All Forum Posts by: Rowdy B.

Hi @

Thanks for the advice and the brutally honest opinion of the property's location. It certainly helps to know these sorts of things that real estate agents don't tell you about!

As for the price, I'm pretty certain that you're right about my chances. I've been looking pretty much every day for the past six months, and have only found three properties that were similar to this one, and lost out on the other two because of this sort of a situation - an owner/occupier came in at retail price. If this one doesn't happen, I'll keep trying!

Wow - thanks so much for all the information!

, thanks for staying up so late to reply! I do appreciate the rough estimate of the rehab and for pointing out the extra costs involved with the sale. I have considered either renting it to someone who may be in a position in 2 years to purchase it, or doing some repairs now, move the tenant to another property in 2 years (hopefully I'll have another one by then), finish off the repairs and then sell it.

One other piece of information I should have put in my initial post is that I have to hold the property for at least 2 years due to laws around the retirement funds I'm purchasing the property with. So I'm thinking that I would hope to get 10% return per year, or 20% over two years. Sorry for not including that before!

Hi Michael -

Thanks for the response. What do you think would be a realistic figure in either dollars or percent?

I have a relative in Cheyenne and another in Sheridan (who was a contractor for many years) who are helping me get an idea of repair costs, which I round to the next highest $5000.

All the repairs which are needed are listed below.

I know Zillow and Trulia are not good sources - I only put them in to provide all the information I have.

Repairs:

• New shingles for roof. Current shingles do not meet standards needed to qualify for insurance.

• Doors and door frames

• Some windows

• Ceiling in basement

• Kitchen and bathroom floors (new tiles or laminate)

• LOTS of paint, indoor and outdoor

• All new kitchen appliances

• Some drywall repairs but nothing extensive

• Bathroom tile, shower, faucets, vanity

• All new light fixtures

• Some vent repairs and new vent covers.

• Possibly some new carpeting.

Hi Jon -

Thanks for the quick reply. What would you say (either in dollars or in percent) would be a realistic profit?

I have a relative there who will be managing the renovations and also the property once it's fixed up.

Rowdy

Hi all -

I've put in a cash offer on this property:

http://www.indexpost.com/property-for-sale/wyoming-cheyenne-82007-204-stanfield-ave/

for $75,000 using this formula:

Max Purchase Price = Sales Price - Other Costs - Profit - Repair Costs

MPP = $125,000 - $10,000 - $20,000 - $20,000 = $75000

All the details about the property are in this post:

http://www.biggerpockets.com/forums/88/topics/124943-advice-on-mpp-for-rental-flip-in-2-years

My buyers agent informed me that my offer was not the first one the bank was negotiating with, and after that negotiation failed, the bank has now come back to me and counteroffered at the current asking price of $104,900 (which they've just dropped $5,000 from $109,900).

I am questioning the resale price I am using in the formula, which was the lowest of these four:

• Selling agent's resale estimate: $135,000 - $140,000
• Buyers agent resale estimate: $130,000
• Zestimate: $125,000
• Trulia market value: $130,503

I am in Australia, and am relying on outside sources for information. If anyone could provide a guesstimate of the resale value, I'd certainly appreciate it.

I'm also wondering if my profit of $20,000 is unrealistic. I am calculating it as:

20% of (purchase price + repairs +other costs)

= 0.2 x ($75,000 + $20,000 + $10,000)

= 0.2 x $105,000

= $20,000 (rounded to the nearest $5000)

I've lost two other deals using this formula, and after that and looking every day for the past 6 months, I'm wondering if I need to reduce my profit goals in order to actually close a deal.

Many thanks in advance for any advice!

Rowdy

Hi Erik -

Thanks very much for the quick and detailed reply!

1) why does the basement ceiling need to be replaced? Water? Is the leak fixed?

A very good question, and one which I am in the process of finding out

2) If you are painting the exterior, does this mean the house is wood siding? Is this common for the area?

Yes, and yes

3) If the shingles are that bad, is the roof leaking?

The roof isn't leaking, but the shingles are the "T lock" style, which I understand make it either very hard or impossible to insure, so I'm planning on getting them replaced.

Do you delay some of the updates until you are ready to sell so that the items are new for the buyers not for the tenants?

The home is between downright ugly and uninhabitable at the moment, so for as much as I'd prefer to wait on the rehab, will be doing most of it before getting tenants.

