Is this a good cash flow Deal for my Investor? And, can I make money selling it to him?

Question

Is this a good cash flow Deal for my Investor?  And, can I make money selling it to him?

$1,100 * 12 months = $13,200 Gross Anual Rents

$13,200 / 2 = $6,600 NOI

$6,600 NOI / $110,000 purchase price = 6% Capitalization Rate

The real question is,

A) is this even worth me presenting to my investor that wants a cash flow deal

B) can I in good conscience sell this too him and ask for a couple of thousand bucks for the deal?

Joel Owens · Answer

Kevin you are going about this wrong.

The property is not your client the investor is.

WHAT is your investor looking for  and at what return (CAP rate)?

Then based on their answer you go out and find them that property.
You do not throw them overpriced trash and say (what about this and what about that property and try to talk them into it).

You are showing you do not understand what they are asking for and are pressuring them to buy something so that you make a quick buck off of them.

Some investors might have had money in cd's,treasuries,stock market making 1 percent or taking a loss even so making 6 percent a year is great for them and they are happy.

Some are near retirement and want a safe,low hassle investment and are willing to take less returns for it.Generally they are wanting less problems to enjoy the time they have left on this planet and just want a tax shelter and to marginally outpace inflation.

Others need to maximize cash and want a huge return so they can keep growing their portfolio to generate wealth.

If you truly have an excellent deal you can ask more of a wholesale fee simply because you will have many parties wanting it.If I have a commercial wholesale deal that is off market that is a great deal then I can command a greater fee.

The deal is so good that the investor just wants the deal and not to lose out to the next person.If you are selling a marginal deal to a buyer they will try to squeeze your fee to get the numbers to work.

Hope it helps.

Sharad M. · Answer

Joel summed it really well.

You have to first find out what your clients want, then go out find that and IGNORE pretty much everything else.

Kevin Cardinale · Answer

The problem, or my perception of the issue, is that the investor wants to literally sign the contract and step into the property with a renter immediately.  I am not a rehaber and unless I wholesale it to a rehabber, and then force the rehaber to sell to my buyer, I see no way of getting a deep discount for the buyer.

They want a pristine property.  While, there may be distressed properties not vandalized, that might also have a good price, they are diamonds in the rough.

What is nice about this property though, is although it might not be super profitable, it will be easy to just walk into, with a renter already in place.  If they can live with a 6 cap, this is an easy fit into their portfolio of cash flow.

Or am I selling myself?

Andy M. · Answer

I just want to second what Vic said, every interaction you have with an investor is definitely building their perception of you. I know when I'm talking to a newer birddog/wholesaler they don't get very long to impress me before I stop taking them seriously.

Account Closed · Answer

A: 6 cap is the kind of cap rate properties get in Manhattan. If this is an A grade property in a prime commercial district you can tell your investor that its a great property with upside in appreciation. Though that statement would probably be a lie unless you were in Manhattan.

What you need to do is find out what your comps are. If comps in your area are showing that properties are selling currently at 6 cap then maybe this would be reasonable but most places in the country are not selling at those prices. By finding what cap rates are for nearby properties you can find the true value of the property. If you find that properties nearby are generating 6600.00 NOI as well, but selling for cheaper, that is just justification for a lower offer. However like I said if you find that cap rates in the neighborhood are 6, then so be it.

By comparison, for buy and hold here in Chicago we are looking at I am getting 12 cap. If we are buying and renovating to hold for rental we are looking at 20+ cap.

B: You could still present it to your investor, though you should remember that every deal every interaction you have with an investor they are continuously building their perception of you.

If you present a plan of this property, and write a letter about why you think this property is worth this much and that you are confident that this is a good deal, while providing comps and a detailed proforma and cash flow model, then it should be okay! If you present a plan you are not confident of, then it just makes you look like you don't know what you are doing, and it will make you look bad. If you can look in your investors eye and tell them its a good deal then go for it.

Just a thought - you are trying to wholesale properties that are essentially at retail prices. You should look for bigger discounts such as in not great neighbhorhoods or distressed homes.

Good luck!

Chris G. · Answer

I would also say that this is not a good deal, you should be looking at around 10% minimum.

Curt Davis · Answer

Kevin,  I am not familiar with the area or details of the property.  You should get it a little cheaper.

Kevin Cardinale · Answer

So my max offer should be $66,000?   ho boy, I think they'd get mad no?  But, I'm looking for yeses, and don't care about no, i'm looking for yeses and don't care about no.

Andy M. · Answer

I would say a 10 cap would need to be a minimum standard. Personally I would want higher than 10 even.

Is this a good cash flow Deal for my Investor? And, can I make money selling it to him?

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