All Forum Posts by: Jeff Petsche

@Matt R. That's awesome!! Good for the person you're talking about!

@David Song I agree 100% that there is a level of risk with any investment and there is no question that CA has a better upside with equity than Midwest states, but produces lower levels of cash flow (dollar for dollar). IMHO, CA investors are willing to forgo better cash flow numbers for a bigger appreciation upside, but again, the entry to play is much greater and let's be honest, most people don't have the necessary funds to play in the CA sandbox.

I'll wait until the correction comes, because it will, and I'll buy back in during a buyer cycle, not a seller cycle!

@Amit M.I never insinuated you were trying to convince me to invest in CA. Let's just say we will agree to disagree.

It's no secret what CA (or any other BOOM/BUST state) can offer with appreciation potential. My point is that the entry will be high, properties will not cash flow and you're speculating on appreciation. If that's an investors play, then go for it. It's just not ours. 

@joseph M from LA just gave a perfect example of a four plex in San Gabriel listed for $999,999 and rent/value ratio is below .05. If anybody thinks this is a "deal" then everything I've read and am learning is WRONG! And if an investor thinks this four plex will go to say $1.3M+ in a year or two, I say good luck with that bet. The person who bought it at $625K may be the winner with this deal.

CA can provide BIG gains if you enter the property at a correct price and are a winner going in, but if not, it can be a long ride. 

@Amit M.I have had clients that have done well, including myself, but most of my clients have been primary home owners or flippers. In 14 years I've only represented 2 clients who purchased buy/hold properties and both properties were a negative on cash flow at the time of purchase.

Bottom line, entry into a CA property at this point, at least in the B- or better neighborhoods is not a playground I want to play in right now.

Good luck.

@Cole McKeon I'm looking at Columbus, OH, Indianapolis, IN, Kansas City, MO, Oklahoma City, OK and possibly Memphis, TN. Top 2 right now are Columbus, OH and Indianapolis, IN.

I'm taking a trip to both markets first part of September.

@Ryan M. based on my education and training when analyzing a deal I use the following for operating expenses:

Check with the local area you are buying by asking the local experts, but as someone who is a real estate Broker in CA, our average closing costs on the buy side for a buyer will run between 2%-3% of sales price (most of that comes from lender origination fees).

10% vacancy (most deals I see when being offered for sale are between 5%-8%, but if it pencils with 10% I know I'm probably covered on vacancy)

10% for property management (until I know exactly what the PM fee is then I would modify, but average is 8% to 10%)

5% for R&M

Actual Property Taxes

Insurance (Get quotes from 3 companies and take the average)

Landlord Utilities (12 month average. Get numbers from owner. If SFR property, tenant should be paying utilities)

CAPEX I've been told between $175 to $250 per door (monthly)

HOA Fees (if applicable. Actual Amount)

Lawn Care (None if tenant takes care of it, don't recommend. I get an average for the area and depending on the property)

I recommend you buy the book written by Brandon Turner here at BP. Book is called "The Book On Rental Property Investing. How to create wealth and passive income through smart buy & hold real estate investing"

It's a NO NONSENSE book that is direct and to the point about this business. I'm finishing my 1st read through now.

@Ryan M. Couple of things I see:

1. Why no purchasing closing costs? Are you getting 100% of the closing costs paid for by the seller/lender/realtor? There are always closing cost (escrow fees, home inspection fees, appraisal fee, lender origination fee, possible lender points, etc.). Just verifying.

2. Where is your Property Management fee? Even if YOU are going to self manage, I would analyze the deal with a 8%-10% PM fee because you may not want to manage the deal at some point.

I ran the deal through my analyzer and based on your GSI and using 40% in operating expenses (Vacancy, Property Management, R&M, Taxes, Insurance, CAPEX), this is what I came up with.

CAP Rate of 8.1

COC of 11%

(Again: This is based on NO CLOSING COSTS (????), using your GSI of $50,400/annual ($4,200 X 12) and I used a round 40% for Operating Expenses (includes 10% for Vacancy)..DOES NOT include debt services.

