All Forum Posts by: Daniel Miller

If the owner is older and close to retiring you could see if they would hold the mortgage. The deal looks pretty good to me. I thought property taxes were high in Florida! Geese!

You forgot about maintenance and repairs. You definitely want to budget that into your operating expenses.

Do you plan on managing this yourself? If not, a management fee of 7-10% of Gross Rents Collected is typical for my farm area.

Insurance seems really low too...

@Scott Seaman

Hi Scott,

Yes it is appraised at 285k. I was trying to throw off a few of the numbers. I wanted to keep the deal on the down low. I guess at this point I might as well show my hand.

The property that is under contract on the east side of 4th Street N is connected with the mortgage on the 9 unit. There is approximately $320,000 left between these two properties on the same loan (I calculated the amortization. Loan and loan amounts are on Pinellas County Records). I think she needs a 25% down payment. That is why I have been sticking with offering that...although I will ask and see if she will take less.

There is $95,000 left on the 4 unit.

There is easy access to the laundry. The two properties have one fence around them. They look semi-connected and with a little bit of work and touch they could look like one complex. It is just as easy for a person living in the 4 unit next door to access the laundry room as it is for a tenant in the 9 unit. The walk is not far and there is no barriers separating any parts of the properties.

Like I previously stated, I have zero credit. My parents are anti-debt (I am not. I do not mind taking it on) and they paid cash for their commercial properties around town. They do not have any loans on any of their properties. Just an open equity line on one of them. They will co-sign financing but it takes a lot of teeth pulling. That being said, my Dad is out of town 2-3 weeks out of the month and works for a start-up company in Palo Alto, CA. Mom is heavily involved in different charities and public groups around town. It is VERY difficult for me to get them to assemble the loan papers and/or visit the bank. Its a lot of work because they have not taken a loan out in a while. It will be so much easier when I can do this in my own name lol...

It would be a total of 19 units, not 29. The 6 unit building looks like it might fall down. It is an old frame house, with vinyl siding, built in the early 1900s. The other 9 unit is all concrete and the 4 unit is frame with asbestos tile (in solid shape with no slants or unevenness throughout the property)

The listing agent is a high end residential broker. I think the seller and listing broker are friends.

The parking spaces in the garage are not being used. They are really tight and whomever built the garage did not make them large enough. Also, there is a 4 inch, 90 degree, lip right in front of the garage. The 4 unit also has 4 garage spaces with old, wooden, horizontal opening garage doors.

The property that she currently has under contract is six units with less than 400 square feet in each unit. I do not deal with anything less than 600 square feet. Too much of a hassle to rent out.

I really think that if I put in time, effort, and my own sweat I can raise the rents $100 in the 9 unit and $50 in the 4 unit. The properties I manage, and renovate/update, are high end rents in old NE. We get top dollar for their rents. I see that moving on over to Historic Uptown as St. Petersburg gets built out...

I hope someone doesnt pounce on this Scott after you kinda outed me lol...

Thank Patrick.

Im hoping to get her in the ballpark with my offer. I have evidence to support every expense that I have adjusted from her initial Profit and Loss. (Examples of reserve replacements in other listings, property managers in the area and what they charge, common maintenance and repair expenses/unit)

I might try to do that. Locking in the 5% is key. I would be happy having that mortgage/owner financing for the next 20 years.

I talked to my parents and they are actually trying to open up the equity line even more. They want me to make an offer on another property as well.

She does have some mortgages, so I think I might need to come up with the 25%. I am waiting to hear back from my Dad to see how much more equity he can take out of this other property.

I will update.

Thanks.

@Chris Da

$230,000 and I would not get a counteroffer and probably would not be able to make another offer on the property. The seller financing is not optional. She is 70 years old and wants to travel. She wants to receive monthly checks...kinda like an annuity.

Its taxable value is $325,000. A 4 unit in the market just came on and was listed at $275,000. It is 4,000 square feet and earns $3,600 monthly. This is not the hood, or a low income part of town. This is right in Downtown St. Petersburg where rents are not cheap.

Downtown Class A Apartment rents are $1.5-1.8/sq foot monthly. This is more class C+ right now but it can be a solid Class B asset once stabilized and updated. I am thinking about going in lower, equating the NOI to a 9% cap rate. Comparable properties (not in the Downtown Core) are listed at 9% cap rates, yet the area they are in has very little potential for future appreciation.

I dont think the option-to deal will fly with the seller but I am open to considering it. How exactly would on structure this?

I am an agent, but I am new. I have been working with an agent who has lived/work in this area for a long time and he told me the EXACT same thing about the property on 15th Street. He said be very careful. You might not have an opportunity to ever legally rent out all four units. Check on the occupancy licenses.

I never thought about this before. I assumed they were grandfathered in but apparently it was a big deal. Did you bid on the one on 15th Street? They had 10 offers at one point. Also, my friend has a property and next door is a four-plex. Someone purchased the property and the city will NOT give them clearance to lease it out as four-plex again. The max they are giving him is a duplex. This is what I have been told. Pretty disturbing...

Have you been to Green Bench yet?

@Patrick L. Yes, they are all 1/1s. Approximately 625 square feet. There is a ninth unit that is 960 square feet that rents for $775. I think I can raise that, with some updates to $850. The cap rate at my offer price is exactly 8.5% with my adjusted expenses. The cap rate is lower than I'd like but there are a couple reasons why I like this deal.

