All Forum Posts by: Daniel O.

You need to shop around, Talk to someone at Bank of Internet. They are doing commercial loans now and I have been very pleased with their service and rates. The worst that could happen is you will discover your bank is giving you a better deal than you realized.

@Mark Vondrak, You can do pretty much anything you need to do with Excel or a similar spreadsheet program.  If you want it in the cloud, use Google Drive or I Cloud to store it so you can access it from any device. I've been playing with Tenant Cloud a little bit, but have not used it enough to form an opinion. It seems to be more of a property managers tool than an landlord / owners tool, but it may just be that I have not learned to use it effectively yet.

@Tawnie Vinitnantharat, you may be making this more complicated than necessary. The 60/40 split sounds reasonable, but why not just lease each property with utilities included? Charging tenants a flat monthly fee that is in addition to rent just invites them to question whether they are paying for more of the utilities than is reasonable. And yes, the lockable thermostat is a must, as it takes any issues about how hot or cold things are out of the tenants' hands.

Perhaps include some documentation with your offer laying how you arrived at the number you are offering. Don't disparage things, just explain that it needs a new roof and partial rehab due to messy tenant. Those things have costs associated. There is no use arguing with the seller's agent. Just present the facts. We are seeing a lot more places on the market for values that suggest the seller or listing agent vacations on Fantasy Island.  If your numbers are solid, which I think they are, it is unlikely that anyone will offer much more than you did, and even more unlikely that they will be able to get financing.  So I agree. Wait a month, then resubmit your offer for $5K less than your previous one. Wait another month and drop it another $5K. 

I'm with @Jay Hinrichs on this one. Any time you are trying to do a deal, it helps to step into the other guy's shoes and look at things from his perspective. And the reality is that your friend could probably do this deal without you, but you might not be able to do it without him. There are a couple of additional thoughts I'll share.  1) If your prospective partner is a friend, you both need to be careful not to let this affect your friendship. It is a lot easier to come up with money for a deal than it is to come up with good friends!

2) It might help for you both to look at what you are bringing to the table. Yes, he is bringing the cash. And that is easily quantified. But what you need is a way to quantify or value the part of the thing that you are bringing to the equation. One way to do this is to look at what it would cost for you to outsource that work. What would a property management company charge to manage it? 10% of rent plus a tenant finder fee? OK, that's part of your contribution. What would it cost to have someone else manage the rehab? Boom! Part of your contribution. Do the accounting?  You get the idea. Will you be doing the rehab, or just managing it?

So, the deal might look something like this:

Purchase price + closing costs + project management costs + contractor costs + monthly management costs + monthly accounting costs + maintenance and repairs.  You can assign a dollar value to each of those things. Some, like the purchase price, are money that has to come to the table to make this work. Others, such as your efforts at property management, are in-kind contributions that you can assign a monetary value to by seeing what they would cost on the open market.

Figure out how much each of you is contributing to the deal, whether in cash or cash-equivalent labor. Assign a dollar figure to the following:

His share of acquisition cost?

Your share of acquisition cost?

His share of rehab cost?

Your share of rehab cost?

Fair market value of his in-kind contributions?

Fair market value of your in-kind contributions?

Fair market value of your property management?

Now tally these up. Give the total a value of 100%.  Look at his cash and in-kind contributions. What portion of that 100% is his? What portion is yours?  Who is assuming the risk in this endeavor, and what is that worth. Remember, once you've spent your time, it is gone. That is not the case with the cash. But that cash is at risk until you refi and pay him off...so that he can put it at risk again. The fact that he is putting his cash at risk has to be worth some kind of premium.

Jay Hinrichs

@Satya Patil There is nothing unfair about charging rent for the remainder of the term of the lease. This was clearly spelled out in the lease that both you and the tenants signed, so how could it be unfair? Do not compromise on the quality of tenant you will accept. 

Satya,

The lease is a contract. You have to go by what it says in the lease. It is not clear from what you have written exactly what the lease allows and requires. Unless the laws in your jurisdiction dictate otherwise, or you have agreed to something else with the tenants IN WRITING, you should just go by what the lease says. 

It is common for a lease to require payment through the end of the term unless the landlord is able to rent the property again before the term ends, so you don't get to have new tenants and old tenants paying rent for the same month on the same property. But again, it depends what your lease says and any other agreements that both parties have agreed to IN WRITING.

You do have to make a good faith effort to lease the place to new tenants, so be sure to advertise it appropriately. If you end up in court, it will be important to be able to show that you made a good faith effort to find a new tenant. Whether or not the costs of finding a new tenant can be passed on to the previous tenant who broke the lease will depend on what the lease says.

Mark, Just sent you a request to connect. 10% down on a 4-unit might work if the numbers are compelling and you are able to make the case to the lender. But they would have to be really compelling. It might also work if the purchase price was so low that the LTV ratio made the lender comfortable. You can use the rental property calculator available on BP to analyze and to put together a proposal to the lender. Good luck.

I think the big unknowns here are the big unknowns. You could be off significantly in your estimate of $10/sq.ft.  for the rehab - think mold, asbestos, meth lab hazards, etc. Then there are the issues with permits to get the work done. And you will probably have to pay to have that unusable duplex torn down. Then pay to rebuild? But not without addressing that water issue. Bottom line is that you may get this to cash flow eventually, or you may improve and then flip it, but you are going to need to tie up a bunch of money to do it. Best of luck. Please share how things play out.

Pay attention to flood zone maps from FEMA and the need for flood insurance. It can be an unexpected and non-trivial cost for those investing in coastal communities, and traditional mortgage lenders will require it if you are in a flood zone.