All Forum Posts by: Account Closed

Just another tidbit of local knowledge that isn't provided in a turnkey listing. Thanks @Account Closed

So I'm getting to a point where I have more acquisition pipeline than I can purchase myself. I'm doing research on selling the surplus, & I ended up on the BP Marketplace. Looked through a few posts, and saw a few deals from a frequent poster that were laughable.

70k for a turnkey property on a rough street in columbus... rented for $800/mo... and the pro forma they're pitching is RIDICULOUS...

-4.1% Interest on a 30 year fixed loan. Should be 4.75 minimum.

-6% Property management. Call it 10% in a market where rents are low.

-4% Maintenance reserves. Should be at least 10%.

-4% Vacancy... I google mapped the street... and I would call it 8% (that's 1mo./year)

-$70 per month in taxes. This will double for an absentee owner. And this was based on a tax assessed value of $17,000.

-ARV is $77K... but every nearby comp on the street is $40-$50k.

-cash on cash ROI of 23%. I ran my own numbers on the same deal and got 11%.

Turnkey buyers, I get why you do it. Dealing with direct mail and contractors sucks. But pleaseeeeee know your numbers well. There are so many deals like this ^^^ selling like hotcakes. Don't buy them. Be conservative. It will make you money :)

If you don't feel comfortable dissecting a pro-forma... hell just ask me. I love numbers, I will gladly dig into samples with you.

Hope this helps someone out there!

Elliott

Man @John Becker, you guys are really getting after it. Good for you.

I've picked up several houses in Northwest Indiana lately... mostly Hammond. I must say my property manager is the key to it all falling in place. @Adrien C. will vouch, it's Karen @ Property Boss (whom I'm not affiliated with).

Where are all of your SFR's. Feel free to bug me about NWI a little bit. I'll send you a PM too.

@Jordan B. play around with the deal and it will be a good one! If I can refi every dollar I spent out of  a house, or even collect a surplus on refi of 5-7k... I'm a very happy camper. Of course I wont pass up on a good one if its only a little money out of pocket.

@Doug Martin isn't it crazy that $2M invested one time could generate you enough money to live fairly comfortably for the rest of your life? I say you've got the cash, start slow because a big $2M dollar deal is something you have the capital for but not likely the experience. Know your pro forma well. If I had the CASH for that and just starting I would go stick it into 5-10 units that could use some light value add. 

How much time have you spent thinking about your investment strategy? Any idea on markets? Type of assets? @Mark Gallagher suggests lending, and this seems like it could be an easy path to your goal. Of course hard money lenders are EXTREMELY keen to what is and what is not a deal worth lending on. This might be a limitation for you at this point. I know it would be for me.

What are you thinking you will feel comfortable doing to start investing? What are your inclinations?

@Jordan B. Doesn't sound like a bad deal. How come you don't have a vacancy reserve calculated into operating expenses? I would throw in an extra 5% of monthly gross rents for that just in case. You don't have a property manager it seems, so it may be safe to call it 7.5%. 

The big hesitation if I were buying this deal would be the amount of personal cash sunk into it. You'll probably end up spending between 25-30k total of capital after refinancing, which is a lot of money tied up in a value add deal. If the ARV will be 130k, can't you get debt on at least 91k?

$550 profit (i'm counting vacancy @ 7.5% and a higher mortgage for more debt) on 14k invested is a whole lot better than $600 on 25k invested. Plus, more buying power for your next deal.

Would you agree? What are your thoughts? 

You know how most products just say they're "water resistant", rather than water proof? Haha.

My best shot at it is leveraging no more than 70% LTV, purchase and rehab shouldn't exceed this 70% number so no real out of pocket acquisition costs, minimum ROE of 15%... and really I look at debt coverage ratio (my lender prefers this as well). They want my NOI to be 1.25x my mortgage, but 1.75 is my minimum criteria just to be safe.

Checked out rental market trends in my market... biggest year over year decrease was in the early 2000's and that was 10% in a year. That hasn't ever happened again. I can tolerate about a 25% total decrease in gross and break even while adding to reserves.

Toppy times... everyone should be extra conservative. Making it through a future downturn is key!

@Russell Brazil you work for a very respectable establishment @ Long and Foster.. but you know better than I that not every house operates like them. Haha

@J Berk Why are you only interested in the property only paying for itself? With purchases today my pro forma is even more conservative than it would be a less expensive market, because I'm factoring in a buffer for future reduction in NOI due to economic changes.

Breaking even today means you're surviving during the good times... what's going to happen to your investment during the bad? Furthermore, you should never put 30% on the table for a seller financed deal. If the seller is funding the deal I would seek to provide 10% down. The rate is tolerable if you're not in for so much of your own cash.... but then again at 10% down the property doesn't perform well enough to cover the debt safely. 

Commercial loans from a local bank I work with in my market (they hold their own paper) with have been proposed at 30% downpayment, 5.25% interest, 20 year amortization with 5 year reassessments. This is actually a better loan than the seller is giving you... why wouldn't you go secure a bank loan? Will banks lend to you on this deal? If not, that is a big warning sign. 

In the current market your top priority should be not getting burned. Be extra conservative. Now I'm investing in different property types than you (small multifamily, hopefully larger soon)... but my mortgage payments are half of my NOI, so I can weather the storms to come.

Hey Chuck, I'm going to try to answer some of your questions based on my experience here.

1. I have an LLC setup, title and loan are under LLC... even for my first deal. Getting the loan in the LLC's name was not a problem. I did this with a local bank who holds their own paper. Although the loan is in my LLC I am still personally guaranteeing debt repayment. The only assets collateralized are the properties in the LLC though. Just keep shopping around. You'll be rejected by several lenders... your best cure to this is a deal that surpasses their profitability criteria.

2. , 3. , & 5. Are you self managing? This is something I leave up to a property manager. My PM's ACH comes through their management software suite. Screening and marketing is done through this suite as well. My PM is easily worth their fees... she has repeatedly gotten tenants in the property within 24 hours of advertisement. Just provide a quality property (consult with PM on this) and if you do decide to use one... use one who has a waiting list. 

4. I love REI guard. I am NOT affiliated in any way shape or form. I'm just very pleased because they offer plans that are very specific to landlord needs, do not provide excessive coverage options, and are very competitively priced.

Hope this helps!