All Forum Posts by: Erik R.

Thanks @Mike Carino.

Good advice on the Dearborn inspections.. regarding tax, I figure if I can meet my metrics on the deal with taxes burdened into the assumptions, then it doesn't really matter.. but understand that from a general market perspective, it would make more sense to farm a market with less taxes and more opportunity for profit.

I've also looked at Redford and Westland, however do not know the neighborhoods as well and am indeterminate on the demographic of renters. I know Dearborn very well- I lived there until my early 20s- What is your view on quality of renter between Dearborn, Redford, and Westland?

thx again

Erik

Thanks @Christian Beyer,

I'm anxious to get the first deal done for the exact reasons you mentioned; just want to mitigate making a bad deal. In one of the BP podcasts that I listened to (can't remember which one), the guest spoke about taking the approach of analyzing many deals straight off MLS and regardless of the list price, making offers which support his conservative analysis. This guy was running numbers on something like 20 properties per day, making as many as 30 offers a week.. of course 98% of those offers did not yield a deal.. but there is the 1 in 100 which will yield in a deal.

I don't think I'm at that level of course, and I recognize that today's market is less likely to yield these diamond in the rough opportunities via MLS, but the idea stuck in my head and is similar to the approach I'm taking here. i.e. Regardless of what the property is listed at, run numbers based on conservative expense & comp assumptions, and make offers.. regardless of how low.

thanks for the input

Erik

Thanks all, appreciate the feedback so far. I will look to dial up my expenses. in future calculations.

@Kyle Penland- My assumed cashflow is with a conventional 30 yr 20% down mortgage; so this property would cashflow $300/mo without PM, with a mortgage.

@Theodore B.- I'm interested in your investment profile, given you're living in Cali and investing in Metro Detroit locally; I feel you're correct.. if you can gainfully manage properties with that distance, I certainly can..but I always try to factor in PM as a safeguard. I'd be interested to talk to you about your team and local partnerships with your out of state arrangement.

Hello All-

I'm still in the process of walking through houses, analyzing deals, and networking.. I have not yet pulled the trigger on my 1st property. My current approach is to run analysis on properties which are coming to me off the MLS through a realtor, and determine a target purchase price based on est Expenses and Cash Flow. I then plan to place offers based on calculated target price, and through the inspection period verify my assumptions through Contractor and PM walk throughs.

Below is a recent listing that I'm contemplating making a low offer on based on a walk through yesterday, and would appreciate any feedback:

Property is in a C+ area (For those Metro Detroit investors, West Dearborn), and is Bank Owned. 3BR, 1.1 BA, 1,164 Sq Ft

Asking price is $64K. Comps show estimated $70k ARV. (not sure why such a large gap..)

Est Rent based on comps = $1,050/mo (rent/asking price ratio = 1.6%).

Gross income = $11,466 (assuming 9% vacancy loss) annual

Est initial Expenses: $15K total

Property requires the following est 'rent ready' improvements: New carpet in 1 room, new back doorwall, main floor bathroom updates, new fixtures, paint, etc..

No central AC; I calculate based on comps I could get $100/mo. more with AC.. est $3-5K

Additional initial expense risks: Water seems to be leaking through cinder block foundation in 1 spot... no idea how much this would cost to repair/mitigate.

Furnace looks very old; city winterization report shows it was functional, however no clue how much life is left...

Recurring expenses:

Taxes/Insurance- $4,450 annual // $379/month

Variable cost PM (10%), with 9% vacancy loss-  $96/mo

I assume $500 annual expense/repairs plus $100/mo in reserves

I assume $300 annual advertising/admin expenses

Total annual recurring expenses = $6,592

NOI = $4,874

In order to net $200/mo cashflow with PM (my own arbitrary target for my market) and yield >9% cash ROI, I need to purchase this property for $45K, assuming a 30yr, 20% down mortgage.

This property would yield (with PM): $215/mo cashflow, 9.75% Cash ROI, 11.79% Total ROI

This property would yield (without PM): $310/mo cashflow, 14% Cash ROI, 16% Total ROI

Final rent/price ratio would be 2.3%

thoughts ?

Congrats Joshua-

Happy to hear you picked up a property on your criteria, and learned some things along the way. I wonder just how saturated our market is becoming with real estate investors given the opportunities that it's historically been having. 

Best-

Erik 

Seemed like a wholesale to me, but sounds like it's more of a retail investment (or something totally different?). My realtor friend has a buyer who wants this house for $127K financed. HUD has it listed for $127K. He's looking to sweep in, get HUD to sell him the property at $120k cash, then resell it to this buyer at $127K. He's moving forward whether I'm interested in participating for a small share or not.. I respect everyone's point of view; to be honest I'm surprised this guy continues executing this strategy (and putting so much of his personal cash at risk) based on the above feedback.

Look- I appreciate the advise greatly, and based on more experienced views I won't be moving forward on this.. I need to obviously learn a bunch more.. I wouldn't have asked for input/advice if I were to blindly push through this deal, esp. considering it would be my 1st.

