Multi Family Investment

Rehabbing, Fix and Flip, Rental Properties
1

Looking to purchase a 3 unit multi…
the property value as is is between 140-145K
One unit is currently Vacant

ARV would be slightly higher 155-165

Assessed Value is apprx 140K

Taxes are @ 3200 per yr

Maintenance is like 2000 per yr - trash water and snow

If all are rented - The rents are 2150 - 2250 per mo total for all apts 750 x 3
Currently one is vacant… but should be a easy rental…

The rent for one apt is paid in full for yr with approx 6 - 7k remaining

The property asking price is 110k

There is a 5 Yr arm which payment are current but due to refi 5 yrs is up.
(so subject to is not workable)

DIY - Repairs are approx 20K - 25K ( could possibly be done for 15 but rounding up )

Trying to structure offers at the moment and analyze deal…?

What do you all think of it…? any suggestions to make this a lil or no money down deal… My alternative is 203k loan for rehab which is @ 5.5 percent and upto 35k for repairs… but there i have to goto bank…

What should i do from here is it a good enuf deal at this price based on income…?
So should I buy and hold…? ride the wave till market values increase…?

Let me know what kinda offers you pros would reccommend…??

PS - the Net income / Profit per mo. would be approx 900-1000

2

Hello there,
Cash flow is my specialty!!!
so lets take a look at this:
so at first glance you think you would make $1000 a month, But not in real life.
1st: are the electricty included in the rent?
2nd: is the heat included in the rent?
3rd: is the Water consumption included in the rent?
4th: is there a waist charge for sewer?

*You have not factored any “Non-performance” this is tenants that wont pay, Late pay, eviction expenses, etc… and dont worry if you do rentals you will them sooner or later… also the vancancy is always greater then 5% more like 15% or higher… :flush
*Need to factor maintenance about $100-$350 a month… Try not doing anything to a property for 1-2 years and see what happeneds… It wont be pretty, I promise :banghead …

I would PASS on this deal!!!
And just dont do any rentals unless 35% of the income covers “ALL” of the expenses.
Then you have a deal… Put the deal under contract and find a guy that wants to buy it… But to be honest I would totally not want to own this property myself.

3

Thanks for your feedback…

all tenants pay their own utillities and heat both, gas, electric…
sewer is Owners expense which is 760 yr,
water is 1000 per year also owner expense

One tenant has paid their 750 mo for whole year upfront but has used 1-2 mo of it…
One is empty as of this past week, and the other is 750 mo lease also…

Vacancy i figured 10% but i will raise it to 15% and run the numbers… I will also add 300 mo for maintenance as you suggested…

Needs some updates, ie roof and other stuff which would be 20-25k to do all…

I checked comps of similar properties which average 145k - 165k in this market…

the assessed value 90 % - is like 147.5k

now after changing the numbers here is the annual property operating data
Gross scheduled income $25,800
vacancy $3870
effective rental income $21,930
Gross operating income $21,930
annual operating expenses $11,267.80
net operating income $10,662.20
annual debt service $7,232.50
cash flow before taxes $3429.70
tax liability $1360.70
cash flow after taxes $2069
purchase price hundred and 10,000
loan amount $106,150
down payment $3850
closing costs $2500
total initial investments $6,347
cap rate 9.69%
gross rent multiplier 4.26%
debt coverage ratio 1.47%
Cash and cash return on investment 54.04%
return on gross equity 89.08%
price per unit $36,666.67
Price per square foot 29.81

This breakdown is not include any $7,000 prepaid rent in to consideration
this breakdown does not include a $20-$25000 in eventual repairs

Knowing this information what kind of offer would you make on the property since they are asking 110,000…?

