All Forum Posts by: Tracey B.

Originally posted by Jon Klaus:

Is this on a street that starts with F? If so, look real hard at crime rates.

No. :) I've looked quite extensively at crime rates; even though it's not the property you mention, crime is my primary concern. I've been fortunate to speak to a lady with young children who's lived in a house across the street for more than a decade, and the neighbourhood patrol officer. I'm confident the crime is primarily petty "crimes of opportunity" and have some strategies for reducing that. The local PD has awesome support programs for multi-family landlords which I'm sure will also be helpful. :)

Thank you all for your feedback. The appraiser's as-is figure has come in about where I expected (well over $1M), and I'm waiting on the ARV figure. I've done a bit more probing and now feel confident that my forecasts of operating expenses are realistic.

As several of you have suggested, finance is proving difficult. The lender who at first said they thought they could finance it, changed their mind :(, but have referred me to another lender who thinks he "may" be able to finance it.

I'm not optimistic on finance, but I'm also not giving up as I've ploughed a lot of time and a bit of money into this, and it's a deal I really want to do, and a property that I feel confident that I can turn around.

I don't want to answer all the questions in public, but rest assured that all the issues raised (location, reasons for low occupancy, condition of interior of units, possible high-value improvements, etc) have been considered.

Thanks again! :)

Thanks, Will, I totally agree and that's exactly how I'm approaching the process of determining my bid.

The rent of $460 per unit is about 10% below area comps. Every figure I've researched has an upside on what the realtor is claiming!

Asking price is < $10K per door, so < $800K. Taxable value > $1M. Current mortgage >$1.5M.

Given how much equity is being left in the deal, I have found several lenders who have indicated they will lend, provided the appraisal comes in OK. (It's underway; I'm quietly confident.)

The multi-family is in Texas and yes, it's a turnaround opportunity. I would plan to relocate and don't really want to rehash all the pros and cons of that particular issue here, other than to say I'm aware of many challenges. ;) I'd like to focus on expenses for now, please. :)

The expenses are proforma. They're a mix of actual expenses from the past and present, spread over the 80 units, because the lender has taken over and has evicted a bunch of tenants, but not brought in any new ones, so occupancy is very low, about 20 units. I'm quite sure the expenses won't pan out this bad because when I probed the realtor as to how he calculated the proforma expenses, he did stuff like this:

Utility expenses, for example. He used year-end P&L from a previous year, when the property was operating properly (ie at 90%-ish occupancy). But then he did something bizarre... he divided it by the 20 units currently occupied to come up with a figure per unit per month! So it's overstated by a factor of nearly 4, which tallies with my commonsense that water supply only (not heating; that's individual) for a 1/2BR unit shouldn't be $57 per month.

So given this piece of mathematics, I'm pretty confident I can get the expenses lower than stated. I guess I'm not so much asking whether the stated figures are what expenses are currently being incurred, but asking whether my adjusted figures sound realistic and achievable after my intensive "intervention".

I'm doing some due diligence on a multi-family, and the proforma expenses are running at 71%. :wowie: I'm pretty sure the expenses are overstated, and I have my own ideas about where they're too high, but I'd appreciate the benefit of fellow investors' experience, please. :cool:

HVAC and electricity are individually metered, and there's no gas, so water is the only utility borne by the landlord.

Here are the figures they've given, per unit per month, and where I think they're overly high:

I think they may still even be a little high, but I'd rather be too conservative at this stage in my due diligence than not allow enough; I still want my figures to be believable to a lender.

Your thoughts, please? Thanks! :)

I am an Aussie seeking to invest in MFR, and have been learning about and searching the US market for approximately a year. I've found an approx 90-door MFR complex that I want to purchase, and even had my offer - expressed as a letter of intent - "agreed in principle", and both the seller and I are happy with the terms. This wasn't just "one of many offers", casually accepted - I've inspected the property several times, met the vendor a couple of times and had lengthy discussions with him, etc. We have started exchanging unsigned contracts in order to finalise the deal.

Just when I got to the nitty-gritty of signing the contract and embarking on thorough due diligence, finance (some work already done, but no formal application), inspections, etc, my agent has had a family emergency and had to withdraw as my representative, as he feels that he can't adequately represent me at this crucial stage. :cry: This leaves me a bit "high and dry", but I'm also disappointed for him that he's done so much work, thus far for no return. (He's not bothered about this, but I want to do the right thing on his behalf. He usually does SFR and I suspect the commission on this deal would be very significant to him.)

If this property were in Australia, I'd simply proceed unrepresented, but as this is my first US transaction, and I've not previously closed a property in the US, I don't feel confident to do that in this instance.

The listing agent has offered:

1) I can get a new agent, and he'll split his commission with my two agents, in accordance with their level of work. eg if he gets 6%, maybe 3% for my side, in the form of 1.5% to my original agent as a referral fee, and 1.5% to my new agent, or something like that. My reservation is that I don't know that I have time to start interviewing new agents and building a rapport; I need to close this deal ASAP. (Vendor's situation is time-critical for various reasons.)

2) I can proceed with the listing agent acting as an "intermediary", which I understand is a representative of both parties, and he'd pay my procuring agent a referral fee of 1.5%. If the listing agent continues as an "intermediary", does he have a fiduciary duty to me as well as to the seller? (This is in Texas.) How are any potential conflicts of interest gotten around? eg What if the agent knows there's a major structural problem with the property that I haven't discovered; disclosing it prejudices the seller's position, concealing it prejudices mine?

