All Forum Posts by: Nathan Emmert

Any time you can get a break even property for free, I like the deals personally... you get the tax write off, the equity pay down, and appreciation... not to mention as rents rise over time it would eventually begin to cash flow.

So the question is, would this break even? I'm not sure... your utilities are high (over 2 months rent)... your taxes are high (1.5 months rent)... you have 1 month of vacancy (or just under), call it 1 month for CAPEX and another half month for repairs and you're already up to 50% expenses... without property management, lawn care, or insurance. A $150k mortgage at 4.5% would be $760 a month... given over 50% expenses (off $1,800 rent), I think you're cash flow negative long term (may flow in the short term due to the rehab limiting near term repairs).

 I assumed that was the OP still buying the property... not him reselling it... is this an old thread?

Not sure how many investors would be buying a $600k duplex...

My suggestion would be to treat it as a mother in law suite or maybe downsize the kitchen in the second unit to make it more a wet bar kitchenette.

In theory, the note they have with you is an asset that they could leverage... but not in the traditional sense. They could use the note as collateral to secure debt just as they could use the house to get a HELOC. With a HELOC, if they default, they lose the house... with this, they'd lose the note.

I'm just not sure where one goes to get that kind of financing.  Not sure a credit union would do it (though they might)... private money likely would but the interest would likely be higher lending against a note versus the property itself.

Given the ultra low interest rates of today... and generally a very small difference in rates between 15 and 30 year terms, generally speaking 30 years is a no brainer if it's available and fixed.  It's a HUGE inflation protection measure and maximizes your cash flow (which allows you to generate further cash flow).

I thought Rule #2 was never to break Rule #1... darn it Will, you just destroyed the entire paradigm that is the basis for my investing!!!!

Likely very location dependent... do you need a lawyer?  Are you going to do an inspection?  You'll be a few hundred dollars for the title work and there will likely be some transfer type fees to worry about.  Should be less than $1,000 total I would expect, unless lawyers get involved!

What are the taxes? What is the property insurance? Do you require flood insurance? Do you pay any utilities? What do the utilities run in your area? Is there any deferred maintenance? How much have they been spending on maintenance? Are there any CAPEX things coming up soon? What sort of vacancy has the property typically run? Are the units rented at market values? Are there leases in place? Are those tenants actually paying their rent or are they warm bodies?

All you know right now is what they are asking, you have no idea what it is worth.

You need to understand how much is going to come out of pocket in the near term... i.e. getting the property "performing".  That could require repairing things, improving things, evictions, etc... that all needs to be figured into your cash outlay.

You need to have an idea of what sort of GOI you'll generate.  That will depend on typical vacancy rates for the area and market rents for the property you'll have (how much you spend above based on your definition of performing may alter this... slum lord?  Taj Mahal worthy upgrades?)

Then you need to understand your NOI... what are your expenses going to look like on the property. Look at some historical data but realize it's probably not all inclusive, use some of your own judgement (if, including vacancy, your expenses are less than 45%, you're probably missing something).

Once you have NOI you can look at your debt servicing and figure out cash flow from there... that's the process... A, B, C, D...

I believe that is how an appraiser would do it... bedrooms... bathrooms.  Assess the reality, not the potential.

You can also look at doing a commercial loan (5+ units)... they will sometimes allow you to have a seller carry as part of the down payment... get 70% from the primary lender (bank) and have the seller carry a 25% 2nd position note.