1. The seller will hold the note for 20 years, no balloon, at 5%.

2. I have zero credit. I played baseball for a long time and just got out of it two years ago. I just got my first credit card two days ago. My parents will co-sign the loan.

3. I will reduce the principal by $14,000 annually. I think this is huge. The rents will cover a $14,000 principal reduction annually...and that only grows as time goes on.

Its not the perfect property. I just missed out on 620 15th St N. I really wanted that property. List Price was 49,500. I offered $58,000 cash, 30 days to close, no appraisal or inspection contingency. Someone else offered $64,500 and it closed on October 11th, 2013.

I feel like its a strong property and the financing is key. 5% is a great interest rate for 20 years. She wants to travel and have passive income from holding notes from the sales of her properties.

I think the Historic Uptown area is primed to appreciate further. You cannot find any MF across 4th Street (in old NE) for anything that makes sense. All those units trade for $60,000 plus per door.

Staying on the conservative side...

If I can increase Potential Gross Rents $3,000, (very doable. I manage a 9-unit near the water and it commands $825 for 600sq ft apartments. This 9-unit is one mile away. No reason why I cannot increase rents from 575 to 650. Two of the units are already at 650 the rest are at 575) add a sufficient laundry room that will add $1200 annually (one exists with a crappy dorm room washer and dryer) and frame in 6 storage units at $40 a month, this property will be humming. I will be able to pay down the loan from my parent's quickly and will be generating a small cash flow from the property.

All of this with no money down from me. I am not concerned about being able to rent the apartments. I am good at prepping them, repairing cosmetic defects, updating them, and getting top dollar for them.

@Joel Owens Yes, I was afraid of talking myself into a property based on potential. You do not pay for potential, you pay for the current income statement.

But, she is offering owner financing. Shes is 70 years old and has about 20 units. She is selling them all. If I buy a different property, all cash, with the money I am borrowing from my parents I still have to pay them down. I might pay $4,000 down in principal the first year. And that is a maybe. I am getting taxed at 7.5%.

With this opportunity I am able to pay down my parents roughly 2-3,000 annually AND pay down the owner financier $14,000 in principal annually. That is huge for me. No money down and equity gained in the property of $16-$17,000 annually with no money out of my pocket. I can survive like this a couple years until I have turned some of the units, made them much more desirable, and have the place operating at its maximum potential.

What do you think Joel?

@Jordan

@Jordan Meyer That's the idea bud! Thanks for the tip I am going to call a couple insurance agents I know to get a better idea about the insurance. Thanks a lot.

@Faith Brashear Yes, I love storage. Family owns a 70 unit mini-storage (that I manage) and its a great cash flow property. Low expenses and 70 checks a month. Very diversified. Bought it in Aug 2012 and have loved it ever since.

Also, she is an older woman looking to retire. I think she wants to treat the passive income from holding these mortgages as an annuity. What kind of bad experiences have you seen before? I would really be interest to know.

Thanks!

I am looking to make an offer on a 9 unit in my farm area and I need a little bit of advice. It is in a B- part of town that is quickly transforming into a sold B and potentially a B+ in the future.

The asking price is $560,000. It seems way to high and I am going to make an offer based on an 8.5% Cap Rate. Apartments are very competitive where I live.

These are the Operating Expenses she gave me:

Potential Gross Income: $69,540 - 10% Vac Loss = $62,586

RE Taxes $6,587

Insurance $6,087

Maint and Repairs $1,800

Utilities $5,160

NET OPERATING INCOME $42,952

Obviously, these are way off and she does not operate the property with only these expenses. I have seen a Jamaican gentleman running some different properties for her. His pay was not included in the operating expenses.

These are my adjusted operating expenses.

Potential Gross Income: $69,540 - 10% Vac Loss = $62,586

Operating Expenses: $29,774.82

- RE Taxes $6,587.52

- Insurance $6,087

- Utilities $5,160

- Maint & Repairs $5,850

- Replacement Res. $1,800

- Mgmt. Fee $4,381.02

NET OPERATING INCOME $32,720.46

Cap Rate at Purchase Price - 5.84%

I am planning on making an offer of $384,946.58. The property has been listed since May and does not have any solid offers. She is willing to hold the mortgage if I put down 25%. If I get the property for $420,000 (roughly an 8% cap rate) and after the closing the total comes to approximately $432,600, than I will have a monthly payment of approximately $2,100. The annual debt service would come out to $25,200. Cash Flows before taxes comes to roughly $7,500.

I have to borrow the down payment from my parents. They are cool with it but they want 7.5% and will treat it like an equity line that resets monthly. The management fee will be my compensation. I am a property manager for a prominent family in the area and have two years of experience managing another 9 unit property.

I believe I can get the Potential Gross Rents up to $76,000 relatively quickly and also will install two washers and dryers and will rent out the three empty garage spaces. (I might frame in the garage spaces and rent them out as storage units) Either way there is equity in the property that is not being tapped.

The utilities are high. Electric is separately metered, water is not. The 9 unit I am at averages $3,600 annually in utilities.

Also, the insurance looks high as well. I will get that reassessed and will hopefully find a cheaper rate.

Any criticism will be appreciated! Thanks