All Forum Posts by: David Wooten

Thanks Jacobo!!

I'm currently at annual training for the National Guard and am looking to start my marketing campaign once I get back from this two week gig, when I can -really- answer the phone.  :D

I'm working another couple of deals right now that seem promising, just putting the team together. 

Will share once I have more TO share.  :D

This one turned out to be a No.  Unfortunately, they don't have enough equity and don't think they can take less than 85k.

One day this week, I'm going to e-mail her a reminder of my offer and also of the fact that over the course of the next 2.5 years, she'll be paying at least another $14,000 in interest, taxes, and insurance before the loan comes due.

I could probably up my offer a little bit, but not to 85k.  Not enough motivation here for now I guess, but hey, this NO just means I'm that much closer to a YES!!  :D

I've a deal working on a six-plex that I'm going to try to pitch the seller tomorrow on financing for me.  I'll post something about that when I get a good answer.

@David Holland

First off, Thank-You for your response!!

My wife and I thought more about it and decided that we really should rehab this property over keeping it as a rental as I need more capital at this point in my budding career.

Moving on...

Well, tonight was my second meeting with the seller where I was to pitch my three offers.

I showed her that over the past 2.5 years, she's paid just over $14,000 in interest-only payments, insurance, and taxes.  I also pointed out that the AC unit is now 20 years old and will need to be replaced sooner rather than later for $2,500.  I then stated that regardless of which option she chose, I would cover the closing costs which we estimated to be $3,700.  So if she sold to me this month, if you added the above costs, future insurance, future interest payments, future taxes over the next 2.5 years along with the AC and the closing costs, that's just over $20,000 that she wouldn't have to pay.  I chose 2.5 years because that's when the home equity loan of $50,000 comes due.

My first offer was $50,000 cash.  Right now.  Pay-off her home equity loan.  I'd cover the closing costs.  She could walk away.  Add that to the $20,000 in costs I would save her from paying over the next 2.5 years, and that's a $70,000 value.

Offer two was $10,000 down, I lease option it from her for the next 6 months at $300 a month (enough to cover her interest-only payments on the 50k), then $45,000 more at the six month mark when I sell.  Again, add the $20k and that is nearly $77k value.

Offer three was what I was hoping for.  Zero down, $450 a month for the next 6 months, then $60,000 when I sell.  Again, with the $20k I would save her, add the rent and the $60k, you come up with nearly $83,000 value.  Which is close to what her appraisal showed.

By the way, we already have a buyer lined up for when it's ready.  We're thinking 120-130 but will settle for 113 or so.

So I meet her tonight, show her what we want to do, it'll cost us nearly $30,000 dollars.  She had her "friend" meet with us tonight and they both agreed my numbers seemed right as did my rehab plan.  Her "friend" thought my offers were fair and was basically in my corner.  I built rapport with him when I walked up and found out that he was in the Army before.  I'm currently in the Army National Guard.  BAM!!  We spoke and bonded and it was GREAT!!

Here comes the curve ball.  The home equity loan is NOT for $50,000.  It's for $85,000!!  And on top of that, she doesn't care at all for my $20k of future costs math.  He saw the value, but she did not.  Oh well.

So my first two offers weren't even considered.  GREAT!!!  in a way...  I wanted her to pick option three anyway.  Well, now her concern is not having the money to make up the difference for when the bank calls the loan due upon selling.  I'm giving her 62.7 and she needs to fork over 85k.  Just over $22,000 difference.

Well, she's going to talk to her brothers because the home equity loan was taken out to pay for their mother's medical care and she wants them to take part of that bill.  She's confident they will.

Anyway, her friend, the Army vet, is her friend from high school.  Her D&D friend from high school.  You can't make this stuff up!!  Regardless, he was GREAT!!  Very Supportive and in the end, thought my offer was fair.  Told her as such, and she'll get back to me in a couple of days, probably this upcoming weekend after speaking with her brothers.

So, a little bit of a hiccup, but I held my composure and we shifted focus on how we could address her shortcoming since my numbers were solid and they could see that.

This post is a little longer than I wanted, but I'm pretty excited about this deal!!

Fingers Crossed!!

So I had someone reply to an ad my wife and I put out a few days ago.

It's a 2/1 but has a toilet in the basement.  Basement isn't finished, but in good condition with two egress windows.  One could be built into a bedroom.  The other is possible, but it'd be a little tight due to a sink against the far wall that looks like it was used for a second kitchen.

Square footage is 968 for the upstairs and another 968 for the basement.

Bathroom has been updated this past year as has the kitchen.  Appliances are newer.  AC will need to be replaced.  Heater is 2010 with the ducts cleaned last year.  There's slight cosmetic work on the outside, sagging soffets (siding) and some concrete needs poured for two walkways to the sidewalk and also to the driveway.  Garage is 2 stall with a workshop but both doors need replaced and the walk-in door as well.  The carpeting inside the house will need to be cleaned or replaced (likely replaced with tile).  The ceiling is drywall and good.  Kitchen floor is good.  Bedrooms are about 9x9 and 9x12.  Wood paneling that my wife HATES!!  :D  They added a sump pump last year after replacing two basement walls and kevlar strapping the other two.  There's some minor wiring issues in the garage with lights, but nothing terrible.

