All Forum Posts by: Nick L.

Resurrecting this interesting thread. Here's a situation that happened at a sheriff's auction near me in WI today.

- 2nd mortgage foreclosed with opening bid of $21k. Foreclosure wipes out a whole bunch of 3rd and junior liens.

- 1st mortgage is also in foreclosure and getting close to a sheriff's sale, but no date set yet. Original amount owed was $110k in 2014. No way of knowing what the current balance is but let's assume $120k with fees etc.

- House FMV appears to be around $180k. Appears to be occupied as homestead. Surprisingly nicely maintained.

Per insightful comments from @Jason S. and @Jon Holdman, I was thinking that it might be worth picking up the 2nd at $21k (assuming no competitive bids).

In the best case scenario, I might be able to do a short with the 1st position bank so they don't have to complete the foreclosure and go REO. Or in the worst case scenario I could just sell the house, pay off the 1st lien at par and probably break even.

In the end I decided against it. Partly because of the grief of evicting the former homeowner, and partly because there didn't seem enough juice to justify the capital and effort.

I'm curious as to how you guys might have analyzed the situation.

@Wells Mangrum Great point about hedging interest rates through a swap.

I looked into this a few years ago for the same reason. I found that they are only traded over the counter (OTC) which means each deal is custom, as opposed to trading like commodities on an exchange. For this reason it only makes sense to pursue a debt swap if your deal starts at a few million dollars.

My best investment was a set of "fractured condos" like this. I would do it again in a heartbeat - but only under the right conditions.

If you own 50% or more of the development (in most states), you can control the HOA and set the rules according to your preference.

If you and other investors together own 50% of the development, you won't control it yourself but you can be sure it will be investor-friendly.

If owner-occupiers control the HOA, you may be subject to a lot of rules you may not like around renting units, selling units, reserves and general busybody politics.

Thanks @Matthew W.! 

I wish I could agree that the machines are not a target but I've had one laundry machine destroyed and two damaged for a few handfuls of quarters. All were in the basements of locked buildings.

I called a few companies but by the time you add up the costs of equipment, internet and CC processing it's not worth it.

I don't even need to accept credit cards. I'd be ok with a simple added-value card system, where the cash is deposited into a securely mounted safe, and the user gets value added to a magstripe system. Still prohibitively expensive for this building though.

I'll have to take my chances with a traditional coin op device.

I want to put a vending laundry into a 6 unit multi. I don't want to collect coins every month and I'm also concerned about a coin machine atracting thieves. 

The only vending card systems I've seen are suitable for laundromats or apartments with dozens of laundry units. 

Does anyone know where I can buy either (a) a washer and dryer that comes with this system, or (b) an aftermarket add on?

You could do the math like @Anthony Chara said. Or a shorthand version where you assume 20 years each for the major mechanicals, then divide the cost of replacing them by 20.

If you don't intend to hold the building for the full replacement term, you could do a probabilistic estimate of replacement as a percentage of rents. Most people estimate between 2.5% and 10% of gross rents. In your case I'd estimate on the high end because (a) older buildings, (b) Class C, (c) 6 units is very small to amortize costs.

A flip is always more profitable upfront. You have to pay more tax but you get your money and profit back now to move onto the next deal. 

I hear you. You're right to continue engaging with him. Some sellers just want to feel comfortable with the buyer. Maybe a good personal relationship will lead to a better outcome for everyone in the end.

At that price range I would expect a FTHB who may not have their own appliances. So I would include oven/range, dishwasher and refrigerator - all in a matching series from the same manufacturer.

If you think a buyer may bring their own, you may want to leave yours uninstalled so you can return them easily.

@Shane H. Glad you're keeping in touch but like @Christopher Brainard I have concerns over the performance of the deal. Any way you cut it, a 4.5% cap rate is far from great, especially on retail and offices. 

Any chance you could cherry pick the most desirable properties and leave the rest?