

Do you have a kid shovel your snow or mow your grass?  Will you have a "local" guy re-shingle your house or do landscaping?  Will you have some friends over for a barbecue?  Did you salt and shovel your sidewalk down, always?  Are you going to fix your sidewalk that sticks up two inches?  How's that large tree doing?  You changed your landscape and flooded the neighbors basement.,  etc, etc.

Check out a $2mm policy.  Shouldn't be much more than the $1mm.

You don't want to insure against all things in life, but cover your basics.

Back into your cap rate.  Look out on Loopnet at similar properties and see what their Cap rates are.  You have to trust they are doing their Cap rate calc correctly.  I have seen people leave off property tax and management fees; and have their revenue figures wrong.  Basically you need to do your numbers and see if it satisfies you.

$2.5mm divided by NOI $118k= 21 years.

$3.0mm                                 = 25 years

$3.5mm                                 =30 years.

That is before any consideration of interest expenses or taxes which make the Payback periods even further out.

Second reason to expect more is Appreciation.  In 10 years, without getting to much into rent stabilization how much do you expect your property to appreciate given the market, and any changes you see in Rent stabilization?

Please describe the land if you have it.  Or if you want to buy it.

These are all Due Diligence questions and they are all Local questions.

Can you slow the deal down, while still keeping it.  See if you can do a $3,000 earnest money deposit, even non-refundable for a 10 day period, normally 30 days.  Sit down with your local city code/permit group.

I'm not an SFH or MFH person. Someone with experience can probably go through the list and say which ones not to worry about. The one, I would be most hesitant on is your question about new construction as it relates to this property. Finance companies might be hesitant to finance a property with permit issues.

Your still in Seller financing.  No bank will want to take 2nd position on them as collateral.

Option 1:  Recommend, work with your parents since there are 3 properties, to Refinance with them first.  See if you have enough paid down (not likely, since you just bought in 2019), to take one of the properties out of their loan to you.  This property then is unencumbered and you can use it for equity on your next deal.

Option 2:  If they are nice (not a business concept), if one of the houses is worth $350k ($850k less $500k); see if they will release the lien against that house, if they are willing to give you a Zero % collateralized loan on the last two houses for the $500k debt.  Talk with a Tax accountant to make sure the IRS does not view this as a taxable Gift, given this is only two years later.  Or an avoidance of Inheritance tax.  Basically substantiate the price they sold to you was the same as third party appraisal.

Option 3:  Do a traditional loan, lets say at 25% down.  If $850k, then 25% = $213k collateral needed.  You would have $850k less $500k existing loan= $350k less $213k= $137k cash out refi. New interest rate would be %?? and loan term would be ??.

Option 4:  Same as 2 above, but 40%.  $850k at 40%=  $340k collateral needed.  $850k less $500k = $350k.  $340k vs $350k, you don't have enough equity to refi at 40%; and you would get $0 cash out.

Issues:

A.  If you refi to the $850k, will the three properties cash flow now?

B.  Will the next property cash flow support this added debt.  Assuming you get a Market rate deal on the 4th  property, it probably won't help support the added debt on the first three properties.

C.  Do a Risk analysis.  If you take on the 4th property, what conditions would have to occur to make you go under water?  Lets say you end up with 6 "Units" at the 4 properties, how many would have to not pay or be vacant to make you miss your P/I payments?  Just about 15 years ago, you could have bought lots of Florida properties cheap.

Make sure the added Cash can support itself.

CPA from a prior life.  Its hard to convey tone, in a text.  Turn the volume down on the below.  Just recognize I have been the good and bad leader/communicator in the below, that's why I can pass it on.

Lets reverse the question.

You are wanting to develop a Team.  Are you a good team leader? 

If it was Friday at 4 PM would you go to your team and say folks, we have to work till 10 tonight and all day Saturday and Sunday.  Especially, when you knew two months ago?

Your hitting them in the middle of Tax season.  No CPA will be responsive.  They must be dedicated to their current clients, because they are good "Team" members to them.

Recommendation:

File an extension and pay estimated taxes.  Then approach finding a "Great CPA" after tax season.  

Become a "Valued Customer".  I pay all of my vendors 1 day after I get their invoices.  And I drop off the payments personally, and say hello.  They like to see me coming. They are kept up to date on the progress of the projects and the other contractors.  When Mother nature kicks them in the ***, I let them know, I know its Mother Nature; and not them.  I don't bird dog them, if they have always delivered for me.  Don't make a ton of changes.  Don't go shopping out my business.

If I call them Sunday at 7pm, they are more than glad to talk with me, because they know it is something that will make their lives easier come Monday, or it something important to me, that can't wait.  I've only done this twice.

Sell them, you will be a good Customer.  The only way to do that is through your actions.

What are you looking for?  What are your objectives?  What price range?  What rehab work can you bring to the table?  etc. etc.  Provide this and we can give you more specific suggestions. 

The key recommendation is for you to do a deal, that your not suck with, has low risk of failure and $$ impact.  You have to start down the learning path without losing a lot.  This is your best learning tool.

Join a local BP group so you can go over deals with people that are further up the learning curve.

@Shawn S.  follow @Jonathan Greene notes.

type in Melbourne, Fl or other.  Real estate for sale.  Sort by your price range.  Look at who has the most listings.

As Jonathan mentioned, prepare a one sheet.  Who you are, price range, property type, neighborhoods.  You have to be prepared if they bring you properties to say yes or no within a day, subject to you doing a quick inspection of the property.

Can "you" do a quick inspection?  Do you have a checklist?  Or do you have a home inspector on call, that can get to you quickly?  If not, then you probably don't want to go this route.  As mentioned above, buying a lemon.

Can you do an analysis on a property in 2 to 3 hours, to see if it fits your objectives?

You need a process, so you don't overlook something, since your making a fast decision.

Have your numbers and financing worked out ahead of time.  Have your banker pre-approve you.

Know the type of property and the area you are looking at.

Other than inspection, put no conditions on the offer, other than 2 day offer.

Two objectives/options will happen with an MLS listing.  

a.  Either the Agent will have to split with the buyer agent, the commission.  Action- look to see which realtors are selling the most properties that you want.  Personally stop by and contact them.  Tell them the type of properties you want, at what price and what type of condition.  You have to be able to make an offer in 1 to 2 days.  This gives them the full commission.  Win/Win.

b. The agent will use the MLS to get as many potential buyers as possible and create a bidding war. Action- You probably don't want to be in a market or product type that you have to go into a bidding war.  Win/Lose.