Appreciate the advice. My appetite to get involved in deals has impaired my better judgement I think... I don't know much about wholesaling and the evaluation of a wholesale deal, especially with a partnership; I'm happy I asked for input!!

Hello All-

Long time lurker here; I've been reading and soaking up as much as possible the past 2 years, and have recently come across my first potential deal.

Background-  I have been discussing strategies and seeking mentorship from an Agent friend who is also a RE investor. After multiple discussions over coffee, he presented me with an opportunity to partner on a wholesale.. my feeling is that he really doesn't need my $, but rather is presenting this as an opportunity for my to learn and get involved in a deal with him. (He does many flips and wholesale deals).

I would appreciate any feedback or advice on this potential deal:

The subject property is a 1,084 Sq Ft, 3Br, 1.1Ba HUD property listed for $127K.

My friend has an interested buyer at $127K, but requires financing. We would put a cash offer into HUD for $120K. I would be providing $20K to fund the cash offer, he would be covering the rest. After closing costs (est $2k high side), I would yield less than $1K. Not much, but I figure it's a good learning experience and it could be easy money.

I've been thinking through exit strategies in case this buyer falls through and for some reason we can't find a backup:

Potential Plan B: Minor Flip / Make improvements to improve it's appeal. It has good bones, including 'newish' baths and kitchen, but needs paint, carpet/flooring, new furnace, and some yard cleanup. Comparable sales (total of 7) came in at $132K. $5K in updates would wash profit to be equivalent to this potential wholesale profit.

Potential Plan C: Rent it.. Comparable rents came in at $1,222 (or 1% of purchase price) in this immediate area. Assuming my contribution is used as down payment, I would cash flow $100/Mo with doing my own PM. Not desirable at all, for my area (as there's better SFH rental potential at lesser prices), but plan C.

I'm trying to put in practice analytics of exit strategies and think through multiple risk scenarios, but think this is a good first step/learning opportunity in REI.

Thoughts?

Also, any advice on how to protect myself with this wholesale partnership? Effectively, I will be separately writing a check to the Title Company, with a proportionate % ownership on the title (NOT writing my realtor friend a check..). Thanks in advance!

Erik

Hello All-

Long time lurker here; I've been reading and soaking up as much as possible the past 2 years, and have recently come across my first potential deal.

Background-  I have been discussing strategies and seeking mentorship from an Agent friend who is also a RE investor. After multiple discussions over coffee, he presented me with an opportunity to partner on a wholesale.. my feeling is that he really doesn't need my $, but rather is presenting this as an opportunity for my to learn and get involved in a deal with him. (He does many flips and wholesale deals).

I would appreciate any feedback or advice on this potential deal:

The subject property is a 1,084 Sq Ft, 3Br, 1.1Ba HUD property listed for $127K.

My friend has an interested buyer at $127K, but requires financing. We would put a cash offer into HUD for $120K. I would be providing $20K to fund the cash offer, he would be covering the rest. After closing costs (est $2k high side), I would yield less than $1K. Not much, but I figure it's a good learning experience and it could be easy money.

I've been thinking through exit strategies in case this buyer falls through and for some reason we can't find a backup:

Potential Plan B: Minor Flip / Make improvements to improve it's appeal. It has good bones, including 'newish' baths and kitchen, but needs paint, carpet/flooring, new furnace, and some yard cleanup. Comparable sales (total of 7) came in at $132K. $5K in updates would wash profit to be equivalent to this potential wholesale profit.

Potential Plan C: Rent it.. Comparable rents came in at $1,222 (or 1% of purchase price) in this immediate area. Assuming my contribution is used as down payment, I would cash flow $100/Mo with doing my own PM. Not desirable at all, for my area (as there's better SFH rental potential at lesser prices), but plan C.

I'm trying to put in practice analytics of exit strategies and think through multiple risk scenarios, but think this is a good first step/learning opportunity in REI.

Thoughts?

Also, any advice on how to protect myself with this wholesale partnership? Effectively, I will be separately writing a check to the Title Company, with a proportionate % ownership on the title (NOT writing my realtor friend a check..). Thanks in advance!

Erik

Matt,

I am also starting out, and have been reading bigger pockets for over a year, getting ready for my first move. Agree with everything said here,the only suggestion I would add is to build your real estate actions around a plan. 

For example, if you want to retire at 50, how much cash flow and/or savings do you need to achieve this? If you want to cover living expenses plus account for additional play money starting at age 50, figure out what this means as a monthly expense, and build a REI plan which gets you at least that amount free cash flow. Or, if you don't want to rely solely on buy/hold income, factor in a few flips or wholesales per year.. For example.

Im building is plan for myself, and it's helping me make decisions about what type of investing I am more interested in purely by doing the analysis, but it also is making myself accountable to specific actions over time that I can measure myself to. 

I've also found that writing down my goals on paper on a regular basis help to solidify the above plan and keep me motivated.

Hope this helps

Erik