All Forum Posts by: Max Drizin

Jon is right. Even using the 50% rule, you've got a cap rate of about 6.5%, which is incredibly low.

Personally, I wouldn't look at this property unless it was at $75,000 or less, especially considering it needs a good amount of work put into it.

From a numbers standpoint, this deal just doesn't work, I'd much rather wait until its foreclosure.

No harm in not trying. Banks aren't the most faceless people, and they always want to help you take your money :P.

Seriously, they'd rather have you renegotiate to a lower payment and/or rate. Have you looked into refinancing into a lower rate and payment with another bank?

I haven't done the amortization table for this, but I'm going to assume you owe way more than the house is appraised for today. Can you really afford getting a bigger house, with this problem?

This is certainly something you should talk to the bank about, but if you can't afford this payment, then you definitely can't afford a lowered rate and an additional mortgage.

That's exactly what I would do. It's always funny when a seller comes with ridiculous prices and I get to show all my data for it. Half the time, it takes a little reality check for the seller to understand that they won't get the appraisal from five years ago, or last year's tax assessment.

On a side note, I've always seen assessments as completely worthless in getting a price. Of course, the state or city is going to assess the value of a property as high as they can, since it means how much money they will be getting.

There's no reason to be bashful about telling the seller how much you think a property is really worth. If you offend a seller with a low offer, you wouldn't have bought from them anyway.

Opportunity cost is always an interesting thing to talk about. I see a lot of people talk about it, and it's one of the main arguments about 401k plans and so on. In a lot of cases, you can manage your money better, your time better, and so on.

What you have to think about with opportunity cost, as Jon says, is that you won't ever be able to really say how much money you would be making with another option. To me, opportunity cost is more of an idea than a calculation.

I agree with Jon, you shouldn't really be calculating it. You came into real estate assuming it was the best way to use your energy and time, so there is no better way to spend it. Opportunity cost, to me, is something that gets questioned on a microeconomics exam, not in the real world.

You should always be making offers on properties that you like, even if their numbers don't work out. I can't say I've ever paid asking price for a property, and I don't think people should.

Sellers list an asking price above what they will take, especially in today's market. The goal of a smart seller, at least, is to have you negotiate it and they can give you the lower price you want, but with terms for favorable to them, since they lowered the price.

Stupid sellers, on the other hand, are just that. Either you can negotiate them down to your price and your terms for a great deal or they won't budge on anything. In the latter case, they won't find a buyer unless someone even dumber than them comes across it and sees it as a deal.

In your case, I'd take a hold of all the information about the property and your rehab costs that you can, and make an offer like that. Show the person the comps, explain why your price is reasonable and realistic, and tell them that they won't find a better deal than what you are offering.

If the owner isn't an agent or working with a selling agent, they probably don't know the real value. Owner-occupied sorts of places always have high prices because their owners attach value to the property that really doesn't exist.

I always call people, no matter the time of day. I'm used to my 12 hour days, usually 7 days a week. I forget rather quickly that most normal human beings can't do the schedule that I force myself to, and I'll be making calls around noon on Sunday wondering why people aren't answering their phones, until I see what day it is.

If someone really doesn't want to talk to you, they won't answer the phone. At that point, just leave a nice message like you would on a Wednesday and they'll get back to you on Monday, hopefully. Though I've also found its good to call on Monday morning, after you know they have checked their messages but they might not have gotten to responding to you.

With bothering people about something, I've found that the worst they can do is not answer the phone or return your calls. But, if they are doing that, you wouldn't have done business with them anyway and you are really losing nothing but that minute you spend leaving a message.

I've yet to do business with another BP member, and that probably won't come any time soon. But, if you compare members here to a lot of other people I would end up working with anyway, I would choose a BP member almost every time. Most of the people I work with aren't in real estate, so I can't just show them a cap rate and some ratios for a deal.

Not that that's all I would show someone, but it saves a lot of time in the explanation process if they already know what I am talking about. It is so much better when someone I am working with speaks the same language that I do, and I don't have to "dumb down" what I'm saying to get a point across.

That being said, I would never want to buy property from a BP member, because I'm sure I would never get a good deal :P. The best deals always come from the guys who bought a multi-unit because they had the money 30 years ago and they just want to retire and stop dealing with tenants today. That's where you get creative with financing and deal-making options.

