All Forum Posts by: Nuhan Demirkan

For a full disclosure, I went thru a couple of brokers before I found the investor friendly one. The other two wanted me to be a traditional R/E agent even though I had disclose to them that I only wanted the license for my own deals. They did not have the monthly payment set up so there was no upshot to them. The new broker also owns a title company and a mortgage brokerage. I run my title work thru him in addition to the small monthly payments so he makes money as well. 

Just remember to disclose to the seller that you are a licensed agent, this is not a listing agreement and you are not representing them in the deal. Put that language in the contract, also disclose in the contract that you intend to profit from the deal. MLS has provisions for R/E agents who are doing wholesale deals. I check and it is not against their rules.

Good luck,

That being said, I am a part of an agency that welcome investors and wholesalers who want to hold a real estate license. I pay a small monthly fee to the broker and cover all my expenses, he lets me keep the money from my wholesale or flips (as long as they are my deals). When I represent a seller or a buyer there is a commission split. Or sometimes when I buy a REO or a short sale the bank pays me commission and I split that with my broker. You may have to find an investor friendly broker who has a similar set up.

Kim, yes you can.

Brian, the lead came from a direct mail card offering a cash deal for the property. The seller was out of town. This used to be his personal residence before he moved to Tennessee due to his work. His existing tenant was moving out and he was going thru a divorce. He did not want to deal with the property. The ARV was $225,000 but he owed $155K with a mortgage payment of $1150 PITI. I offered him $5,000 cash, transferred the deed to me, kept the mortgage in place for 2 years, did a light rehab and rented it back out for $1795 mo. My total out of pocket cash was around $11,000. It has been rented now for two years, I refinanced the property out of his name into mine. Since my main objective is cash flow, I use sub2 if there is equity and enough money between payments and the rental rate.

Jeff, I think you should figure that out for your area. Lee is going to tell you what it would cost in Indiana and I will tell you what it would in Washington DC market. I think this one belongs to you. 

Again, the rehab cost is going to differ if you decide to rent or sell. If you're going to sell, it is a heavier rehab than rent. With rent you can paint and change the hardware of the cabinets to make them look nicer.

Jeff, first decide if you're going to rent or sell this property. The rehab plan and cost is going to change for each scenario. Rentals do not require as heavy rehab as the flips. Then establish your rehab budget based on the cash flow or profit projections you set. Once you established your total rehab budget start looking into what needs to be rehabbed to get the desired return. Blinds are way at the bottom of my list if at all on it.  Prospective buyers/tenants are looking for:

- Open floor plans

- Updated kitchens

- Updated bathrooms

- Outdoor living/entertainment area

- Nice neighborhoods, schools, etc.

Figure out how much of this you can get done with the budget you have based on the comps in the neighborhood. Don't over rehab. If you're going to rent it make sure the major items like HVAC, appliances, roof, flooring (laminates work great), paint are taken care of which will defer maintenance for a while. 

As a side note, find out who bought the $66K property. Most likely an investor, he/she would be a good contact for the future. 

I manage my properties and actually my cost is less than 10%. If the tenant screening is done properly the turnover rate is minimized. I live in a suburb of Washington DC and the rental market is very strong here. Full disclosure, I only have 13 rentals, in escrow for 2 more.

Helen, you need to clarify what you mean by "2 family home". Are you buying 2 units for $155K or one? The monthly rental 1500-1600 for one unit or two?

The monthly projected payment of $1495 PIT is that for $124K mortgage or $124K plus the rehab cost of $40K?

You don't mention what the after repair value of the property will be? If you buy for $155K plus spend $40K in rehab, using the formula I gave Jeff this property should be worth around $279,000.

Do the following exercise: 

Add up all the cash you will spend out of pocket on this deal. Then add up the annual gross rent  you will receive from the property (monthly rent x 12). Subtract 10% for vacancies and management fees, then subtract annual taxes, insurance, and projected maintenance cost. The balance is your net operating income. Subtract the annual mortgage payment and the interest, the balance will give you the net annual cash flow. Divide the cash flow into the total cash spent out of pocket. This will give you cash on cash return. If the yield is acceptable to you then it is a good deal. If you think you can do better then pass on it.

PS: If I'm not getting minimum 30% cash on cash I'm not interested. Your market could be different. 

Jeff, 

yes the 70% rule is a useful guideline. If you follow it you should reasonably expect to make a profit. Like everything else it is adjustable. You can figure 65% or 75% depending on the individual deal. But knowing your ARV and the rehab cost is a must.

Jeff, I am not familiar with LA market but I can give you some ground rules to consider. Before breaking out the check book to buy the property you must first have a pretty definite idea about how much it will be worth after repairs (we call this ARV for after repair value). If you are going to rent the property you have to have a pretty solid idea of what it will rent for. If the ARV is $130K in your scenario, you multiply it by 70% = $91,000. This is your purchase, rehab and settlement cost on the buy side. If you are going to put it on the market for sale for $130K, figure about 9%-10% closing costs.

You paid $66,250 for the property, 91,000 - 66,250 = $24,750 is your rehab budget.

Listed price $130,000, less 10% closing cost = $117,000 your side of the HUD1

$117,000 - $91,000 = $26,000 projected profit.

I would not involve the prospective buyer in on the rehab decisions it will open up a can of worms you don't want to deal with. Rehab it, put it on the market and let the buyer purchase it.

If you are going to rent it, know what the rental rates are. If they are $1,050 per month or $12,600 per year subtract taxes and insurance. $12,600 - $2,000 (estimate) = $10,600. Subtract any maintenance, management and vacancy rates (10%) = $9,500. If you spent $91,000 to buy plus rehab your annual cash on cash return is 10%. You can play with the rehab cost to lower it but this is the basic idea.