All Forum Posts by: Fred T.

Risk Assessment tells me NO DEAL to either scenario. You're basically paying retail for investment property at close to market mortgage rates if I understand these scenarios...sooo.. where is the upside? Is this an Appreciation Play? Since it's not an income property can't use Value Add play if no supportive comps...so?

We all know we have a 5-7yr run before we go backwards again...so if the hedge is appreciation and they have a good feel for the crystal ball fall in that local market, then I guess if cashflow is positive they just may have to give some back down the road.

Have no idea what the Seller is doing on this deal either unless they own this free and clear and plan on selling off their note which is not all that attractive..lol

Simply speaking...NEXT!/

You sign up for a Pro if you feel their is an added benefit to the difference between the plans...not just to have access to a Spreadsheet. You can buy Apps for less than a membership that will calculate everything you need and then some. There are also some basic spreadsheets you can download for free if you really want to play in excel.

With that said, there is no App, Spreadsheet, etc. in the world that can help you IF you don't know what to put into them to begin with. Crap in = Crap out..lol

Get your Business Plan together, learn (Education is more important than a spreadsheet and with some good knowledge you too can put together your own spreadsheet to use) more about the strategies you are looking to employ and then form a Team to assist you in your execution. 

Welcome to the Industry and Good Luck!

If you are putting 20% Down...why do you need an Investor on a Construction Project?

Even if your credit is pure poopy, commercial financing of some kind should be available with little to no hassles using 20% ($1m) down provided your LTC does not exceed 85-90% which I'm sure some pre-construction commitments/sales can overcome even if it is.

Take your Feasibility Study, Market Analysis, City Approved Plans, Business Plan, Pro-Forma/Projections, Land Use Approval, Environmental Approval, Corp of Engineer Approval (as needed), Soil Sample Reports, Executive Summary, Builder Portfolio and either an Architect Rendering or Scale Model and march on down to the local bank. Pitch them on the Pre-CO Sales Plan, let them be the Master Lender for all of the pre-sales and form a partnership per-say.

So am I missing something here?...Why are you pitching here?/

Hi Luis,

Your thought process in general has merit.

The key to doing what you want to do is you have to make sure that you are comfortable carrying the mortgage and related expenses yourself regardless of the number of units in the building or how many may be vacant over a period of time. IF you are OK carrying a monthly mortgage and related expenses for a 3-unit asset, then by all means go for it! Same thought process goes for a Duplex or 4 Unit.

Once you are comfortable handling everything on your own, then you can be happy when others are paying for your mortgage and related expenses and raising the value of your performing asset.

IF, however, you feel like you would struggle and stress out over vacant units and high expenses, then you may want to rethink your strategy or downsize to a Duplex.

You also need to be aware of the changes in tax breaks, deductible expenses and overall accounting methods used for when the building is occupied by the Owner so be sure to discuss your overall strategy with your CPA/Accountant before deploying your cash.

Good luck!/

Seller's have NO responsibility to pay any commissions unless they agree to ahead of time on paper via a Listing Agreement or Compensation Agreement with a Licensed Broker (Agent). 

Buyer's Agreements, however, make the BUYER responsible for the Agent's commission.

Wholesalers CAN pay an Agent's commission but one would have to ask why would they.

If you were the one under contract with the Seller as the "Buyer" and you turn around and "Wholesale" it to a 3rd party who happens to be working with an "Agent", the original SELLER does not have to pay the Agent, The WHOLESALER does not have to pay the agent (unless the Assignment Agreement states the Wholesaler will) and the END BUYER may or may not have to pay the Agent which depends on any agreement, or lack thereof, the End Buyer and Agent had in the first place./

@Anthony Whitt welcome to the wild wild west industry...have fun!/

By the way, as a "Lender", which it appears you are now, one doesn't use CAP but instead simply ROI so I'm not sure where you are going with this.

IF you sold the property and gave the Buyer an Owner Financed Mortgage, then you no longer have any rights to sell it and therefore CAP calculation wouldn't be necessary as the "Owner/Borrower" should be responsible for everything included the taxes which for some reason you are still paying so I will assume you opened an Escrow Account for the Owner/Borrower.

The only "reserve" you may want to put aside if enough to handle a Foreclosure if need be. 

If you have to foreclose, then the cycle would start all over again from the outline I made above./

@Account Closed The point was it doesn't matter what your specific case is.

IF all you want to account for is what you are expressing, then use the breakdown above, insert your specific numbers where applicable and do the math as outlined. If you want to leave out an item, then so be it but it doesn't change the formula.

Just know, when you go to sell, your CAP and an Investor's analysis CAP may be far apart from each other...so just set your expectations accordingly./

CAP Rate should be a reflection of all related expenses and income one could be exposed to on an asset regardless of the existing situation or arrangement.

Therefore, the following breakdown is always considered:

GOI (All existing revenues generated from the Asset - NOT Pro-Forma)

- Vacancy Rate / Concessions (Local Market Driven)

- Property Management Rate (Local Market Driven)

EGI (GOI minus Vac/PM)

::break::

Expenses (All existing / historic normally occurring and certain projections)

- Utilities 

- Property Taxes

- Property Insurance

- Maintenance Reserve Account (normal wear and tear)

- CapEx / Reserve Account (life limited replacement items)

- Legal Expenses (CPA, Attorney, Tax Reconciliation, etc.)

- CAM (Common Area Maintenance items like yard care, snow removal, parking pavement, exterior amenities, etc.)

- Payroll and G&A Expenses

- Advertising Expenses

- Any other expenses related to the Operation of the Asset not covered above EXCEPT Debt Service, Depreciation, Income Taxes and Specific Tenant Improvements

NOI (EGI Minus all Operating Expenses)

::break::

Now you can calculate your existing CAP rate

You can also set up another file for value added opportunities that would contain Potential EGI and Potential Expenses which then would give you a Value Add potential CAP Rate

To derive your NCF, subtract your Debt Service from the NOI.

Hope that helps!/

Condition of the property, not how clean they may keep it, and the numbers will produce the highest value 8/10 times. Appraisers usually don't care about dirty dishes, clothes scattered about or if they just ran the sweeper that day (but they do care about the condition of the carpet of course).

Appraisers tend to be more conservative if they don't see the inside...but if the interior shows leaking roofs, damaged walls, out of date fixtures, incorrect outlets, flooring in disrepair, etc....then a Drive By may be best if your Lender approves it.

Your lender may also have a reduced LTV based on the Appraisal Type, so make sure that they are not only OK with a drive by, but what "hits" will you be taking on the %LTV, Rate, etc. if any.

To answer your questions though, Full Appraisals usually create higher valuations if your property is in good condition than Drive By. In either case, you are going to want to make sure the Appraiser has accurate information regarding the income and expenses of the asset if they are using the Income Approach Method. 

If these are SFRs, then usually on a Drive By, comps with "fair-average" condition are used and with a Full Appraisal, comps matching the effective age and present condition are used which could be a good or bad thing..lol/

Good Luck!