All Forum Posts by: John Leavelle

@Jason Howell

I couldn’t do this without my Realtor.  I don’t have the time right now to do the research.  My wife also is very helpful.  She drives different streets on her way home from work.  She looks for the distressed properties that I want.  Plus she’s a great people person.  Knows and talks to a lot of people about what we are doing.

Howdy @Mark Williams

Lots of issues with this analysis.  Let me answer your questions first, then, I will provide comments and my own questions.

Billing tenants for owner paid utilities will depend on what is acceptable practices in that area.  In some areas owners will use RUBS (Ratio Utility Billing System) to bill back tenants.  It is handled through a third party company.  Others have added an additional fee to tenant bill.

Any change in rent (including adding utility costs) must be in writing usually with 60 notice.  You definitely need to work the rents up to appropriate Market rates.  Be sure the property condition is up to the market standards.  Annual rent raises is acceptable and encouraged.  Just make sure they are reasonable and in step with the area rates.  Again, make sure the property condition justifies the raise.  Be prepared to cover Vacancies while you are transitioning rent rates.  Your projected Vacancy reserves (7%) is too low.  I never go below 8.34% (one month rent).  There is already one Vacancy.  I would not be surprised to see yours higher while you are catching up to the market rates.

Comments on Analysis:

1. This is a Commercial Property (5 plus units). It must be evaluated that way to determine the correct Value using NOI and Cap Rate. It appears you are using the Sellers asking price. Bad mistake! They will always inflate numbers, leave other important information out, all to make the property look as a great deal. How did you arrive at the Purchase price?

2.  Since this is a Commercial deal you must use Commercial Financing.    The terms are much different than what you have.  25% Down payment is fine.  However, the amortization length (30) will be shorter (15 to 25 years).  And it will have a balloon payment that will be due in 3 to 7 years.  You need to do some research on these type loans.

3.  You state the owner pays for the Gas and Water Utilities.  You did not include any in your Expenses.  What about common area Electric?  Are there any security lights?

4. Your CapEx and Repair percentages (3%) are too low. Do you already have Cash Reserves capable of covering any major repairs that may all of a sudden occur? Do you know the current condition of all the properties major components and appliances and their life expectancy? Probably not. I strongly recommend you increase them to 10% CapEx and 5% Repairs until to have accurate information.

5.  You did not include Insurance.

6.  Who is responsible for Lawn care and Snow removal?

7.  You should also add an entry for Miscellaneous expenses (5%) to cover things like Pest management, unit turnover, accounting, Legal, etc.

8.  Break down individual unit rent rates.  What is the other income ($770)?

Obviously after make the above adjustments you will have different results for Cap Rate, NOI, Cash Flow, CCR, 2% Rule, not to mention the property value.

Howdy @Brian Hamilton

Find you a good "investor friendly " Realtor. They can find deals better than you can at this point. They usually have access to off market deals too. They also can run a CMA (Comparative Market Analysis) to help you establish a good offer price as compared to the asking price. The same goes for Market rent rates.

Howdy @Ben M.

I was just weeding out old Alerts and saw no one had responded to your post.

Negative cash flow is not considered part of any cash you have invested. However, that number is accounted for in the overall calculations as Holding costs. Holding costs are included in your Rehab budget. They include (but not limited to) Property Taxes, Insurance, Mortgage Loan payments, Utilities, HOA fees, etc., that occurs during the Rehab period and up until the property is fully rented and Refinanced (in this case).

Hope that helps clear it up a little.

John

Howdy @Jason Howell

Hope you are enjoying the Holiday.  I’m working. :(

The primary reason the deal is not working for you is you are not keeping your “All-in Costs “ within the 70%.  That not only means Purchase price and Rehab costs, but, it must include Holding and “All” Closing costs.

The only Holding costs you show are Property taxes and Insurance. These should be automatically transferred to the Rehab budget in the BP Calculator. Did you manually include other Holding costs in the Rehab budget? Utilities, HOA fees, etc. Acquisition loan payments (if you did have them) would automatically be included as Holding costs.

There are three possible Closing costs you always need to account for.  Acquisition loan closing at Purchase.  Any Hard Money Lender points/Fees .  And Refinance Closing/Fees.

For this deal the $1,950 cash remaining in the property comes directly from your Purchase Closing costs. To break even you would need a lower Purchase price or a loan with 75% LTV.

I assume you are disregarding the Cash Flow issue for the moment.

Does this answer your question?

John

Howdy @Stephen Sullenberger

You need to determine the current Market Value for these properties.  Use recently sold comps to decide if the asking price is reasonable.  Your Offer should be what works for you. If you feel you can get them for $260K then that’s what you should Offer.  Don’t give the farm away right off the bat.  Why not save yourself $30K if you can.  Remember it’s a process.  Negotiate for the best deal you can.  Use your own Realtor to help guide you.

Your analysis looks good.  However, the Lender will probably require 25% Down payment since this is an investment property.  This is where that extra $30K can be useful.

Good luck 

Howdy @Jeff Chen

Overall I think you are doing a good conservative analysis.  You might want to add a comment on the condition of the property or estimate any Rehab needed.  If the rents are below market rates be sure why that is.  Is the condition equal to market rate properties?  Or has the current owner failed to raise them over time?

Yes, don’t forget Closing costs.

As far as the interest rates go I can get what you have.  Excellent credit rating or paying points.  They are going up though.  Be sure to shop around.

Good luck 

Howdy @Russell Andrews

Many of your expenses are low.  I never go below 8.34% (one month rent) for Vacancy reserves.  

What condition is the property in? Like new? If not you need to increase CapEx to cover potential major repairs. I would use 10% until the property is inspected to determine the current condition of all major components and appliances. Then you can adjust it accordingly.

I would also have Repairs at 5%, PM at 10%, and Misc at 5%.

Howdy @Brian Murphy

The first thing I see is it looks like your using conventional Residential Financing in your analysis.  5 plus units is a Commercial deal.  You are not likely to get 20% down payment, 30 year amortization, and the interest rate may be higher.  It will also probably have a balloon payment.  Double check the potential financing.

Most everything else looks good.

Howdy @Corey Perdue

I have a few questions and comments for you.

1.  What type of property is it?  How old?  What are you estimating to Rehab with the $8K?

2. Are you using any of your own cash in this deal or just the HELOC?

3.  Did you include Holding Costs (other than P&I, Taxes and Insurance) in the Rehab estimate?  Utilities and other expenses do occur during the Rehab period that must be accounted for?

I am not sure the Rehab budget equates to the big jump in Value you are proposing. Be sure the ARV is a good number based on what you plan to improve.

Why are you showing a surplus of $10K?  I don’t use the BP calculator.  So I’m not sure why that is occurring.    You are obviously funding the Rehab with the same loan.  It should have some way to reflect this.

Based on your numbers you would achieve the goal of no cash in the deal.  That’s great.  I would increase the amount you have for Vacancy reserves.  I never go below 8.34% (one month rent).

Is $1,050 the current rent?  Is there room to increase them after the Rehab?  I would use that as an additional point for the purchase decision.