Having met the vendor and the listing agent several times and had lengthy discussions with them - even to the extent of the vendor and I considering a joint venture - I do feel that I trust them both. So my reservation is not about whether the listing agent would do a good job, or is trustworthy. The listing agent is, in fact, very experienced and my agent had expressed a wish to be mentored by him, so I'm comfortable that he knows his stuff. I simply don't want to put him in what I'd consider an impossible situation, with divided loyalties, which could end up harming all parties.

We have no comparable arrangement in Australia. I'd love to tap into the biggerpockets community's expertise and hear about the pros and cons of "intermediaries".

Sounds like the idiocy is working in your favour, Mike! :cool: I wouldn't be hoping for them to get smarter anytime soon, if I were you.

Thanks, Jon and Jason, it's so interesting. It sounds to me like this "split market" that you have, which we don't, is a consequence primarily of the following two factors:

1) Americans obviously have a greater reluctance to rehab than we have in Australia.

"Renovator's delights" (as agents optimistically call them) generally are only discounted by the cost of necessary repairs, or slightly more. So in the example I gave, the property would usually sell for at least $85K; most would see it as an opportunity to spec the property to their taste, and wouldn't be put off. Or an opportunity to DIY and save a bundle. Renovating is practically a national pastime here. :D The main way "flippers" make any profit in Australia is that they get $10K off, where $10K is the cost for contractors to do the work, then do the work themselves for $2K in materials plus some of their time, and sell for $100K. (Which means they're not profiting from the investment; they're being paid $8K to work as an unlicenced contractor. :roll:) No wonder "flipping" is so much more popular in the USA, when you can get such hefty discounts because people don't want to do any rehab work. :cool:

2) The credit environment.

I think that it's much harder for lenders to foreclose here in Australia, due to our stronger consumer protection laws. (ie less lender-friendly) So homeowners aren't as terrified that they have to sell "now"; they know there are lots of chances, warnings, and time before they'll lose the home. It can take well over a year from the first missed payment to the house being sold, and if you catch up payments during that time, it can drag things out even longer. We also don't have a credit score system; we simply have credit reports, which only list significant credit issues such as defaults and judgements, and who's approved you for credit. But bounced checks and missed payments aren't "significant enough" to make it onto the report. Because the consequences of skipping a payment are pretty negligible (except for your reputation with that particular institution, who'll be the only ones who know about it), there's not as much fear of the potential impact of missing some payments. Nobody feels that overwhelming need to sell in a hurry for financial reasons.

Thanks for your help thinking this through... I appreciate your willingness to share your thoughts and experiences.

Originally posted by Jon Holdman:

Really, in many cases, the crux of the matter is the seller has a problem them want to unload. They need to sell for whatever reason, and a MLS/retail transaction doesn't work.

Thanks, Jon, for taking the time to reply. All that you said makes sense.

But what I'm still not grasping is why there's such a large price differential between a retail sale and a quick sale, and why the market doesn't work to close this gap. Yes, the techniques and regulations are different, but market forces are universal, and I'm not understanding the "quirk" that sees the market put such a huge differential in the US market, which doesn't exist here in Australia.

I get the impression that a retail sale of $100K for a house, translates to a wholesale sale at around $60K in the USA. Yet I don't see a $40K value in being able to close quickly, particularly when there seem to be a large number of potential buyers competing to buy the property. (A scarcity of buyers who can close quickly would drive price down, but no such scarcity seems to exist.)

If there's just an "unspoken agreement" amongst investors (de facto price-fixing) that nobody will offer more than $60K for such a house, then wouldn't somebody who isn't looking primarily for a profit (such as a homeowner seeking to minimise the cost of buying their own home) wake up to this, and try and muscle in and buy the same house for $80K? They would consider a $20K discount on a consumable as a fantastic option, wouldn't they?

What am I (still) missing about the operation of market forces?

Bear with me; I'm just an Aussie trying to get a handle on some quirks of the US property market, which is much more complex than our property market in Australia, with many more techniques. Aussie investors tend to buy property and hold for either appreciation (the primary motive for buying in Australia, as our yields are much lower but capital growth stronger), or for cashflow in retirement (almost nothing cashflows on purchase here; but over time with rents increasing and mortgage interest being stable, it will). And of course some people develop property (new construction, splitting titles, condo conversion, etc), or rehab and flip. But by far the most common strategy is to buy and hold for the long term (ie into retirement).

Wraps aren't legal here. Lease options are done to a very, very limited extent. "Subject to" isn't possible within our financial regulations. Vendor finance (seller carryback) is done to a limited extent for commercial properties owned by institutions, but almost never for residential property. Foreclosure rates are very low, and for those properties that are foreclosed, they tend to sell at market value anyway. Wholesaling doesn't exist to any significant extent (I've not heard of it at all). We don't have "bird dogs". So our property investing environment is much simpler. ; )

I've read about people using "bandit signs" and "yellow letters", and people putting in great effort to implement these marketing techniques to find buyers, and I understand that the goal is to buy property for under market value. But I'm genuinely not understanding which market imperfection is allowing this to happen.

If somebody is in financial difficulty, why don't they just sell their home on the open market, which by definition will give them the market value? If so many investors are competing to buy pre-foreclosures, then why don't the current owners simply get all the people who send them these yellow letters to bid against each other? And in this case, doesn't the purchase price end up being pretty darn close to market anyway?

If a fellow biggerpockets member can tell me what piece of this puzzle that I'm missing, I'd really appreciate being enlightened. Thanks!