All Forum Posts by: Jason Jelks
Jason Jelks has started 2 posts and replied 10 times.
Post: Hi from Florida
- Saint Augustine, FL
- Posts 10
- Votes 1
Originally posted by Wayne Brooks:
Hi there, I'm originally from Orlando.
Post: FIrst deal - 10 units
- Saint Augustine, FL
- Posts 10
- Votes 1
Originally posted by Nathan Emmert:
I think Joel nailed the financing thing. You need to lock that up tight to understand the deal. An extra point or two in interest, another 5% down, not financing the completion or impact fees... all those things will dramatically affect your cash on cash returns which is the metric I concentrate on most.
My only other question is why are you paying fair market value? You are taking on the risk of finishing the development, of fees, regulations, and permits, and of filling a completely empty 10 units... if you could buy performing assets, already finished and rented for $59k, why assume the risk without getting a cost break? Work to drive that price down some to give you a chance to buy some equity.
Thanks Nathan. No I'm not scared at all. This was the main reason for me posting was for the critical feedback. I am very aware the deal may not go through; there are a lot of pieces that need to fall into place. There aren't any performing assets in my area that come close to this kind of return. I know that sounds weird since the comps show that 59k is close to market value. Price is still in negotiations. The only other duplexes I can compare these with have high coa fees associated, so they do not cash flow as well. Just spoke with a reputable property management company and they estimate $1100 - $1200 rent, though I believe they are way too optimistic.
Post: FIrst deal - 10 units
- Saint Augustine, FL
- Posts 10
- Votes 1
Originally posted by Joel Owens:
Before getting to deep with this I would check on the following.
Is this lender really a direct lender?? Are they just a commercial loan broker?? Are they not even a commercial loan broker but a point taker in a daisy chain??
The communication and what is available often gets muddied the further you go down the chain from the direct source.
If they ask you for any upfront fees RUN as fast as you can away from them.There are numerous posts on this subject.
It sounds like your whole premise of making the deal work is the financing.I have not seen funding at the levels even close to where you were quoted for a non-performing asset like that.
Too many other performing loans that are less risk for a lender to lend on at those low interest rates.
Typically unless paying all cash for the deal the value add buyer does not want to use private or hard money because of the very high carry costs (interest rate),points,short term of loan to refi costs,etc.
Instead the value add buyer will try to get the current owner (usually a bank) to finance them at good terms and the buyer injects some of there own cash to get the property performing.
The debt service is much lower in this situation and funding is easier.I can see a bank that owns the property giving those terms as they have an interest in getting the non-performing asset performing again.
To an outside lender it's just a new loan and they do not have the motivation to get creative with it.
I do believe they are a direct lender. The borrower will have to personally back the loan of course and qualify with the right ratios. I am unfamiliar with lenders for this type of property. The first thing I asked my Realtor was if this property could be financed. He said he does know of a couple banks that will; so I called one of the branches and spoke to their commercial loan department.
Post: FIrst deal - 10 units
- Saint Augustine, FL
- Posts 10
- Votes 1
Originally posted by Jon Holdman:
70% of the $556K total is $389,200. Same terms that's $2163 payment.
Assuming the first scenario, $4750 a month, less $1673 P&I gives cash flow of $3076 a month or $36,900 a year. Vs. an investment of $258K that's a 14% cash on cash return. Now even if it takes a year to get them finished and leased, you would have about $20K in payments, bringing your investment to $278K and dropping your cash on cash to 13%. Seems like a pretty good deal.
Two other factors, though:
1) What would similar units in the same area cost? You're all-in at $58K per unit. Is that a good deal?
2) Is there demand? Will you be able to get and keep tenants?
Jon you are correct. I had some erroneous info in one of the fields. At 58k per unit that is my only concern. It appears to be close to market value (the land does include lots for 5 more duplexes), but I do plan to buy and hold for cash flow. Rent demand from what I can tell is healthy. There are some properties that do not rent, but those are mainly due to unrealistic prices from the landlord.
Post: FIrst deal - 10 units
- Saint Augustine, FL
- Posts 10
- Votes 1
What would you offer for the property?
Post: FIrst deal - 10 units
- Saint Augustine, FL
- Posts 10
- Votes 1
Originally posted by Jon Holdman:
Commercial lender I spoke with was looking 30% down for 25 years with an interest rate around 4.5%. That brings the mortgage closer to $2900. They know that it isn't finished and impact fees are required. The units will have to be carried until they are able to be rented out.
Post: FIrst deal - 10 units
- Saint Augustine, FL
- Posts 10
- Votes 1
Originally posted by Joel Owens:
Building codes could have changed since they were partially constructed.You might have many more costs than you know to meet today's demands for the city and county.
How do you know your 950 rent number is solid??
Are you buying this all cash??
If not to take on an unproven property like this with a value add component your monthly debt service is going to be much higher than your estimate.
Buildings have been sitting for close to two years. I talked with the county and it will have to have new permits to finish. From what I was told that will be a couple hundred bucks per duplex and a few days. Impact fees are up to date and final inspections are required before a certificate of occupancy is issued. I've checked the rent with my realtor, craigslist, & zillow. Now that you mention it I will double check with a property management company. This deal will most likely be financed.
Post: Hi from Florida
- Saint Augustine, FL
- Posts 10
- Votes 1
Thanks Joel
I'm looking to do it all. Would you suggest sticking with a niche at first? if so which one would you start with?
Post: Hi from Florida
- Saint Augustine, FL
- Posts 10
- Votes 1
Hi everyone. I've been viewing these message boards for a while now and finally decided to become a member. The wealth of knowledge here is amazing.
Post: FIrst deal - 10 units
- Saint Augustine, FL
- Posts 10
- Votes 1
Looking to get under contract 10 units (5 duplexes) on a lot of land. Each unit is a 3/2 with 1200 sqft. The land has permits to build an additional 5 duplexes. The first 5 duplexes aren't finished. They require flooring, outside a/c, water heater, & impact fees. Market rent is $950 per unit.
total impact fees for 5 duplexes = $66,850
estimated completion costs = $60,000
current asking price = $430,000 (still in negotiations)
total = $556,000
rent = $9,500 per month
50% rule = $4,750
estimated mortgage = $2700 approx.
total cash flow = $2050 ($205 per door)
What do you guys think? Am I missing any important items?