All Forum Posts by: Michael Logan

Thank you Shawn.  And I certainly would not turn down a beer!

Yeah there was certainly no need for an inspection!  Maybe an exorcism :-)

Hey Butler, I may be able to help you.  Are you looking to buy in Florence or the Shoals?

Thanks Mike, and thats a good point.  We plan to use as much leverage as we can until we build larger amounts of capital, so we can stand  just $100  per door for now.

Hey Bigger Pockets,

I wrote my introduction post a week or two ago and explained how my wife and I began in real estate investment.  We took the $50k from our cash-out refinance, and immediately went to work.

We did some driving for dollars and sent some letters.  We got quite a few calls and leads, but none of them panned out.  I think we were kinda scared to pull the trigger on anything.  Then, a few months later, we finally got some traction.  A local investor (he inherited his parents’ investments and he had run them into the ground) mentioned to one of our friends that he was going to sell some of his properties in Sheffield, AL.  She texted my wife because we had been talking about nothing but real estate for the past year :-)  We immediately drove to view the properties and they were terrible, ugly, and scary; exactly what we wanted!!

There were 3 buildings on the property: a quadplex and two very small single family homes.  The quadplex is said to have been built in the 1800’s (log cabin turned into multifamily), and the other 2 not far behind.  There were holes in the roofs, buzzards living in the chimney, rotten wood, and termite damage everywhere.  From all of our research on Bigger Pockets, though, we knew this meant there was huge potential for profit.  Even though the buildings were in such bad shape, we were a little shocked when the seller said he only wanted $10,000 for all 3.  He gave us first choice since we were the first to contact him, so we offered him full asking price.  After title insurance and attorney fees, we bought all 3 properties for $10,700!

Now, we are still a little new to real estate, so I did not even realize that all 3 of these buildings were on the same deed.  I called my lender in an attempt to get a Homestyle renovation loan for the quadplex, and they informed me that they could not lend against properties containing more than one dwelling!  GREAT.  After some research, I discovered I could contact a surveyor and have the properties subdivided.  They are now scheduled to do so, hopefully in a couple weeks.

Meanwhile, since we did have SOME cash to use for renovations, we decided to focus on the 820 SF, 2 bedroom, 1 bath house. We vetted some contractors and picked our favorite.  He told us to write up a Letter of Intent so that everything would be clear, but we did not listen!  (because we're stupid)   We now see the need for a very detailed renovation list for a contractor.  The initial estimate was $11,500, but he informed us that it would be hard to keep it this low (we told him we’d like to stay close to $10k) initially).

We found some termite damage, had to re-plumb the entire house, and put new vinyl siding on the exterior (the wood siding was pretty far gone).  After all was said and done, our contractor’s estimate had gone up to $14,900 (because of things we added) + $1500 for the plumbing.  This included all new flooring, paint inside and out, light fixtures, new cabinets and shelving in the kitchen, and some light electrical work.  We then spent about $1750 on the fridge, dishwasher, stove, and AC window unit.

So, if you consider a purchase price of $2000 for the house ($12k / 6 units), we have spent a total of approximately $22,000. Our property manager seems to think we can get $500-525. Based on local comps, the house seems to be worth about $40k. So, after we refinance and pull out 75% of the equity, and after closing costs, we should be pulling out $7k more than we put into it and still cash flowing about $100 per month (after PITI, vacancy, maint., capex, and prop mgmt).

We’ll be renovating the other buildings asap.

Any comment, advice, or criticism is certainly welcome!  Should I try to make these write-ups shorter?

Thanks for reading,

- Michael

PHOTOS: 

Thank you all very much for the replies! For a quick calculation, I used the 50% rule for NOI and 6% CAP rate to get an ARV of 3.63M (although, I've heard @Ben Leybovich recommend 60% for expenses, so 40% for NOI instead of 50%).  

I think the seller is obviously asking too much and I would never offer $2.5M.  I was thinking more along the lines of 1.8 or 2.2 M, depending on many different factors of course.

I have not come up with a MAO yet, but will hopefully be getting some help from a local that I met on Bigger Pockets! @Danielle Fattizzi, I know the vacancy would of course affect the MAO, but is there a common method utilized?

Keep the questions and comments coming, please!  

Hello All,

I am looking for any input you're willing to give regarding this deal.  

** Seller is asking 2.5M for 66 units, as-is of course.  He says he is selling because he has an opportunity elsewhere right now.

I've been told the cap rate for our local area is 6%. Rents after renovation are conservatively $550/month on average, $625 on the high end. This complex is the only thing bringing this area down. It's located in the city with the most desirable school systems in our area.

48 Unit Apartments

• All 2 bed, 1.5 baths.  More than half of the units are vacant, bad tenants being evicted.
• June’s gross income was approx. $15k.  This will decrease as tenants are being evicted.
• Only 2 Units are close to being completely renovated.
• Most appliances were beyond repair.  All units will have dishwashers.
• Annual Taxes and Insurance currently $17040
• Roof:was told it was approx. 6-7 years old. No documentation.
• All new windows and HVAC units purchase and being stored within the two 6000 SF basements.
• All HVAC units already installed except 12
• Has on-site laborer for window inst.: $38 per window to remove and replace.
• Office and Laundry have been renovated.Owner pays approx. $500 per month for utilities.
• Guys working for him at the moment would like to stay.
• Cabinet guy makes $15/hr.  Would make an excellent maintenance man.
• 5 or 6 sets of cabinets ready for installation now.
• 3-4 laborers making $8-10 per hour
• 8-10 units have been completely re-plumbed
• Current owner has probably spent about $400k so far ($5-6k on landscaping)
• All units are about 850 SF
• Renovation Estimate: $11,000 per unit (46 units) + 20% contingency fund = $607,200
• Tenants pay all utilities.
• Includes Pool

Townhouses (18)

• Only 4 vacant units.
• Roofs are all in decent shape.
• None of them should have to be gutted. They are in decent shape.
• Maybe sell them with owner financing one by one.

Any advice is very much appreciated.  Would you chase this deal at all?

Thanks,

- Michael!    

Awesome James!   I'll send you a message

Hey John, that's great.  I'll shoot you an email in a minute.  Thanks

Thank you Clayton.  I'll keep that in mind.  We're only about 2.5 hours from Birmingham.