All Forum Posts by: Matt Morgan

Specifically I'm looking for someone to help set up an operating agreement between myself and a partner. Any recommendations are appreciated!

Thanks

Matt

Hey @Justin Howe , yes I live in Phoenix but I invest in the midwest, where returns are much better than those in Phoenix. There's still something to be said for investing in your backyard where you can be more hands on but I feel like you can substantially mitigate the risks of investing from afar by taking certain precautions, making out of state investing much more lucrative. 

I did a spreadsheet on your property using proper expense numbers and came up with about an 8% cash on cash return. Thats using $1000 for taxes which I really think could be low. Just for reference, I personally think that the $100/door metric is only usable in a given price point comparing apples to apples. If you're buying a $200k 4plex and aiming for $100/door, you're going to be coming out way behind when the metric was intended to be used for $100k 4plexes. It's just not a good tool for analysis when you get to higher price points.

As I said before, find out what your minimum return requirement is first. If it's 8%, then maybe you move forward with the deal. If it's higher (which I feel it should be) then you can either offer an appropriate amount or move on to the next potential deal.

Hey Justin, as Kyle said, an 8plex would be an 8 unit property, a 4plex a 4 unit, so on and so forth.

Regarding the numbers, the expenses from top to bottom all look low. As a general rule, 50% of gross rents go to expenses, usually more if you're paying for utilities and property management. That makes this deal negatively cash flow and therefore it is a definite pass. 

Phoenix and surrounding areas offer a low cap rate to begin with and from what I've heard inventory is very low for these kinds of properties right now. This is going to make it difficult to find a good deal. 

Find out what your investment criteria is and then find out if Phoenix is the best market to accomplish that. If it is, keep searching and something better than this will surely present itself. 

Good luck!

So you got 100% financing at 5% amortized over 30 years? Thats a heck of a deal. What was the previous seller's motivation behind wanting to sell?

You could more than likely immediately cash out refinance into a mortgage after purchasing. Mortgages have more favorable terms than HELOC's (longer amortization, lower payment) so this may be a better option if you have a set use for the funds.

However, HELOC's offer added flexibility that mortgages do not because you do not pay on them if you do not use the funds. This becomes especially handy if you're flipping homes with the cash.

Also, there are credit unions that offer HELOC's at 90% and even 100% of LTV which you will not be able to do with a traditional mortgage. Just some food for thought.

You shouldn't have any problem finding a local bank with favorable terms. I sent you a private message.

Your analysis looks good, but a few notes:

Without knowing anything about Chicago, the insurance numbers and taxes especially look astronomically high. Have you verified taxes and shopped around for the best insurance? 

The utility number looks very low. I would assume water alone would be higher than the number you've given.

The repair numbers also seems very low. This will be somewhat dependant on the condition of the property but I think a number triple to the one you've given would be more accurate over the life of ownership.

All that being said, this could still turn out to be a nice deal. Find out your minimum return number and stick to your offer based on that. If the seller won't budge, move on.

What kind of analysis are you using to determine you will net $1500/month on this deal? If you give more detail maybe we can help you determine is this is a deal even worth pursuing any further.

I'm not sure whether it's an overlay or a guideline but the recent lenders I've spoken with about this have said you need at least 30% equity in the home you are moving from in order to count projected rental income for that property.

What are your minimum return requirements? If you factor in closing costs and the new paint and carpet, you're probably eeking up close to 30k invested and based on your numbers receiving $200/month in cashflow, which equates to less than 10%. I think there are better investments out there, but you may be comfortable with this.

Also, short sales can take a long time to close, assuming the bank even accepts an offer of 110k when ARV after light rehab is 25k more and houses across the street are selling for 150k.