All Forum Posts by: Manuel A.

**Update**

First, thanks J Scott, John Stevenson, and Jack Bobeck.

I'm glad my estimate is somewhat close to yours and on the conservative side. It gives me confidence.

So I went to the house, and checked it out with my team. It was very bad. Soo bad, it would probably be better to buy it, knock it down, and build a new house.

The ceiling was about 8ft tall, everything needed replacement, windows, floors, roof, etc... It needed a furnace heater installed as it didn't have one or the venting needed for it, the water heater was in the kitchen not separated by any walls, a giant tree was growing into the foundation causing it to be very bumpy and cracked, about 1/4 of the INSIDE of the house was stuccoed, and a lot of the house wan't up to code.

So, it was basically a brand new house needing to be built. I have several more lined up to look at and have streamlined my estimation process so I can get more done in a day. I had my GC (who is my uncle) just write up all the different labor costs for me on paper so I don't have to wait for him to be free to look at a house. So as long as I can get close to his prices, I can have him come back when a bank closes and gives me a 3 day inspection period so I don't waste his time. So if I'll have more to share later with the BP community.

Thanks everyone!

Manuel

Well I'm going out to price out the rehab, I'll be back!

Hope to hear some opinions from the BP community!

Manuel

These were all normal sales and no, there were no 3 bed comps available. This place is an older area, where the more elderly crowd lives. I know this as I've done work here (door to door surveys) awhile ago. I would think that a 850sqft. house wouldn't have 3 bed/ 2 bath just because of the small sqftg which would mean the rooms are probably really small. I'd expect more like 2 bed/ 2 or 1 bath.

As for lot size:

Subject property: 7,623 sq ft
Comp 1: 6,969 sq ft
Comp 2: 13,068 sq ft
Comp 3: 6,534 sq ft
Comp 4: 8,276 sq ft

I can't find anything on the garage's or how old these houses are but I'd expect them to be "older" as this is an established "older" part of town. So I'll keep that in mind when looking at it for repairs.

As for the deal itself, the asking price is $44,500 so 70%ARV($105,000) - Asking Price = $29,000 to work with for rehab holding, etc... Plus the seller IS motivated. This is an "Estate Sale". So I'm hoping this is going good :D

Thanks @Phillip Dwyer

Manuel

So I found a house again. I'm starting the analysis and my Realtor (24 years experience/investor friendly) can't find any solid comps.

I'm sure this picture says more then I can type:

(Here's the link since it came out a little crappy: http://dl.dropbox.com/u/10748346/Comps.JPG)

The proximity of the houses are all great, no problem with that. The houses were all in good condition when sold from what I could find, and comp 1 and 4 had a single car garage.

Okay, the avg $/Sqft in this are is $132.68/sqft. I don't know how to estimate what a bathroom or bedroom is worth, or a 1 car garage. No clue what so ever.

So if we adjust the values with just the sqft:

Comp 1: -$29454.96 = $100,545.04 (Minus 1 Bed Plus 1 Garage)
Comp 2: +$6368.64 = $114,868.64 (Minus 1 Bed and Minus 1 Bath)
Comp 3: -$15523.56 = $114,476.44 (Minus 1 Bed)
Comp 4: -$23617.04 = $107,382.96 (Minus 1 Bed Plus 1 Garage)

Okay, here's some more calculations assuming a 1 bed or bath is worth $1,500 and a 1 car Garage is worth $2,500 on top of the previous calculations. I'm making these numbers up from thin air as a disclaimer, but I would think they are somewhat in the area.

Comp 1: +$1,500 - $2,500 = $99,545.04
Comp 2: +$3,000 = $117,868.64
Comp 3: +$1,500 = $115,976.44
Comp 4: +$1,500 - $2,500 = $106382.96

So with the, the avg is $109943.27 with a low of $99545.04 so if everything is okay, I would believe the subject property is worth around $104,744.16 or simply $105,000.

