[Calc Review] Spot the Errors?

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Hey all! This is my 2nd ever use of the calculator and I was wondering if you could help set me straight.

I anticipate being off in just about every area but know that I am particularly struggling with the cost of estimating the rehab (even just ballparking it) as well the financial aspect of coming from an initial source of capital (i.e. a hard money loan) and transitioning to a lower interest amortized one.

Thanks in advance, can't wait to see everyone tear it apart!

Brian J Allen · Answer

Cameron,

Best of luck to you.  It is good to run the numbers, but the most important thing is to know the location you are looking at and what sales prices and rents the neighborhood can support.

• The price for this place is $272k and that is the short sale price, i have spoken to the agent and that is the best they can do.
• Rents are likely between $1200-$1300 per floor, no real need to improve the units as the neighborhood is unlikely to support higher rents at this time.  There are 2 BR units within 10 houses away that rent for $600-700
• This property is also in a flood zone, it is in the firm remarks so $2500 for flood insurance, not only that but your basement is stressed from the various floods over the years
• probably $2200 for insurance if you live there, and higher if you don't
• 2017 Taxes are $3701, 2018 will be higher as 3 families assessed values in Worcester went up 9% on average
• keep in mind that when this place is "fixed up" the market value will be about $310k as there are 4500 of these in the city and this is on a 3810 SF lot in a RG5 Zone which requires 5000 SF so it will be hard to ReFi out of whatever hard money you use.

Let me know if you want a tour of Worcester before you spend too much time running numbers.

Rich Tirado · Answer

Account Closed Public - National Flood Insurance Program (NFIP) is backed by the government and is rated higher then private flood insurance, despite NFIP being 2 billion in the red. With private flood insurance there is always the possibility that it can fold by having more claims then money to pay them out and the holders of the policy would not have any recourse since its not back by the government.

Aaron K. · Answer

Account Closed

1. It is a short sale and has been listed for a while

2. Most property taxes are 1% + if your numbers are correct the property tax would be .1%

3. If you don't know your closing costs from the lender then you are not ready to buy, this is a crucial piece of info.

Phil K. · Answer

Hey Cam,

I'm glad to be of any help I can. I'm a new investor myself but heres to add on your points.

- I've not tried to get any actual loan through any lender, I more or less took a stab at what it would be like to invest at a negotiated lower price so I could understand the impact of margin and what it looks like in the calculator. Moreover, what would you personally say is a more realistic margin for a negotiation on an REO?

I would say that this is a case by case basis, it would most likely be best to have the agent youre working with reach out to see the margin. I know that Brian is an agent in Worcester and he mentioned that there wasn't much wiggle room on this price. Do you have an idea of the financing that you're looking to pursue? Whether it be a HML/Private lender or conventional financing, it's always a good idea to get an idea of how much a lender is willing to lend.

- True, in your experience would you say that banks are eager to show? Do they show REO properties on request or do they only have set public showings? Does it vary from bank to bank?

Another case by case basis, I would reach out to the agent to see if you could setup a showing to get it checked out, or work with your agent to setup a showing.

- When I was attempting to estimate the rent I assumed that it would be the cumulative gross rent from each unit which makes me a bit confounded. I could be grossly misunderstanding this, but we're assuming that between all of the tenants on each floor that the total rent for that floor (unit?) would be the going rent rate (which I believe I understand you say is priced more realistically at $1200?)

The total rent would be for each unit. From what I have seen in Worcester, $1200 PER unit. So taking this into account since it is a triple decker, $1200x3units = $3600 in monthly rents. Again, I would definitely check out zillow, hotpads, etc to see if this is in line with the area.

- I am incredibly grateful for that range of insurance info! Who did you call? Any recommendations?

I started by Googling a few as well as asking my agent for some recommendations. From what I've found it's hard for a insurance company to give you a quote without an actual property in hand. I've been given some wide ranges from like 2k-3600 a year. It is also worth mentioning as Brian did that this is a flood zone, you need to get flood insurance on this which is probably another 3k a year.

Feel free to shoot me a PM if you'd like, glad to connect and let you know what I've been seeing.

Rich Tirado · Answer

Account Closed: Be careful with the flood insurance requirement. I know here in CT it makes a huge difference in price. Try to find Comps that have the flood insurance requirement so your not overestimating the ARV of the subject.

A great alternative to NFIP (FEMA) Flood Inusrance is the private market flood insurance. I know it saved me a lot of money.

The Flood Insurance Agency (TFIA) they are out of Florida. I can't post the contact info here because of the Forum rules but you can private message me if you want the info or simple do a google search

Account Closed · Answer

Noted, I appreciate the hard numbers on rental properties. Based on your phrasing I'd say that is a low quantity and makes this a fairly competitive market which is good to know so I don't underestimate the unknown.

Damn that is a lightning fast close, but I'm also glad to know where the market stands at the moment in terms of baseline pricing.

Thanks for your time!

Account Closed · Answer

The comps with flood insurance is something I hadn't thought of, great tip!

What's the difference between private and public flood insurance? Surely if I'm saving by going private there must be some sort of trade off, no?

Thanks in advance!

Account Closed · Answer

Oh man, this is so much fantastic information let me dive in! First and foremost this was a purely hypothetical analysis, with that in mind:

- I've not tried to get any actual loan through any lender, I more or less took a stab at what it would be like to invest at a negotiated lower price so I could understand the impact of margin and what it looks like in the calculator. Moreover, what would you personally say is a more realistic margin for a negotiation on an REO?

- True, in your experience would you say that banks are eager to show? Do they show REO properties on request or do they only have set public showings? Does it vary from bank to bank?

- When I was attempting to estimate the rent I assumed that it would be the cumulative gross rent from each unit which makes me a bit confounded. I could be grossly misunderstanding this, but we're assuming that between all of the tenants on each floor that the total rent for that floor (unit?) would be the going rent rate (which I believe I understand you say is priced more realistically at $1200?)

- I truly believe I read something incorrectly on Trulia's section about property taxes when I was spitballing my data

- I am incredibly grateful for that range of insurance info! Who did you call? Any recommendations?

I know I asked a lot in the above but I am super curious and trying to sponge up all the information I can to more accurately project before investing. Thank you graciously for your time and if you'd at all be interested in meeting up sometime shoot me a direct message on here and we can go from there!

Account Closed · Answer

Hey Aaron I appreciate your feedback, to follow up:

1. Maybe so, it seems like you've got a fair bit of knowledge on that I would appreciate if you could explain why you believe that!

2. How do you figure? Granted I only guessed based on Trulia's estimate and I also likely misinterpreted the other information off the Worcester County website.

3. My numbers are incredibly rough and are cherrypicked from what I've heard discusses in podcasts hear at Biggerpockets, I've not gotten any hard numbers. Quite simply put I don't even know what I don't know!

Thanks for your participation, I look forward to your response!

Brian J Allen · Answer

Amen Phil!  lots of good info

[Calc Review] Spot the Errors?

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