All Forum Posts by: Shane H.

I am okay with however the tenant wants to pay rent, (by mail, walk it into the bank and put into the account I have setup for that property, or online/electronic). But I feel as though if you give too many options it will only hinder and not help.

Should I print a page with all three options on it and how to do each one? Or should I keep it simple and just give them one option?

Thank you,

 Hi Bryan, your statement on getting caught up in the "got to set up my business" caught my eye. Could you elaborate on this? 

Thanks Bryan,

Thank you David, that is a very good idea. I've been really struggling with how to get into long term rentals with this offer. I also just found out yesterday that she would not want anything longer than a 5 year term. This makes it almost impossible to build up enough equity to refinance in 5 years to pay her back while still maintaining a positive cash flow...

Thank you again for your suggestion!

Thank you all for your input, I really do appreciate it.

@Mehran Kamari

I am more worried about getting a non profitable unit for my first investment than getting a declined offer. You guys have been invaluable in assessing the situation, and if after reviewing the numbers, I cannot feasibly do anything higher than say $170k PP then so be it, he can decline it. But if I offer $245k just so he’ll say yes and then find out I’m losing money every year, then that would be far worse.

I didn’t include a PM fee as if I do this, I truly have to every extra dollar and put it into the savings to refinance out of owner financing in 5 years.

That is a good point about the 8.3% though.

No one can be sure of anything, but I know my area fairly well, and $550 is very feasible as long as the place is not a dump.
Thanks for the numbers too, it’s really helpful to look at it from a clear perspective.

@Dev Horn

Haha Dev, I hear you there!

You are right about the non motivated seller. He told me that outright, and even if he didn’t have a $245k offer, he still owns it outright, it’s making him money, and he still has 3-6 years left on the depreciation schedule.

@Aaron Montague

Did you really mean 109k or was that a typo? If not, how could I feasibly expect someone to come down by over half of what they are asking? Also, I do not have any cash in the game, between the investor lending me $40k and owner financing the rest. So would you still expect 15%?

Trash, sewer, and water are the $470 with I assume water being the majority of that.

I didn’t include the management fee as that would all be going towards the upcoming down payment savings due in 5 years.

You guys are great, I really appreciate you taking the time out of your day to help me and provide your feedback.

I have an investor that is willing to lend me $40k at 5.25% interest with an interest only payment for 8-10 years.

The only thing I can come up with to do with this would be to find an owner financed multiplex and use $30k as a down payment while keeping the other $10k for reserves. then refinancing out of the owner financing in 2-5 years. The problems with this though is that with her being listed as a lienholder, the LTV will not likely be in a position to do a traditional refinance.

I thought about putting the $40k in an account to season for 2-3 months and appling for a traditional loan. Downsides to this though is that I doubt she will want to part with her funds before being listed as a lienholder. Also, I would begin paying the $175 / month in interest at that point and what are the chances I find a deal in that time?

So what would you do with this opportunity?

Hi everyone, I have another thread going with more detail (probably too much detail) but I have the pressing question of “What should I offer?” that I wanted to ask outside of that thread.

So here are some copy/paste excerpts from that thread on income and expenses to see if I can come up with a good offer.

Also, here is the link to that thread if you want more information. http://www.biggerpockets.com/forums/88/topics/118247-6-plex---issues-concerns-repairs-etc

Owner owns free and clear, willing do owner financing due in 6 years. asking price $259k, he said he's already received an offer for $245k and that's as low as he'd go. He wants $30k down and 5.75% on the amount he finances. tax assessed value of property is around $210k according to a property program I have access to at work.

Rental income currently at $2700 per month (I would like to renovate and raise to $3200/month)
Taxes are $2990 a year
Electric for outside lights are $70 per month
W/S/G - $405 per month
Insurance - $110 per month
7% ish vacancy - $189 per month
10% maintenance - $270 per month
Estimated Mtg payment $1254 per month

If I were to pay full asking price of $250k,that would put the current cap rate around 7.08%. Even if he dropped it $50k down to $200k, that would still only take the cap rate to 8.86%. I wonder what would be a reasonable offer in this case?