Is this good? I mean, the cops aren't perfect, but adjusted is it okay in your opinion? Also a concern I have is the average DOM's (112). Should I skip this based entirely on the DOM's? This area of my city does do good in terms of sales though. On a 1-4 scale of sales this place has been doing a 3 for May, July, and August. On June it did a 2. Not sure about September though.

Scale meaning:
1 = 0-3 sales
2 = 4-15 sales
3 = 16-39 sales
4 = 40+ sales

So this place probably averages about 19 sales per month.

The radius of this area this based on the scale's sales is <= 2 miles.

I hope this is good enough :D

Manuel

Steve Babiak Okay, so 50% is for the expenses in total (like maintenance, vacancy, operating, etc...), 2% is how much you want the rent to be and this assumes some things like you wanting at least $100 per door, and a 30 year finance.

Just curious on this, and I'm talking mainly about the 50% rule part, if I got $12,000/yr with 100% occupancy, wouldn't it be better to instead assume 15% or so vacancy and apply the 50% rule to that number? Or is that pushing the overly cautiousness of my thinking?

Also, I see that the 2% rule is mainly about getting that $100 cash flow per door at least so you have to adjust for bigger and smaller purchases. Is $100 per door a good goal you would typically look for? Of course you want as much as possible but is that the baseline of what a good deal is, at least $100 per door no matter what the financing is and anything below this you pass?

Thanks again,
Manuel

I totally understand, thanks! I'll check it and correct it as I understand. Yeah, I was like 50% maintenance seems ridiculous, haha. Thanks again for sharing and teaching!

Manuel

Thanks for telling me what a "coach house" is for future reference. Yeah, I couldn't fathom how one could spend $15k/yr on maintenance neither haha.

Thanks for your reply, just learning and trying to be helpful :)

Manuel

Scott W. Could you point out the problems? That would be a little more helpful then just saying I'm wrong.

Let's go over your analysis:

So in the end with your $278/mnth estimated payment, and estimated repairs, you conclude 3% of left over cashflow per month or $35.5 dollars or $414/yr.

Now with me, I conclude with the original posters estimated $375/mnth and my estimated repairs he'll be left with about $100/yr. But wait, you don't even factor in the likely vacancies he should plan for, for a realistic scenario. So I think he'll make $8.33/mnth and you think he'll make $35.50/mnth, a difference of $27.17 and I'm sooo wrong with my guess? Oh, but excuse me, maybe one day I'll be exactly spot on with your guess, not factor in vacancies, and understand your reasoning like you said.

Maybe one day, you'll understand it as much as I do, then me and you can team up and study this cause I'm obviously incompetent, then me and you can tell others how wrong they are with no explanation what so ever. Yeah?

Manuel

**Not an Expert***

First, I'm not sure a 6% expected vacancy is conservative enough to have faith in. From the conservative 2%/50% rule, in comparison, you'd be getting 1.5%, and half of your income ($575/mnth) is going to repairs averaged over time. So if we adjust your Maintenance fee to $6,900. Then you're -$2,700/mnth. So theoretically it would be a loser.

I think $6,900/yr is crazy conservative, so if you can just keep your repairs to under $2k/yr, which probably means you may have to be the one snaking the toilet sometimes, you can make $100/yr with a 15% vacancy. You'd at least be paying off a property, and (speculation!) if QE3 helps prices rise, maybe you can cash out a bigger winner.

Does this sound like a deal? Not really if you make only $100/yr AND have to help with the maintenance. But that's me. All your capital will be tied up here when you may be able to make money else where. Perhaps if you got the purchase price to around $58k. They probably wouldn't look at below $60k if they want $75k though.

No clue about the mortgage question.

Manuel

Richard Evans, first thing I'd suggest is get some good comps to see if the ARV is correct (the $45k).

Good comps:
-Similar (Age, bed/bath, story, sqft, etc...)
-Close in proximity (1/2 mile or less)
-Recent (3 months or less)

Then tell us what you get, and we'll all help you decide!

Manuel