All Forum Posts by: Andrew Banker

Question for you very experienced BP members:

I've had a potential deal come across my plate, and it's a little outside of my usual multi-family strategy -- total of 9 MF units and another 9 MF units under contract waiting to close.  An owner has a portfolio of twelve duplexes that he'd like to be rid of en total.  Bought them as a way to have a side business for camaraderie with his son.  Fast forward...son moves away...owner has a heart attack.  Now, he just wants to be done with them and is willing to walk away from whatever equity he has in the properties for someone to assume the debt.  Properties were bought at the height of the market, so despite initially putting 20% down, I'm not sure how much of that exists at current market values.  Initial reported cash flows look good, but I have yet to do a full analysis.  It sounds too good to be true, so I have to think I'm missing something.  I would be looking at it from a buy and hold perspective, but would like liquidation to be a reasonable exit strategy if needed.  Some things that I know I need to determine:

--What the terms of the current financing are, and how long before refinance is due?

--Is there a prepayment penalty (or penalty for refinancing with another lender)?  In the event that I want  (or need) to liquidate any properties...

--Can I assume the properties while resetting the cost basis to the financed cost?  If the cost basis didn't reset with the transaction, it seems that it would limit the profitability of selling anything if needed.

--Consideration of taxes due for 2016 (and make sure that there are no tax liens on the properties) -- how much will be owed and will there be compensation for this at the transition point?

After a closer look at the properties' income/expenses, if it looks like the numbers work, I'll definitely consult a real estate / tax attorney and an accountant to make sure I'm not missing anything, but I'd like to know if anyone sees anything that I might be missing?  Appreciate any and all feedback.

I should be able to be at this one as well.  Been out of town for the last couple of them.

Michael, I'm not going to be able to make this one, but I'll try to catch y'all again in December.  Thanks for the reminder.

@Michael Faulk, thanks for reminding me about the meeting.  The three duplexes that I mentioned are in the Milwaukee area.  I can't find anything locally where the numbers look anywhere near as good.  I'd love to discuss my evaluation metrics to see what you think about them.  I'll do my best to make the meeting!

Based on what you see in that first post -- any thoughts?

@Tony Velez, thanks for the thumbs up.  I went through my calculations again and again.  Felt like I've left myself room that if they don't end up being as great as I expect, that I can't get hurt too badly on them.

@Andrew Meyer, thanks for your thoughts. Two 2/1 units, 1922 total square feet. So it appears that I meet your metric. I could sustain all three of the duplexes that I have accepted contracts on, even if they went totally vacant permanently. At some point, I won't be able to say that for my entire portfolio, but at this point, negative cash flow is not a concern for me. In my total ROI number, I add the principal pay down back in, which helps me get a figure closer to what the COC would look like on a 30-year amortization. Being that we're working out of an LLC, I have to go commercial for the lending. Being that the rates are only fixed for 5 years (and rates are going to go up at some point), I don't want to keep cash flow at the expense of reducing the debt to some degree.

It seems to me that debt pay down and taking cashflow roughly balance each other out in total return.  For people that might not have the same ability to continue to bring capital to the table, the cash flow method would be much more beneficial.  For me, shooting for everything being free and clear in 15, while continuing to buy with my non-RE income stream, seems to be a better plan.  In my inexperience, am I missing anything on that front?

Thanks for your thoughts!

That made me laugh @Richard C.!

Thanks, @Steve Vaughan.  I've read a ton of your posts over the last three months, so I appreciate your feedback on the numbers.  Builds the confidence!  Thank you!

I first came to BP about 3 months ago and have become an ADDICT. Forums, blogs, podcasts...I can't get enough! My wife calls BP my "other" wife.

I have three duplexes under contract that I'm very excited about. The first one just got inspected and I'm waiting on an appraisal. I was hoping to get some perspective from the more seasoned guys on my deal. I'm buying in an LLC since I have a partner. The property was remodeled down to the studs 9 years ago. Inspector said it's one of the nicest duplexes that he's inspected in the last several years. A couple little things that we'll need to fix, but nothing that we're even going to ask for from the sellers.

I'm 35, with a solid income stream, so I'm using 15-year amortizations on all the properties. I can keep adding in my own cash flow to continue buying, and I want the properties to be paid off when I'm 50-55.

Here's the nuts and bolts:

Purchase Price -- $144K (Sellers paying closing)

10% Down Payment -- $14.5K (4.5% 5-year fixed, 15-year amortization)

Rent -- $1650/mo. (both units currently rented by very nice people who live very close to work and really like the place)

Mortgage -- ($991/mo.)

5% Vacancy -- ($80/mo.)

Actual Property Taxes -- ($240/mo.)

Actual Landlord Insurance -- ($60/mo.)

4% Property Management -- ($66/mo.) (Actual %, friend is a realtor/manager, gives me a great rate on properties I buy through him if they're in a good area)

10% Maintenance/Repairs -- ($165/mo.)

NOI -- $12.4K

Cash Flow -- ~$40/mo.

COC -- 3.5%

Cap Rate -- 8.6%

Total ROI (Including Principal Paydown) -- 45% in first year (goes up in subsequent years with additional principal pay down)

I think I did well for a first buy. Agree/disagree? Only thing I think I may not be adequately budgeting for is maintenance/repairs? Would love some feedback from some experienced investors! Thank you!

This is in a nice suburb.  No major capital expenditures likely in the next 5 years.  Roof has 15 years left on it, and only one layer.  Based on 100 properties that I've looked at, very little in the area comes close to this one as far as the structure quality, location, and analysis goes.  Initially, I was planning on taking lesser return numbers to be in nicer areas with better tenants.  Give myself a chance to get my feet wet and get some experience behind me before going for more lucrative deals.  I FEEL like I got a way better deal than I was expecting, but having no experience, I'd like some confirmation from some more experienced guys.

What made you pass?

I first came to BP about 3 months ago and have become an ADDICT.  Forums, blogs, podcasts...I can't get enough!  My wife calls BP my "other" wife.

I have three duplexes under contract that I'm very excited about. The first one just got inspected and I'm waiting on an appraisal. I was hoping to get some perspective from the more seasoned guys on my deal. I'm buying in an LLC since I have a partner. The property was remodeled down to the studs 9 years ago. Inspector said it's one of the nicest duplexes that he's inspected in the last several years. A couple little things that we'll need to fix, but nothing that we're even going to ask for from the sellers.

I'm 35, with a solid income stream, so I'm using 15-year amortizations on all the properties.  I can keep adding in my own cash flow to continue buying, and I want the properties to be paid off when I'm 50-55.

Here's the nuts and bolts:

Purchase Price -- $144K (Sellers paying closing)

10% Down Payment -- $14.5K (4.5% 5-year fixed, 15-year amortization)

Rent -- $1650/mo. (both units currently rented by very nice people who live very close to work and really like the place)

Mortgage -- ($991/mo.)

5% Vacancy -- ($80/mo.)

Actual Property Taxes -- ($240/mo.)

Actual Landlord Insurance -- ($60/mo.)

4% Property Management -- ($66/mo.)  (Actual %, friend is a realtor/manager, gives me a great rate on properties I buy through him if they're in a good area)

10% Maintenance/Repairs -- ($165/mo.)

NOI -- $12.4K

Cash Flow -- ~$40/mo.

COC -- 3.5%

Cap Rate -- 8.6%

Total ROI (Including Principal Paydown) -- 45% in first year (goes up in subsequent years with additional principal pay down)

I think I did well for a first buy.  Agree/disagree?  Only thing I think I may not be adequately budgeting for is maintenance/repairs?  Would love some feedback from some experienced investors!  Thank you!