1st timer, looking for assistance.

[Trevor Brunckhorst]

Hello all. Thank you in advance to anyone who takes the time to respond to this thread or help me understand. I've never invested in any real estate. In fact, I bought my primary residence June 4th. I primarily work business development for a Metro Detroit property management company. I've been asked to look into the details of a potential deal a would-be client sent my way. They inherited a few properties and instead of having us manage them, they would prefer to sell. Aside from a college course two years ago, I've never done this before. I am looking for some help to understand the process and identify if this is even a deal worth passing on to others.

Here is what the owner has provided me:

(1) - 5 unit MFH; this property also has two small storage spaces available to rent
(1) - 4 unit MFH;
(2) - SFH's.

Now, the rent numbers I am about to provide are "guestimates" provided by the owner. Upon inheritance, they evicted all of the tenants and decided to spend the last year rehabbing all of the units and 2 homes.

The rents provided by the owner are as follows:

5 unit - $500, $500, $650, $650, $490 - two storage units totaling $50 per month rent
total $2,840

4 unit - $425, $500, $550, $600.
[b]$2,075)

1st SFH - $1,100
2nd SFH - $700

Total rent roll per month: $6,715
20% Vacancy (monthly): $1,343 (maybe high, but we are in Michigan)
Rents - Vacancies: $5,372

Now, this is where I get confused. If I use the 50% rule, are vacancies included in the 50%, or do I take vacancies out before I apply 50% rule.

Lets assume this:
Taxes: $17,000
Property Insurance $5,000
Off Site Management $6,044
Repairs & Maintenance $5,000
Utilities $5,000
Accounting & Legal $2,000

Total Annual Expenses: $40,044

Rents - Vacancies - Expenses: $24,420 NOI

50% rule (50% of rents-vacancies) would say NOI is closer to $32,000. If I take 50% of the total rent roll (before taking out vacancies) my NOI is closer to $40,290.

I don't know which one it is, or which one to use. Clarification here could help greatly!

Asking price is $350K, but lets assume everything is free and clear and can be bought for $300k. What are you looking at in this scenario. If this was your first deal, how would you structure it? Seller is open to owner financing. How would the deal need to be structured, what terms would you look for, and is there anything I am missing?

I realize a much deeper analysis of the market is required to be absolutely certain on our assumptions.

If anyone is able to follow my scattered thoughts and is willing to work with me through this case study, I'd greatly appreciate it. I look forward to a productive discussion.

If i'm off my rocker, tell me.

Sincerely,
Trevor Brunckhorst

[Joel Owens]

Every buyer investor will look at this differently.If you advertise a 10 CAP rate you will at least get their attention to investigate further.

It sounds like with the properties they own them free and clear to do owner finance.

Sellers try to do owner finance and stick it to the buyer on loan terms and price.Buyers are looking for owner finance and reasonable terms.

It sounds like by them evicting tenants and rehabbing and renting over a years time that they are overly invested emotionally in these properties.

Usually on inherited properties they want to sell as fast as possible.It sounds like they want top dollar and yet want someone else to take over the headache.

Also you stated repairs repairs and rehab.
How long have the properties been stable at the quoted occupancy rates??

What type of rehab was done?? Was it cheap or good quality??

Are the properties real close together or way spread out??

What kind of cap rates are properties selling for in your area??

Sounds like a minimal deal to me.Instead of one property you are having to look at 4 with different capital expenditures and rent levels.

10 or 20% down with owner finance might be appealing with a great cap rate.

The seller will need to look at money down versus what it would cost to foreclose and any personal guarantees offered before owner financing. In some states foreclosing can get very drawn out and expensive.

Personally in this down market I would much rather have the 250k to 300k and move it into a much larger value add property such as an 80 to 150 unit building or larger.