All Forum Posts by: Eric Phillips

So I just had an interesting call with a land owner. I am new to developments, never done one before, but have time and financial know-how. I have good connections to financing I just moved to a new area and am getting the lay of the market. This market is solid, not too hot, but not cooling. It could honestly go either way. I found this piece of property 1.8 acres, for sale by owner, and called on it about 6 weeks ago. Initial discussions with owner disclosed it was held in a family trust, 4 siblings all over 70, had an offer 6 years ago for $1.6M, and now they wanted $2M for it, way over valued. Initial call told them that $2M didn't have a basis and was going to put together my best offer. They said that was fine, they hadn't had much interest in it, and they were getting ready to list. They were motivated to sell so it doesn't get passed down to the next generation and start a fight.

Partnered with a successful builder and developer I found through my network. We paid for a real estate agent's time ($50 for an hour) to get a deep dive into the data they had available to them on the MLS. Thank goodness I did. Their information was invaluable. We got a preliminary engineering drawing done, preliminary review with the city, and the city told us we couldn't put as many units on it as we would like, and the improvements were going to be higher than we anticipated. Long story short, about half of the land wouldn't be buildable on. I called the seller and informed them that the best I could do was $700k - $800k. They literally laughed, then got angry. They said that developers are a dime a dozen, and was offended I would offer so low. The only competitve advantage others would have over us is maybe their capital would be a little cheaper, but even then I don't know if their overhead would be enough to offset it, since all three of us would be doing this project on the side.

My question to ya'll is, what do you do when a seller has their expectations so high that no amount of discussions can bring them back to reality? Does anyone have a good strategy on how to approach this? I get it being a gut punch to hear $700 - $800 when you are expecting such a higher rate, and I know I have reacted the same way to similar things in my life. I intend to call them again in two months, but I am just looking for ideas to keep it productive because I feel like it wasn't productive.

Utah, Texas, land development, PUD

I would visit with a realtor and a mortgage broker. One of the main advantages of house hacking is to lower your down payment, and your interest rate. Both of your assumptions above are pretty conservative. 

Regarding your Cash flow, analyze cash flows that change from your current scenario to now. 

Cash-on-cash return is calculated by taking your cash flow and dividing it by your initial investment. 

ROI on this project will take the cash flows you earn and add the equity increase in your property. Divide that by your initial investment.

Hope this helps in your analysis. I’d practice by going on HAR and finding a home that fits your criteria and then determining “your” purchase price. This at least will help you get good at quickly analyzing properties by researching tax info and potential rents. 

I have the same question, but for single family homes. Any recommendations?

looking at your assumption for taxes and insurance it seems quite light. I would expect taxes at best 2.5%, realistically 2.75%, and depending on if you are in Harris County and North or South if I-10 would affect your insurance but $1000 annually would be the absolute best you would want to assume for insurance (north of I10 in Harris county). 

Hello,

I am looking to have an in-depth discussion with a tax professional regarding my rental home. I have owned it for 4.5 years, I have lived in it for 2 years, rented it for 2.5 years. I am going to be moving for my job and am looking to sell the house and trying to understand the tax implications since I will have depreciation recapture, it was a personal residence, and now I am moving for work. I have done some research on my own, but just enough that if I tried to navigate this myself I would mess it up. 

Jeremy Shorts is a reputable eviction attorney. He helped me get some good contracts in place for my SFH in Murray.

http://m.utahevictionlaw.com/

Yes the plan would be a balloon payment via refinancing at the end of year 3. The maintenance will be tight. Great question on the utilities, the previous PM sent me their statement for last year and I pulled that out of it. I will ask them. 

Thank you for the review. 

EP

I am looking for some inputs. I am looking at my first duplex. The details are below. I would love any comments, questions, or concerns.

Purchase Price: $135,000

Owner Financing

Down: $18,500

Interest: 1.58%

Term: 3 years

Payment: $750

Closing Costs: $2,500

Rents: $1,200 (2 - 2bd 1bath units; $600 each)

Taxes: $1,500 Annually

Insurance: $780 Annually

Management: $1,152 Annually

Utilities: $1,000 Annually

Maintenance and Vacancy reserves would be lower than 12% during the seller financing stage. Then I would need to refinance and know that in three years the mortgage industry could be different, and there are risks that property values decrease. I have a trusted contractor going to look at the home today.

Congratulations on the wholesale deal Spencer! I have learned that the first step on any investment route is the first step. That is great that you have one under your belt.

BP is a great place to network and grow as you have observed for quite some time.

Welcome.

Thank you for the welcome. Glad to hear there are some other locals.