Here are updated figures after upping vacancy and maintenance costs as it stands with asking price of $250k, current expenses, and current income:
Expenses - $(1224)/month
NOI - $17,712/year
Cap rate 7.08%

What I would like to do is buy it for $200k, put $30k in repairs, and raise rents from $450 average to $550 average which would make the numbers as follows.

Expenses - $(1290)/month
NOI - $23,520/year
which would put me at around a 10.23% cap rate...

He also gave his approval for me to take a contractor of my choice in to estimate costs in both time and money to bring the place up to par. But before I even go that far I want to make sure this is worth pursuing.

Thank you,

As another side note, based on the current cap rate of 7.08% if were to pay full asking price of $250k, what would be a more reasonable offer? even if he dropped it $50k down to $200k, that would still only take the cap rate to 8.86%. I wonder what would be a reasonable offer in this case?

Here are updated figures after upping vacancy and maintenance costs as it stands with asking price of $250k, current expenses, and current income :

Expenses - $(1224)/month

NOI - $17,712/year

Cap rate 7.08%

What I would like to do is buy it for $200k, put $30k in repairs, and raise rents from $450 average to $550 average which would make the numbers as follows.

Expenses - $(1290)/month

NOI - $23,520/year

which would put me at around a 10.23% cap rate...

I also got his approval to take a contractor of my choice in to estimate costs in time and money to bring the place up to par. But before I even go that far I want to make sure this is worth pursuing.

Thanks in advance for whoever responds! =)

I have recalculated with those numbers and ran numbers before renovations and after. Before renovations I’m calculating an annual cash flow of $1200 a year with a cap rate of 7% and after renovations and rent increase I’m calculating the cash flow to be $5196 and cap rate of 8.86%. I am a little more concerned with those numbers as it doesn’t leave as much a margin of error to try and save the $21k I’d need to refinance out of the loan in 6 years.

What are the typical contingencies if someone cannot refi at the end of a balloon payment?

Yes, I pulled a rentometer report and it says the median rent is $595 with average rent of $612. I know my area pretty well though an there are a lot of nicer apartments in the $550-$650 range so I’m thinking $550 is about max for this complex at this time.
I don’t mind the long days at all, but doesn’t that make it difficult to show the apartment to prospective tenants, inspect existing units, etc..? I like the idea of having a network of contractors that I can call on for times that emergency repairs pop up though.

Thank you, and that is a very valid point about the appreciation. I misspoke about the term of the biz loan, the farthest out the term can be is 10 years, but we can amortize it as far out as 25 years.

Again, very good points.

If I made an offer, what would you recommend? It is a bummer that my financing has to be so creative as that means I am not what I would consider an A+ buyer. There are extra hoops and hurdles I would need to jump to make this happen, but that also simplifies things as he can either come down and it can work, or he won’t and it wasn’t mean to be.

I used to do HVAC and I have several close friends in different construction fields. But in general no, I do not know how to pick apart their estimates. Or even have a very high capability to assess the progress as they work…

Hi everyone, I do not even know where to start with this one as there are so many variables and things to cover, but I could really use an outside opinion.

My wife and I are looking to get into our first rental property. We have an outside investor willing to help us get started by giving us a loan for $40,000 @ 5.25% interest only for 8 years(interest payment of $175/month). While this was excellent news for us, it provides complications with obtaining traditional financing as she wants to be listed as a lien holder and no institution would finance me if the down payment isn't really a down payment, no skin in the game on my part so to speak. So I am basically looking for owner financing with a 30 due in 5 and that is where I will start with the deal I found.

6 - plex facts:

Owner owns free and clear, willing do owner financing due in 6 years. asking price $259k, he said he's already received an offer for $245k and that's as low as he'd go. He wants $30k down and 5.75% on the amount he finances. tax assessed value of property is around $210k according to a property program I have access to at work.

Rental income currently at $2700 per month

Taxes are $2990 a year

Electric for outside lights are $70 per month

W/S/G - $405 per month

Insurance - $110 per month

3% ish vacancy - $972 per year

Estimated Mtg payment $1254 per month

Payment to my investor $175 per month

---------------------------------------------------------

other facts:

6 plex is 5 units at 2br/1ba and 1 unit at 1br/1ba

there is a low income housing complex 1 block down that charges $550 per unit.