Raising the cap rate to 12.69% would lower the purchase price to about 84,200

The amount owed on the property is approximately 78000k
I can probably get into this deal by allowing the owner to keep the prepaid rent or something of that nature to make this a little or no money down deal.

let me know what you think on either adjusting the for, purchase price, or your idea of putting the property under contract and finding a buyer, because I like that but would want to guarantee getting paid and not being bypassed after finding a buyer…

Do not forget keeping this is a rental at 27.5 depreciation, and other benefits of owning investment property…

Thank you very much for your time comments and suggestions as I’m open to all who want to comment…

As an investment in what little or no money down of course, with little or no risk, with potential of future appreciation, or future profits after neglected deferred maintenance and repair…

Please let me know he think of the numbers and how you would suggest structuring the offer or consideration of this deal…

let me know… asap… thank you

4

DUDE THIS IS NOT A GOOD DEAL!!! :banghead :banghead :banghead

this type of ownership is going to suck the life out of you…

ask the owner what is the best he can do… then listen…
Talk about land lord head-aches, etc. and then ask again "what is the best you can do…
Do this process 3 times… If he is motived he will reduce to what he owes if he doesnt reduce that low, ask why and find out.
Then put it under contract as a sole option to purchase for a 6 month terms…
see what he says… if its a problem and you think its a good deal, offer to manage it for him for the term for a low percentage (2-3% managment fee) if he bocks again offer the management as part of the deal… Trade managing the building for the option and see what happeneds then…
If he agree you are garrenteed that any buyers will have to go through you, for three reasons:

  1. you have a sole option
  2. you are the one managing it so how will they find him anyways.
  3. you are the one showing the place and have all the keys so any other investors will want to talk to you anyways.
    I call this an sole option & mangement flip…
    I have done this a dosen or so times and works great…

Be creative, be smart, but what-ever you do, dont do a buy and hold unless its a smoken deal!!!
:beer

5

Thanks alot,

as for the the property what can the property afford for purchase price to make this a good deal…?

In other words what purchase price would make this a worth while deal…?

any idea…?

You have been quite detailed in your response & I thank you…

6

[b]Note:
The main goal in regards to purchasing an income investment is about making income off of this business proposition. The new investor believes that if you acquire inventory you will become wealthy. This is a total lie and a great misinformation of the industry.

Purchase properties based on operational performance of the property. 3 principles about property investing that any investor needs to live by:

  1. The seller’s asking price is irrelevant.
  2. Determine the property value, which becomes your offer.
  3. Multiple Units: The property value is only based
    on the current cash flow of the property.[/b]

Sited: Matthew Damm’s Cash flow fundimental’s Course(Chapter 2)

7

To be totally honest with you… I would seriously ask the owner how much he wants to pay out of his pocket to close… I would request for immediate concession…

And take it from there… But I would go to $85k-$89k as an option, but before i would sign any option and get myself into managing this Canoe of a multi-res. I would do my home work and see if i have any investors that would take it before…
Just call some local guys, the ones that advertise we buy houses in your area and ask them would they be interested in this deal… Give them the cash flow numbers But NO ADDRESS yet, that comes when you have the sole option and you are in total control.

8

Ok kool, thanks for the great insight…

the ARV is 165k - 150 is the cheapest you can find a property like this size 3700 sf.

also he started at 130 and ive gotten him dwn to 110k - I would like to get him lower knowing he owes only approx 78K and the work the property will need…

He bought 10 yrs back for 90k…

the income is average to below average… for this size of units and rooms…

he seems to be at bottom for 110k but i wont know till i make multiple offer and he chooses…

if you had three offers to make what would they be…?

He would do an option probably closer to 110k because - 20-30k could be made selling or assigning my option for 150k -

I would have to make sure option is recorded right…?

9

I would ask again what is the best he can do… And leave it at that… give him a few days to a week and see if he calls you… If you think you can flip it out then take it at $110k or what ever he will budge, But remember every Dollar you get him down is a dollar in your pocket, so do NOT leave money on the table.
Just remember this in the back of your head, The seller Needs to sell, you don’t have to buy if its not to your benefit…… and never forget this! :bash

