All Forum Posts by: Eric Bowlin

Sounds like a terrible deal honestly. $27/month? Might make more in a savings account.

Assuming 0 vacancy, 0 utilities, 0 management, and 5% of rents on repairs.

Down Payment - 28750 

Closing Costs? - Say 1250 to make it easy math 

Total Cash invested = 30,000

Rent - 14400

PIT - 7920

Ins - 900

Maint - 720

Net Income - 4860

Yearly Cash on Cash Return  - (4860/30000) = 16.2%

Return Including a more realistic 5% vacancy = 13.8%

I'd say not bad for your first purchase!

I think you can get it up into the 25-35% return no problem with some experience. Even higher.

1) Go to a hard money lender. Your bringing 50 to the table and they will like that. Make sure you get pre-approved from a bank because the HML will want to see your exit strategy.

2) Offer to the bank see if they bite. It's always worth a short. If you can help the homeowner out, that is great. Big Banks are very disorganized and often they will make a bad decision and end up selling for much less down the road. They will say no to 100k today and sell it for 80k next month.

3) Go to the auction - I find auctions are full of bottom feeders and they don't know how much work it requires They will assume the worst and most likely won't even meet the banks starting bid. In negotiation, whoever has more information gets the better deal. You know what needs to be done a know what it's worth.

4) Make an offer - There is a good chance the bank will take it back at auction and list it on MLS. Get in there and make the offer. Don't bid above what you want to pay.

I offered 60k on a multi once..they took another offer. Deal fell through and I offered 60 again. They took another offer. That deal fell through and I offered 60 again..They took another offer and that deal fell apart too! Finally they took my offer (4th times a charm I guess) and I'm very happy with my purchase.

Stick to your numbers and if it's meant to be, it will happen.

Yes it's in MA. Part of it's issue is that it's listed with residential condos and not listed with office space. These mis-marketed properties have given me great deals in the past. 

My concerns are that I notice office space sits vacant often for 200-300 days before being rented... or even more. I also am not an expert on commercial property so obviously there is some hesitation there and the big questions is Why is it so cheap? The biggest risk is the condo fee. losing 18k while waiting a year to rent it is a big up-front hit. The up-side is if it's fully rented at a decent rate and if the condo fee is passed to the tenant, the property could go up in value 4 or 5x if it is valued using a cap-rate. The other concern is the size of space. I feel that a large enough firm to fill that space would gladly pay to purchase the condo rather than rent.

I'm all tied up on a couple other deals so I was more dabbling and browsing to see what I find. But 40k is pretty cheap... I'm sure I could dig up some cash between the cushions to get it done.

I may be wrong...but I thought if two (or more) people together form an LLC as partners and each has specific roles and obligations written into the operating agreement...you have avoided the securities issues. If you have an existing property or LLC and offer to sell shares of your company or property with an equity investor and offer to share the profit, you are now straying into the SEC's realm.

People partner every day for all sorts of things. I hope not every one of them is governed by the SEC.. From what I understand it's all about how it's set up at the beginning... I could be wrong too though.

@Jon Holdman I disagree. I completely believe that expenses can be consistently under 30% of rents (excluding a property manager)..I know because I essentially do it on every one of my properties every year. On a property with that rent income, I would expect to net at least 10k a year after debt service.

I look at the 50% rule as a guide for 'worst case scenario' type math. If the deal works at the 50% rule then it works under better circumstances. Just like you might add 10% to a rehab budget as contingency.

But then again, every market is different and maybe in your area it's more accurate.

I started in a three-decker in MA. Lived close to for 'free' by renting 2 units. Allowed me to build up the 'property management' experience that banks are looking for. It didn't cash flow until I moved out but living for 100/month is better than spending 1000/month..I saved the difference and started investing full time a couple years later.

If that particular fourplex is good..I don't know..but I think the concept is solid.

@J Scott sounds like solid advice to me. Also, as I think about it more, I'd make sure I really look into the persons background.

In my neck of the woods news just started reporting on a major con artist. Police have received many complaints over the years but somehow never caught on.

Guy would con people into giving him their life savings. Often he would be hired to cut down some trees on a lot. He would talk to the locals and explain that he was 'developing' some random nearby development and they could become equity investors. He showed them all phony docs and they would write 50k-100k checks to him. He also rented construction equipment such as $100k excavators, forge ownership docs, and sell the rented excavator to people. 

He was taken to court many many times but somehow always convinced the judges that they were just disgruntled or angry customers.

Though these people are rare, they are out there! Always, Always, Always have an attorney involved, do your due diligence, and start small with any new partner and work your way up like J Scott suggested.

You might be looking at the bottom line instead of the top line. Taxable income will be lower than earned income because of deductions. Your W2's WILL match your wage income line on your 1040 or the IRS will contact you. 

If it does not match, then I would suggest you hire an accountant and have him or her do your taxes from now on. Also, you might want to file an amendment and file the correct amount of taxes. 

This happened to me when I was around 18. I was not provided a 1099 until apr or may and I had already filed my taxes. I said 'screw it' and never amended my taxes. took 3 years but eventually the IRS contacted me and demanded I pay, plus 12% interest for all the years I hadn't paid it. I paid up quick and learned how serious the gov't is about collecting money. I was only teen at the time so it's good to learn those lessons early.

On the other hand, if taxes were withheld and you didn't claim that w2..the IRS could owe you money.

@J Scott   Property taxes would be about 2k/year. Insurance I can guess at but who knows. The property is managed by the association and includes waste removal, cleaning, etc.

What do you think about dividing the fee among tenant(s) because its mostly for electricity, heat, water, ac, and cleaning? Usually tenants pay these fees themselves.

Any thoughts are appreciated. I'm just trying to learn what other people are thinking about when they walk into a commercial transaction. What would be your thoughts/concerns on this or any other deal?