Anyway, there is a 50k home equity loan against the place and that's it.  It was recently appraised at 85k and comps for that area or 90-100k for a 2/1.  Since it's so close to a 3/2, we're thinking about doing that and putting it out for rent at 1200/month.

Owner thinks she wants 85k which won't work for me, but any recommendations on how to talk her down or any advice on this deal?

I need to figure a MAO and am planning on asking a local investor to help me with that.

Thanks in advance!!

Welcome @Marcus Moore!!  Still getting my wheels going myself here in Lincoln, NE.  Welcome to BP and best of luck!!

@Chris Winterhalter

First off, thank-you for the prompt response!!

I appreciate it.

The apartments are in a C area in the middle of the city, close to the State capitol.  There is a high school only two blocks away.

I was shown a few of the vacant apartments by the realtor and they did paint the walls but most often left the carpet if there were small tears.  Another time, a tenant let me into their place and showed me a leaky kitchen faucet that had dripped down to the apartment below and caused water damage, along with a few other minor issues like long tears in the carpet, a broken drain in the bathtub, leaky windows and sliding glass door...  :/

The dryers and washing machines in some of the buildings didn't work.

The apartments have been on the market for 8 months or so now, which has been concerning to me as it would seem to indicate nobody else in-town is that interested.

The realtor stated that the seller wants to see any and every offer though, but at the same time, hasn't reduced his asking price.

I've only spoken with one tenant, asking him about how it was to live there and he told me to move anywhere else, showed me the maintenance issues he had in his own place, and said that if I wanted my kids to learn about "real life", then this was the place.

My wife hasn't been excited about this property from the get-go (an understatement), but I've been pursuing it for the education of the experience.  More and more, it's looking like I should just let it go completely and move on, but part of me wants to throw in an offer for 3 and see what happens.  :D

@Chris Winterhalter

Here's the general breakdown:

80 2BR/1BA

88 1BR/1BA

3 Studio/1BA

1 1BR/1.5BA

17 Garages

More specifically:

24 2BR @ 480

1 1BR @ 425

2 Studio @ 380

1 1BR @ 380

1 1BR/1.5 BA @ 380

17 Garages @ 70

56 2BR @ 495

23 1BR @ 445

12 1BR @ 405

3 1BR @ 395

1 Studio @ 450

24 1BR @ 390

24 1BR @ 415

As of the time of this post, there are 9 vacancies.  I understand that a few of them will be filled on the 1st of March.

Here are the expenses from 1 year timeframe:

Taxes: 87897

Insurance: 32516

Repairs and Maintenance: 64113

Electric: 15360

Water/Sewer: 36723

Gas: 16854

Trash: 13990

Licenses/Permits: 817

Advertising: 2383

Supplies: 574

Cleaning: 12006

Lawn/Snow: 5797

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

Total Operating Expenses: 289040

Net Operating Income: 596077

Of course, these are the numbers from the seller.

Asking price is $5,350,000

Tax assessment about lines up with the asking price.

This guy owns multiple apartment complexes throughout the city and is looking to offload these since he's had them the longest (10 years) and wants to 1031 exchange them up for a bigger property. 

This past month's rents were 73580.  It seems he gives some discounts of 10, 15, and 25 dollars per month to some.  Not sure why and it only seems to apply to half.  In one month, it was 655 in discounts.

Six of the roofs are new within the past 3-5 years.

The city has some requirements about inspecting each unit when ownership changes hands.  When that happens, the seller typically covers the costs of whatever fixes they require.

Sorry for the delayed response.  I'm in the National Guard and had drill this past weekend.

@Chris Winterhalter

60 2BR at $480/month.

40 1BR at $395/month.

Properties are all next to each other.

Buildings were built in 1950.

Class C area.

The condition from what I see on the outside and the pictures shown is good.  I'm looking to take a general contractor with me to visit the inside.

My troubles are when I run the evaluation with 5% monthly repairs and 5% monthly capex, that kills a lot of cashflow.  If I run with 1.5% in both of those categories though, obviously that makes a huge difference.  My local broker who also manages suggested the 1.5%.

What percentage do you use when evaluating 100+ units like this?

@Aaron Montague 

Ten buildings with ten units each.

Greetings,

I've been evaluating a package of properties that together, total over 100 units.

I keep reading that on the calculator to use 5% for repairs, 5% for capex, 10% for management and so on.

When looking at over 100 units, do you -really- use 5% for repairs?  A local broker who I spent a few hours with advised me to run my numbers using 1.5% for repairs and 1.5% capex.  His management company also only charges 6.5%.

Obviously, this makes the numbers look more favorable, but he also advised that I count every tenant that was late as a vacancy.  That raised my vacancy to 15% when in actuality, only 2 units are currently vacant.  I initially ran the vacancy rate at 5%, but when we boosted it to 15%, that severely inhibited cashflow.

The apartment complexes all around also boast <5% vacancy and they're not selling.

I'm looking for advice on how best to evaluate this property.  I've ran it a few times using different people's numbers and have come up with such varying outcomes, it's paralyzing.

So I guess my question is, what percentages do you use in the BP calculator to give the best evaluation of the property?

Those with similar investments please respond.