All Forum Posts by: Wilson Lee

I assume, In the event of a redemption by the IRS, the lender's lien would be paid off at the closing of the sale with the IRS. 

i.e. a portion of the IRS's payment would be diverted from me to the lender at closing.

I would require a loan for the rehab for this property.

Would the 120 days wait apply to or effect a rehab/construction loan? 

EDIT, 

I assume, In the event of a redemption by the IRS, the lender's lien would be paid off at the closing of the sale with the IRS. 

I plan to bid on a number of house at my local foreclosure auction.  I have done some title searching at my local court house for any title issues for properties that are on my short list.  One potential property has a income tax lien recorded after the original mortgage. I would welcome any advice and correction to my understanding, here is what I think I know.

1) the tax lien is subordinate to the mortgage given the dates of recording.

2) I do not have to play the tax lien at the time of purchase do to it's subordinate status.

3) The IRS has 120 days in which they can purchase the property to back form me for the amount I paid plus my cost to secure the property. But not any improvements I would have made.

4) The IRS budget is relatively low for this buy back program, Late in the year it is typicality consumed or re-purposed. 

Also, I would like to know how the lien would effect future delayed financing or an equity loan.

Can anyone with experience please comment.

P.S I will not be paying for a title company. Doing so on each property that may or may not be available at auction is not financially feasible.  Especially if I don't win the bid.

Has anyone purchased a foreclosure at auction and it had occupants in it still?

 Is it just like a normal evection? Election laws in Alabama where I am at are landlord friendly.

What was unexpected in the process?

 How can I sign a dollar cost to account  for risk that the evection process represents ?

 Thanks for the quick reply!

 Can anyone hear  testified to  how actionable  and current the advice in  The book Josh suggested is? 

 I've got burned in the past buying some books that ended up being mostly hype.

Hey guys, 

  What are some great resources to teach a young person who's never had construction experience how to properly estimate rehab cost? 

  How do I know what needs upgraded or repaired? 

 How do I calculate material cost?  How do I figure out what materials are necessary for any given rehab? 

 How do I figure out the cost of labor? 

  I understand this is a broad topic but any resources would be appreciated.  Every rental property I own so far has not needed repairs but I'm wanting to get into some tougher rehab properties.

Project: Mobile Home Park

With the click-bate title aside, I found a small mobile home park that seems profitable as is. Also, there is some value add upside. It seems like we can refinance and get a large chunk of our investment capital back if we expand the park on too existing lots. Please read over this and let me know if there is any over-sites on my part.

Current. Here are the numbers as the property sits now.

Asking price $110,000.

Income Annual

Scheduled rents receivable $ 12,600 annual (Lot rent $175 monthly 6 lots)

Expenses Annual,

OPEX

Land Tax, $400 (verified through tax assessors office)

Tax prep, $300

Septic maintenance, $120 ($200 per service once every 5 years x 6 units. Tenants pay 1/2 per current lease)

Vacancy loss, $252 (inflated to 2%. currently no vacancy for the last 13 years per owner)

Notice delivery, $200

Total operating expenses $1,272

CAPEX,

Septic system $600 ($3,000 per unit x 6 units with a 30 year life time )

Gravel driveway $360 ($600 per unit x 6 units with 10 year life time )

Total capital expanse $960

NOI = $11,328

Cap Rate = 10.3%

There is 4 extra lots that we can install homes on. I found foreclosed mobile homes for sale form a local dealer with minimal rehab. They sale for 10K to 12K. They cost 2 to 3K for movement and instillation. The homes would be sold with owner financing for $25,120 including interest. $1000 down and $335 monthly payments. We can opt for a rent-to-own agreement under the sames terms if there is issues with dodd frank. Lots will still be rented at $175. The lots have septic tanks installed already. I have to get them inspected to verify their integrity by the local municipality.

After 2 years with expansion.

Income Annual

Scheduled rents receivable $37,080 annual (Lot rent $175 monthly x 10 lots. Home rent $335 monthly x 4 units)

Expenses Annual,

OPEX

Land Tax, $400 (verified through tax assessors office)

Tax prep, $300

Septic maintenance, $200 ( $200 per service once every 5 years x 10 units. Tenants pay 1/2 per current lease)

Vacancy Loss, $741 (2%)

Notice delivery, $300

Unit maintenance, $2,400

Total operating expenses $4,341

CAPEX,

Septic system $1000 ($3,000 per unit x 10 units with a 30 year life time )

Gravel driveway $1,200 ($600 per unit x 10 units with 5 year life time )

Total capital expanse $2,200

NOI = $31,739

Evaluation, at a 11% cap rate $288,536

Exit

We can refinance for $288,536. We may have to hold up to 30% equity of $86,560. Leaving $201,975 available for the loan amount.

