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All Forum Posts by: Bryce Sablotny

Bryce Sablotny has started 3 posts and replied 24 times.

Post: Help me analyze this deal

Bryce SablotnyPosted
  • Chatham, IL
  • Posts 24
  • Votes 10
Originally posted by @Erik W.:

@Bryce Sablotny, Missouri is a very good state to invest in real estate.  I consider our laws to be fairly balanced between land lords and tenants.  Our cash flow from even marginal deals almost always does better than break even.  While we don't see tremendous price runs up like the hot markets, neither do we get caught in crushing down turns.  It's a fairly balanced market overall, which works well for me as a long-term, buy-and-hold investor.  My philosophy is to use the 2% rule as a starting place to analyze the deal: the rent divided by 2% is the max I will pay "all in" (purchase, closing, rehab)  Example:  Rent $1000 / 2% = $50,000.  Makes for great cash flow, which I thoroughly enjoy.  Appreciation, loan pay down (i.e. amortization), and tax savings via depreciation are all gravy on the biscuit where I live.

 I heard the STL market has been a great investment area. I was told by the part owner and property manager, who has about 150 doors all around this specific property, that he paid around 150K for similar units. Rent $3000 / 2%= 150,000 so the math makes sense. We offered 157K originally but with all the rehab costs, hvac and lack of seller wanting to negotiate we walked. I will try to create a deal that matches the 2% rule. Hopefully I can find some biscuits and gravy like you have going on in Missouri.

Thank you for helping me along with this process.

Post: Help me analyze this deal

Bryce SablotnyPosted
  • Chatham, IL
  • Posts 24
  • Votes 10
Originally posted by @Erwin Flores:

I am new to BiggerPockets, but as a Credit Analyst I have the following thoughts: 

First, if this is a pro forma then you need at least the trailing-12. This will give you a better indication of income and expenses.

For this analysis, without the trailing-12, generally I would base the expenses at 50%. This will bring you a annual cash flow to $8,297. Since you are not purchasing the property with all-cash, I would base my ROI on the return on equity ($35,000). Base on that, the ROI would be 23.7%, which i think is high and you need to check the numbers (again the trailing-12). I believe that either you do not have the correct financial information or you are getting a really good deal. I would definitely ask the buyer for clarifications and more financial information. To me, some numbers are not adding up here!

 Hey Edwin,

Thank you for your response. I am unsure what "trailing-12" is. Would you be willing to message me and talk about how you came up with some of these figures? As well as your thought process behind them.

Post: Help me analyze this deal

Bryce SablotnyPosted
  • Chatham, IL
  • Posts 24
  • Votes 10
Originally posted by @Matthew Ladowicz:

Depends what market you are looking at.  Looks decent if in a strong primary market. If this is in a rural/tertiary market, I would look for better. 

 Matthew,  this is in Springfield, Illinois. I am looking for better deals. This property is certainly the ugliest girl on the block which caught my interest the first day it hit the market. I was the first to walk through this property and found the Hvac needed an overhaul. On top of the Hvac the average rehab costs were between 10-15K per unit. We walked from the deal. 

Post: Help me analyze this deal

Bryce SablotnyPosted
  • Chatham, IL
  • Posts 24
  • Votes 10
Originally posted by @Jeremy England:

Does that project cost exceed arv?  

Is that correct?  I probably wouldn’t buy it if so

The ARV was a guestimate from my realtor and partner. I will have to learn how to accurately figure ARV. Any suggestions?

Post: Help me analyze this deal

Bryce SablotnyPosted
  • Chatham, IL
  • Posts 24
  • Votes 10
Originally posted by @Erik W.:

10-12% cash on cash return?  Why not just invest in the stock market via an low expense S&P 500 Index Fund, which since inception has a CAGR of 9.5% and includes  no hassles, no tenants, and no toilets.  I need at least 20% cash on cash without including income from self-management, or I'm not interested. 
.
A market that has a declining population will put added downward pressure on values.  The last thing you want is to end up owning a ho-hum investment that you overpaid for today, and 5 years from now it's worth 20-30% less.  You may want to look outside your state for better opportunities.