IF I use 50% for Operating Expenses the CAP RATE is 6.7 and Cash on Cash of 6.8%

@Khadijah Hunter I'd want to analyze the rental potential FIRST and if it's worth keeping as a rental after analyzing the deal with a CASH OUT REFI (to pay off your siblings) then have that discussion with your siblings. However, you won't want to go with HM loan because of high rates and short terms. Plus, you don't need to go that route since the property is free and clear.

Also consult with your CPA regarding tax implications on various scenarios.

Good luck!

@Account Closed is or has been looking for a mobile home park. Maybe he could chime in if he has the time to share his wisdom. I'm sure he has been analyzing a lot of opportunities in this space. It's worth a shot, which is why I tagged him in this thread.

I personally would analyze this deal at 10% vacancy, not 5% and I'd question some of the other listed expenses at $1, so my gut says the NOI will be less than $79,870. There needs to be a lot of due diligence done to get a clearer picture.

However, on a first look based on numbers provided, the NOI of $79,870 (assuming this is an ACCURATE actual number), the CAP RATE is 9.3 with the value at $849,777 ($79,870/$849,777). If I wanted a 10 CAP and the NOI is actually $79,870, I'd put a value on the property of $798,700 and offer 8%-10% below that number, to start the negotiations! It's aggressive, but so be it.

No clue what your COC is because not sure what your final acquisition costs will be based on the numbers you have provided.

Good luck!

@Ezequiel Bolwahnn I can tell you from my personal experience with searching "LoopNet" is the deals that don't sell in the open market/off market with commercial agents come to LoopNet to die. Most of the stuff on LoopNet is CRAP! I use LoopNet differently: I look at who the main commercial listing Brokers are and then I reach out to them personally. I let them know I found them on LoopNet, but the properties they had listed do not fit my criteria, and then I share my criteria with them and ask them if they could let me know when they come across something that might fit. I just started this about 3 weeks ago for properties in Columbus and Indianapolis and I've received a few calls letting me know about properties they have on their books or coming up.

As for working with real estate agents, and I say this from experience and because I am a real estate Broker in CA, MOST (90%+) of real estate agents hate working with investors. They don't see the BIG PICTURE when working with investors as a long term relationship with potentially a of deals together over the next several years. MOST real estate agents work for the NOW ONE OFF deal and move on to the next client I've been working in real estate for 14 years and I see this ALL the TIME. I for one love working in CA with investors because they take the emotional side out of buying real estate. I love working with those who are all about the NUMBERS and not about the EMOTION. But most agents representing the retail space don't feel the same way, or don't know how to really work with investors. Also, because investors are always looking for the deal, tend to look at 100 properties, make offers on 10% and get 1 to stick, and the offers are almost below market value, it's a lot of work for the agent and they make less money in many cases, so they would rather work their retail business, with retail buyers paying retail prices. Just my opinion!

As for where to find deals, look EVERYWHERE because you never know what might pop up!

I don't find MLS auto emails are worth anything. I get those to from agents I've had relationships with and I tell them to remove me. I want the off market properties they have a pocket listing on, and because of the relationships I build with other agents, I get the FIRST PHONE call before anybody else knows about the deal. That's where you want to be.

It's about RELATIONSHIPS!!!!!!!!!!!!!!!!!!!!!!!!!!!! That's where you get the deals.

I met an agent in my market through a MeetUp group and I knew he got a lot of off market properties in a specific area I had a client looking. I took this agent to lunch and during lunch I found out he was a huge USC football fan (I personally hate USC, but it's not about me). About a week later (this was last year) I still had not found anything for my buyer that worked out, so I invited the agent to lunch again and this time I showed up with two tickets to a USC football game and said, "next time you have a pocket listing in the area my buyer is looking, I want to be the first person you call"...Two weeks later I got a call, showed the property to my client and secured a deal. We closed in 30 days. RELATIONSHIPS!!!!

It's no different in our investment world. When I go to Columbus and Indianapolis next month to look at a few markets I'll be there to build relationships with boots on the ground who can help me find the properties I want.

Good luck!