The worst ones are the ones that want all of my financial statements that could ever exist.

Sometimes, it's an investor that wants to see the five year pro forma for a property I have an offer on. Then, they want the "best" and "worst" case scenarios for the pro forma. Then, they want ten-year documents. They want all the other pro formas for my other properties, the rent rolls, what my projected and actual rents are/were, twenty comparable properties in the area, a detailed description of every tenant in the property, the possible effects of the place being a rooming house versus an apartment versus an owner-occupied versus an airplane or whatever else they can think of.

Then, there are sellers that apparently can't take me seriously. I like to move fast with my deals. If it's logical, I do my best to pay cash for a property. I don't put contingencies in my deals. I've worked with inspectors before, and I know that they are worthless enough that I can look at basement walls and see the roof on my own when I drive past the place, I don't need to spend a few hundred dollars and lose a property because I wanted to waste my time with some "inspector" who has a flashlight and a checklist. I have your rent roll, your expenses, and I've been through all of the units. That is plenty to make a decision.

Typically, it isn't even time wasters that they won't ever work with me, it's that they aren't the trouble. I won't put weeks into scouting and negotiating one property, I could do several deals in that time. People need to understand that investment isn't like choosing the house that they want to live in, there's less time to act.

I can't say that I've ever collected more than a month's rent for a security deposit. At the same time, I'm also in the interesting position of being a tenant of another landlord, as I own my own properties.

I don't show any income thanks to my various LLCs, and I don't like hard checks on my credit for obvious reasons. When I applied for my apartment, I made sure to call them and explain the situation, and show them the properties.

Their obvious response was, "why don't you live in your own properties?" My answer was that I wouldn't really want to live in my properties anyway :P

My security deposit is about half a month's rent, even though I probably look like more of a security risk on paper. While I think it's important to have a good screening system in place, there's more to someone than what the financial documents say. Especially with self-employed people, a good accountant can make them look a lot poorer come tax time.

I've never asked a tenant for an account statement, like Financeexaminer has. Maybe we focus on different kinds of clientele, but I've never had an issue with it.

The only issue I've had with tenants, surprisingly, is my tenants that rent the only single-family I own, and they look good on paper. I think they have chickens at the house, and that's going to have to stop.

I could see myself increasing the security deposit for people I see as high risk, but I've yet to find a high risk tenant. That's just me, and I focus on nicer areas of the city for multi-units.

Speaking as someone who runs this sort of investment company, I have to say that you need to really trust everyone involved in the work. The investors I work with have met everyone involved in the process, they know the contractor that I work with, my manager and agent, and sometimes even the seller.

They come through the properties, see the units, meet the tenants if they are there when we walk through (always as insurance people, of course), and so on. They know the entirety of the property, and I've never had an issue.

Along with that, I provide as much financial data as possible. Rent rolls, five year financial statements with best and worst case scenarios, and so on. Every bit of cash flow, goes to my investors until they are paid off, and then I do the same with the mortgages. Every investor knows that I won't see money until they are paid off, because I really don't want to pay their interest anyway!

Besides their preferred return, they also get equity in the property, which is always negotiated during the buying phase. I've never had a bad deal, never had a missed payment, never had a problem. Every property I've worked with repays the investors within five years at maximum, usually earlier.

I've always seen my investors and my lenders as two different entities, even if their end products are the same thing: cash. I've got a personal relationship with my investors, and it matters to me what they have at stake in this. They aren't faceless banks who put numbers into a spreadsheet and decide if I qualify, how much I qualify for, and at what rates.

They are people, just like me, looking to increase their net worth. Their names aren't on the title of the properties unless they go out of their way to ask. If anything, it's purely for convenience. Some people here might fault me for being less diligent with my investors, or might fault them for being stupid. I write their checks every quarter, and they trust that the amount is correct. I would be happy to show any investor I have the complete financial statements of everything I do, with rent rolls and so on.

But I digress. I guess what I'm getting at, is that looking from the other perspective, the investment company should make sure to establish a relationship with their investor. I'd be uncomfortable putting that amount of money into an investment and never really knowing what it is, seeing the work, and so on.