Do you anticipate the market to be steady? Appreciate? Depreciate?

My crystal ball and all of the agents in the area say the market will remain steady. I'm not factoring in any growth or loss. I'm mostly interested in profit through buying right and rehabbing.

I'd strongly consider finding a tenant-buyer who wants to do a lease with an option to buy.

Thank you very much for the idea - I hadn't considered that option!

Your rental analysis doesn't include vacancy, repairs, management fees, insurance, or taxes. The monthly yield will likely be more in the $450-600 range. Thus, your 2-year profit would be about $32k. That's better than 15% annually!

Yes, you're correct - I only have been looking at the gross rent compared to the total purchase costs. I do appreciate knowing that monthly net rent will be about half or a bit more than the gross rent.

I hope this helps a little.

Thank you, Erik - it has helped me immensely!

Rowdy

Hi all -

I'd like some advice on the max purchase price (MPP) of my first investment property. Using the 70% method, I'm coming up with a MPP of $57,500, using another method previously posted on BP ( ), I'm coming up with $75,000.

If anyone has the time to wade through all the details below and provide some advice, I'd certainly appreciate it.

Thanks!

Rowdy

**********************************************************

Primary Goal: generating a 20% profit through reselling

Secondary Goal: achieving more than 10% annual return on total investment in rent.

Due to the requirements of the retirement fund I am using to purchase it, I can only purchase property using cash (cannot take out a loan), and have to hold it for at least two years so as not to be identified as "carrying on a business". I am in Australia at the moment, and all the information I can get is from the selling agent, my buyers agent, and a very reliable and helpful relative who visits properties and sends me photos. I've been looking for almost a year, and this is the best deal I've found so far.

Here's what I'm looking at:

• 4 bed 2 bath
• split level home (basement+ground level)
• carport (no garage)
• 1800 sq ft home
• 6000 sq ft fully fenced lot
• Selling agent's resale estimate: $135,000 - $140,000
• Buyers agent resale estimate: $130,000
• Zestimate: $125,000
• Selling agent's estimate of repairs $10,000 - $20,000
• Buyers agent's estimate of repairs $20,000
• Selling agent's Prop. mgr estimated rent $1000 - $1100/month
• Buyers agent estimated rent $1200 - $1400/month
• Zestimate rent: $900
• My guesstimate of other costs (closing + unknown): $10,000

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

Here are the figures I plan to use:

• Sale price: $125,000
• Total costs: $30,000 = $20,000(repairs) + $10,000(other)
• Rent: $900/month

===========================================

Max Purchase Price (MPP) using 70% rule: $57,500

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

MPP = Sales Price * 0.7 - Total Costs

MPP = ($125000*.7) - $30,000 = $87,500-$30,000 = $57,500

===========================================

Max Purchase Price using: Sales Price - Other Costs - Profit - Repair Costs: $75,000

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

Desired Profit: $20,000

MPP = $125,000 - $10,000 - $20,000 - $20,000 = $75000

===========================================

Rent Yield (MPP $57,500): 12.3%

Rent Yield = Annual Rent / (MPP $57,500 + Other Costs + Repair Costs)

Rent Yield = ($900*12) / ($57,500 + $10,000 + $20,000) = 12.3%

Rent Yield (MPP $75,000): 10.2%

Rent Yield = ($900*12) / ($75,000 + $10,000 + $20,000) = 10.2%

===========================================

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More details (from my relative):

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Repairs needed:

• New shingles for roof. Current shingles do not meet standards needed to qualify for insurance.

• Doors and door frames

• Some windows

• Ceiling in basement

• Kitchen and bathroom floors (new tiles or laminate)

• LOTS of paint, indoor and outdoor

• All new kitchen appliances

• Some drywall repairs but nothing extensive

• Bathroom tile, shower, faucets, vanity

• All new light fixtures

• Some vent repairs and new vent covers.

• Possibly some new carpeting.

Pros:

• Hardwood floors upstairs are in good condition

• Fairly new water heater and furnace

• Nice sized fenced in back yard

• Car port

• 2 full bathrooms

• Good sized master bedroom and bathroom downstairs

• Lots of storage, closets and cabinets in kitchen are in good shape.

• In a decent neighborhood on the outskirts of town.

• Structurally sound

• Basement is mostly finished