All Forum Posts by: Michael Seeker

Hey @Brynn Misener - I've separated heat out on a number of buildings and it has always been part of a complete building remodel.

Unless you are planning to vacate the building and add new systems, the best approach is probably to just implement a RUB system where you pay the bill and require each unit to pay a portion of it.  While I'm not a huge fan of this approach, it's cheap or free and very easy to implement.

Assuming you do not have anything in the current leases, as each lease expires, you can add a clause/addendum requiring the tenant to pay x% of the bill each month.  If all of the units are the same, you can just use 1/6th.  If you have a wide variety, then you can do it using square footage.

@Marty Gold - it's anybody's guess as to what is used to come up with a sales price.  There are no rules around how much a property needs to be listed for, so as a seller, I could price a property with a $100K market value at $1M.  It obviously would not sell, but there does not need to be any rhyme or reason behind why I listed my property at that price.  Usually you will see the listed sales price somewhere close to or slightly above the true market value, but I regularly see properties listed 20%, 50% or more above what they are actually worth.  They sit on the market until the seller drops the price.

It sounds like you're actually interested in the market value of a property (not the listing price).  The short answer is that it's worth what somebody is willing to pay for it.  There are many resources and discussions that explain how appraisals are completed when there are limited comps available.  If that is what you're after, check these out:

http://birminghamappraisalblog.com/appraisal/what-does-the-appraiser-do-when-there-are-no-comps/

https://www.zillow.com/advice-thread/How-do-you-accurately-appraise-a-house-that-literally-has-no-comparables-available/377581/

https://www.biggerpockets.com/forums/88/topics/164916-how-do-you-determine-the-value-on-a-duplex-with-no-comps

@Brendan L. - I've never replaced just the doors, but if you google "replacement cabinet doors" you'll find tons of results that look reasonably priced.

If you can handle the cost, I'd lean towards replacement assuming this is a long-term hold.  If you put in new cabinets and solid counters (granite, quartz, etc) you'll get higher rents, more interest, less vacancy and better durability.

I generally try to look at renovation costs as a percent of annual income.  If you spend $10K on the kitchen and can get $1300/mo instead of $1200/mo, you'll be netting an extra $1200+ per year on a $10K investment.  It's hard to argue with a 12%+ return, but it's even harder to argue with the other intangible benefits that go with it.

A quick look at rentometer indicates $1200/mo is well above the average monthly rental rate (assuming this property is in North Adams, MA), so higher-end finishes should work well for you.

@Brendan L. - what are you doing with the property?  What is your target market for the home?

@Maggie Nickerson - Market value is the current value of a property. After Repair Value (ARV) is the expected market value at some point in the future after a specified scope of work is completed.

@Jose Duque - if the seller is offering the second position financing, then it might make sense for you to negotiate terms with him that make sense to get the deal done.  I would suggest not using a term any shorter than 5 years on the 2nd position note.  If you are buying above what it will appraise for then you will not be able to refinance anytime soon to pay off the 2nd position (without putting cash in).

The obvious downside to paying above appraisal is that you immediately kill equity.  If you have $20K in cash and use it to buy a property that is worth $110K and has $100K of debt on it, you just turned $20K of liquid capital into <$10K net worth of fixed assets.

This can make sense if you have a long investment horizon and do not need to refinance soon.

Though you didn't ask/comment about it in your post, I would also caution against using rents provided by the seller as the basis for a purchase.  Are other houses in the area being rented this way?  Is there a high demand for students renting rooms for $400/mo in the area?  Have you accounted for added costs/headaches to deal with 6 people who may not know each other and/or may not get along well?

Paying above appraised value pretty much ensures you have no room for error, so make sure you know what you're getting into before pulling the trigger!

@Mark Douglas - if the properties are deeded on the same lot, then you're looking at commercial.  If they are deeded on separate lots and could be sold individually as two 4-plexes, then it will depend on the appraiser or how the appraisal is ordered.  You may be able to get two separate residential appraisals (one for each 4-plex) or you may still end up with 1 commercial appraisal since it's being bought as 8 units.

If you are financing the properties, you might talk to the lender about how they will order the appraisal.  Two residential appraisals are likely going to be cheaper than one commercial appraisal.

@Richard Solano - you can finance a property any way the lenders are willing to structure it.  That being said, you will have a hard time finding a first position lender that would be okay with you funding your down payment with a loan.

I've done up to about 90% using a second position note from seller, but the first position lender was aware and okay with it.  Had I tried to go to 100%, they would not have done the first position loan.

To get around this, you could have the seller provide you their 2nd position loan after closing.  In this case, you do not have to tell the first position lender and you can add as much debt above their position as you like.  The obvious downside to this is that you have to come to closing with 20% down payment and hope that the seller doesn't somehow back out of their loan to you after they get the cash in their pocket.

Bottom line is if you're trying to use a 2nd position on a purchase, make sure your 1st position lender knows and is okay with it. If they find out about it when they get a copy of the HUD, it could cause major problems

@Matt John - if your business is at all dependent on financing, then your best bet is to capitalize rehab expenses and depreciate over the respective period.  When a lender looks at your past tax records and sees a major loss 2 or 3 years in a row, it's almost impossible to convince them that your properties actually make money and to give you credit for that during the underwriting process.

There are rules about what you can expense and what you need to capitalize, however I'm not an expert on that and would point you to the pertinent IRS literature.  It's been several years since I've had a reno small enough that it could go either way, but I recall at the time searching for the appropriate tax forms and reading through the information provided by IRS.  It is much easier to read that I would have expected and not that difficult to figure out if you take a little time to read through it.

Why are you wanting to use glass block?  A fixed piece of glass or painted piece of plywood (if no light is needed) would look much better and probably be easier to install...