Old folks home directly across the street

Police officer is living in the house next to the unit

The owner lives out of state, has owned the last 25 years

The roof was replaced 3 years ago

Aluminum siding

Prop mngr referred to himself as a "slum lord"

He said the typical tenant is a SNAP or just out of jail tenant that has gov subsidy to get back on their feet and pays their rent for first 3 months.

typical lease is 6 months

all tenants are on mo to mo except one who just signed a 6 month lease

I live 35 minutes away and work M-F 9-6 which would make managing difficult.

Issues:

Actual property value is unknown, but let's assume $250k for this example. If I put $30k down on $245k that leaves a balance of $215k. If I carry that note for 6 years, I will still owe $195.7k (78.3% LTV not including the $40k I would still owe my investor.) In order to refinance it to a traditional loan I would need it to be around the 65% LTV mark as it is considered commercial property since it is over 4 units. To play it conservatively and assume 2% appreciation, the property would be worth $276k at the end of that 6 years, which would mean 65% of that is $179k. So again, setting aside the $40k I still owe my investor, I would need around $17k plus closing costs to refinance. Okay, so lets add $4k to $17k and say we'll need $21k to close and refinance the property out of owners name. I don't see this being too big of an issue, baring some major catastrophe. We do not need any of the income from this property, and would leave all rental income in the business account to build year after year.

sigh... I am going stop here to apologize mid way through for this bombardment of information, but it is all very important when it comes to deciding what to do.

All of these numbers are assuming I give him exactly what he is asking for, but wait, there's more!

After visually inspecting the property, I am not impressed with the upkeep up to this point. There is some liability in missing hand railings, broken exterior lights, etc... I would estimate somewhere between $15k-$30k in repairs and maintenance are needed before getting up to par. (though as we all know these numbers are probably way off.)

All of that being said, my wife is now completely turned off due to the fact that it's not a "cute little apartment complex".

Here are my thoughts with what I would need to make this fit for us.

PP go down to $175k-$190k

Owner finance at 5.25%-5.5%

Some agreement on either decreasing the $30k down payment or having owner fix/invest in a certain amount of things before I buy. (unlikely IMO)

I would want to renovate the complex and change its "image" to go from average rent of $450 to a new average rent of $550-$600. I was thinking it would be smart to ask that all units be vacant other than new 6 month lease. Two reasons for this is that it would be very difficult to do that one unit at a time and tell the new tenant their rent is $575 when everyone else is smoking weed for a living and only paying $450... And it would be much quicker to renovate and change the whole image quickly if I can repair 5 units at one time. This is risky though as I would become financially unstable after 2 months of no tenants in 5 of the 6 units.

I could possibly get up to $60k from my investor which would help with this, and if successful I would have a completely renovated complex that would be bringing in an average of $550 per unit x5 and $500 x 1 for a total rental income of $3250. My mtg payment on $190k @ 5.5% would be $1079. I would owe 5.25% on lets say $60k from investor that would be a new payment of $263 a month.

I will leave my thoughts there as I am getting mentally winded here...

I know there a LOT of "If's" in everything I suggested. And there are hundreds of other miscellaneous thoughts and things I've probably left out, but this should paint a fairly full picture.

Though it is tempting to own a 6 plex and owner financing is the only way I can seem to go at this point, I am by no means "stuck on trying to make this work"

If you've made it to this point and have not fallen asleep, then I am very grateful for you having taken the time to read all this regardless on whether you leave feedback.

A couple of questions:

1) First and foremost, do the numbers make sense?

2) Do you foresee any issues with my creative financing?

3) Do you think a 6 plex that is farther away too much for me to bite off as an initial investment?

4) Do you think the owner would go for any of my suggestions?

5) Should I run the other way screaming? Or grab the bull by the horns, buckle down, and end up with a start to a hopefully long and prosperous career in rental properties?

Thank you,

Shane,