*Yes Record the Option to purchase on title!!!
Its pretty easy. 1-2 page document… seller signs it, buyer signs it, and get it notarized.
Go down to the county court house and record that document on title… its pretty simple and cheap too.
*This should be an easy flip, with no worries… just remember Mr.Trump didn’t become wealth owning small multi-residential properties… the problem with ownership with properties like this is that they are super time intensive and they don’t generate enough money to validate paying someone else to do the job for you… thus the result is: you waist your time running a few small properties instead of building wealth…
I have a great cash flow course i have written on this type of thinking. To make a long story short, you need to set up multiple streams of income that are on “automatic pilot” and properties like this do not accomplish this… it ties up your time and drains your enthusiasm… if you get a smoke’n deal option it… and take your money and run to the next one… Even Mr. Donald Trump & Robert Kiyosaki does option… and that’s the truth !!!
And focus on “automatic pilot; multiple streams of income”
:banana :banana :banana :banana :banana :banana :banana

10

Makes sense sounds like Dave Lindahl’s way with many unit multi’s and auto pilot being property management in place. However money dwn is sometimes an issue since its more with commercial properties. How would i record this document… also how would i get notarized being an outta state owner… are they notarizing his signature or mine…? Is there a particular document to use like affidavit of agreement which is used you might have…? I really appreciate your advice - but im tring to do a deal with lil or no money dwn that can make me decent cash flow and future appreciation with minimal repairs, as a first property for me sounds like option for 110k is best deal for me and least risk… as i was considering going dwn to bank on this or even moving in and getting 8k from Obama - but now i think just rent it all out, but after speaking to you see maybe a flip with option is best. How would i move optioned property…? assignment of option agreement for a fee…? or double closing, or letting the seller close with my buyer and paying me off somehow with as a mortgage payoff or something…?> Thanks for insight - BTW i ran these numbers with Lindahls system analyze software and he looks for between 40-45 percent no higher of income for expenses it seems… and this was this property was between that or lower even… I will run them again… if i can get 12.65 percent Cap rate and property for 84200. or so… Thanks again so much… Love masterminding with experienced investors!!! Just looking for my 1st deal still after so long…

11

Here’s how I see this deal:

Gross rents: $2,250
Operating expenses: $1,125
NOI: $1,125

Less desired Cash Flow $300 ($100 per unit per month)

Money available for Mortgage Payment: $825

Maximum Purchase Price if No Repairs were Needed: $124,000

Less Repairs Needed: $25,000

Maximum Purchase Price $99,000!

Good Luck,

Mike

12

:beer
1.You are notarizing both signatures. You sign, get it notarized then mail him a copy… Seller Signs and gets his signature Notarized as well and sends you a copy back…
*Then Record the Option …Done!!!
2.Now find your buyer!!!

Note:
Do you see what Mr. Property manager posted… He is willing to pay $99k so you have one professionals opinion of what he would buy it for.

So if you Want to do a option flip (STRONGLY RECOMMENDED!!!) you have to get it cheaper than $99k.
…
If you are still interested on knowing how to do a option flip in detail, My contact info is below.

13

I dont know - really if i was to goto the bank on this and get a 203k rehab loan would it be worth the hassle… Only 300 per month for a 100k investment does that even sound tempting… i was hoping to net at least 1000 mo at least… what if i moved into one of the apts I though but then the numbers get a lil worse… but i would get the 8000k for Uncle Sam before Dec 1st… I know the future appreciation is there but when will this all recover… and how well will property values hold thru the winter… propertymanager would you do this deal for for 99k and 300 mo based in your senario? if so why… I appreciate everyone’s input… as this is a serious deal or maybe no deal ill kick my self later for doing or not…

14

am i recording the actual option? wouldnt that say the price…?
i thought there was an affidavit & memorandum of something… which i had to have my signature signed on only…

15

“Do this process 3 times… If he is motived he will reduce to what he owes if he doesnt reduce that low, ask why and find out.
Then put it under contract as a sole option to purchase for a 6 month terms…
see what he says… if its a problem and you think its a good deal, offer to manage it for him for the term for a low percentage (2-3% managment fee) if he bocks again offer the management as part of the deal… Trade managing the building for the option and see what happeneds then.”

Please elaborate on this a bit not sure i completely got it… did you say the same thing twice… ?

Id also like to know more about " know how to do a option flip in detail" as you spoke of - i will email …

16

propertymanager - how did you come up with max offer of 124k before repairs…? thx alot for contrbuting to my post…