So, we can cash out our original down payment of $22,000 and our line of credit balance of $60,000. Leaving us with a "free" mobile home park.

Am I missing anything? Is this how this works? 

Project:  Mobile Home Park

With the click-bate title aside, I found a small mobile home park that seems profitable as is.  Also, there is some value add upside.  It seems like we can refinance and get a large chunk of our investment capital back if we expand the park on too existing lots.   Please read over this and let me know if there is any over-sites on my part. 

Current.  Here are the numbers as the property sits now.

Asking price $110,000.  

Income Annual

Scheduled rents receivable $ 12,600 annual (Lot rent $175 monthly 6 lots)

Expenses Annual,

OPEX

Land Tax, $400  (verified through tax assessors office)

Tax prep, $300

Septic maintenance, $120 ($200 per service once every 5 years x 6 units. Tenants pay 1/2 per current lease)

Vacancy loss, $252 (inflated to 2%.  currently no vacancy for the last 13 years per owner)

Notice delivery, $200

Total operating expenses $1,272

CAPEX,

Septic system $600 ($3,000 per unit x 6 units with a 30 year life time )

Gravel driveway $360 ($600 per unit x 6 units with 10 year life time )

Total capital expanse $960

NOI = $11,328

Cap Rate = 10.3%

There is 4 extra lots that we can install homes on.  I found foreclosed mobile homes for sale form a local dealer with minimal rehab. They sale for 10K to 12K.  They cost 2 to 3K for movement and instillation. The homes would be sold with owner financing for $25,120 including interest. $1000 down and $335 monthly payments.   We can opt for a rent-to-own agreement under the sames terms if there is issues with dodd frank.  Lots will still be rented at $175. The lots have septic tanks installed already.  I have to get them inspected to verify their integrity by the local municipality. 

After 2 years with expansion. 

Income Annual

Scheduled rents receivable $37,080 annual (Lot rent $175 monthly x 10 lots.  Rental units $335 monthly x 4 units)

Expenses Annual,

OPEX

Land Tax, $400 (verified through tax assessors office)

Tax prep, $300

Septic maintenance, $200 ( $200 per service once every 5 years x 10 units. Tenants pay 1/2 per current lease)

Vacancy Loss, $741 (2%)

Notice delivery, $300

Unit maintenance, $2,400

Total operating expenses $4,341

CAPEX,

Septic system $1000 ($3,000 per unit x 10 units with a 30 year life time )

Gravel driveway $1,200 ($600 per unit x 10 units with 5 year life time )

Total capital expanse $2,200

NOI = $31,739

Evaluation, at a 11% cap rate $288,536

Exit

We can refinance for $288,536.  We may have to hold up to 30% equity of $86,560.  Leaving $201,975 available for the loan amount.

So, we can cash out our original down payment of $22,000 and our line of credit balance of $60,000.  Leaving us with a "free" mobile home park.

Am I missing anything?  Is this how this works?

In Birmingham there is a lot of mom and pop 5 to 10 unit buildings in class D areas.   Many (not all) lack bookkeeping.  They don't track their own expenses.  After all, they want to sell for a reason.  Rent rolls and a P & L statements can be hard to come by. 

 Hi James, I am Lee Wilson a local investor. 

This year in the month of March, I was looking at a class D apartment with 5 units.   Past Apartments sold, at that time,  averaged about a 10% to 12% Cap.  Yet, I don't know the condition of the buildings or other factors.   In regards to the 5 unit building I was looking at, The owner asked for a 8% cap rate.  He claimed there was no need for repairs and no deferred maintenance.   We found rotting floor joist, a mold problem, and some risky tenants He did not want to recognize the risk we where exposed too and the deal fell apart.

My misstate was agreeing to a low cap rate before starting due diligence with out communicating my intent.  I should have clarified that my agree to the terms where contingent a pawn the condition on any rehab or risky tenants we find.  For example, I consider "NON-section 8 tenants to be higher risk in class D neighborhoods and will ask the terms to be adjusted reflect that added risk."  

But regardless, check what has sold in the area.  Take your best guess as to what the Profit & Loss statement would look like for the sold properties to estimated a starting Cap rate for the market.  Then call up a number of brokers and ask them what they think the market cap is.  Compare the samples to get a guide number.

Best of luck!