 Can you send over your politicians? haha I'm fully invested in the stock market and diversified to try to combat volatility. This Bull can only rock for so long. I am looking to be situated right where I want to be in real estate investing. My hope is that Illinois will turn it around but I won't plan on it. I am unsure about having an investment in a place that I live hundreds of miles away from especially with my current lack of experience.  I want to know and trust the company who would be managing the out of state property. I believe that will happen over time when I am able to find the right deal and network with the right people. I do not want to be taken advantage of so I will learn everything I can about being a great buy and hold investor.  I am being patient with finding the right deal. In the meantime, I will look for more private money to try to increase the size of the properties I can buy. Home run deals only and everybody has their own interpretation of a home run deal. With my experience I am sure it will be less than some investors.  Thank you for encouraging me to increase my cash on cash return. I think this type of deal will be created and not found. 

Post: Help me analyze this deal

Bryce SablotnyPosted
  • Chatham, IL
  • Posts 24
  • Votes 10
Originally posted by @Charles Dobens:

Bryce:

The advice people here are giving you are spot on. Let me just add my two cents on one issue. ALWAYS ALWAYS ALWAYS include the property management expense in your calculations even if you plan on self managing. Here's what happens: Let's assume a 10 cap and the property management fee is $10K per year. The self-managing seller says to himself, hey, I will not pay myself a property management fee and thereby increase the NOI by $10,000. That will increase the value of my property by $100,000. The next year when he comes along, a California investor looks at the numbers, buys the hogwash of self-management and overpays for the property by $100K. WOuld you for go $10,000 of income today if you knew it meant you were getting $100,000 next year? ANd that, is the power of the cap rate.

Good luck.

Charles,

I will include the property management in my figures from here on out. I wanted to clear up the correct figures to use for the variable expenses. I realize this deal is not one I want to pursue. I am getting my processes in place to be more efficient. A ton of networking and never ending research. Thank you for your insight. 

Post: Help me analyze this deal

Bryce SablotnyPosted
  • Chatham, IL
  • Posts 24
  • Votes 10
Originally posted by @Redgy Saint-Germain:

@Bryce Sablotny

Why is your project cost 17k higher than your ARV? We are all in real estate to make money I dont think its a good idea to go into a deal knowing you will lose money.

I will certainly need to figure out how to accurately determine the ARV. I was as accurate as possible with my rehab costs. The ARV was a number that we (the realtor and my partner) thought would be top dollar. Do you have an article or advice on how to accurately figure the ARV?

Post: Help me analyze this deal

Bryce SablotnyPosted
  • Chatham, IL
  • Posts 24
  • Votes 10
Originally posted by @George Skidis:

There is an old tried and true formula that the wiz kids and their calculators never seem to choose. "Five Times Rents" lets you know the top dollar value of a "RENTAL" property at this time.

If gross rents are $2,000.00 a month then annual rent is $24,000 a year. 5 x 24,000 = $120,000 as the top value anyone should pay. This is a rental property fast look.  Then figure out if the operating expenses are more than the revenues. Ask the seller for their annual operating expenses.

 Fantastic quick tip. I will try this on the next property I analyze. Thank you so much George. 

Post: Help me analyze this deal

Bryce SablotnyPosted
  • Chatham, IL
  • Posts 24
  • Votes 10
Originally posted by @Van Blackman:

@Bryce Sablotny

Good morning, sir! Hope you're well.

It say's the total cost of the project (price + closing costs + repairs) is $237,500 and your after rehab value is $220,000.

I definitely wouldn't recommend starting off with negative equity in your project.

You'll want to buy homes in the 105-115k range (or lower of course) for a deal like this one, if you can.

If it needs that kind of work, the deals you're looking for are out there. You may need to search a little harder for a little longer, but they're "find-able". We're buying homes all over Chicagoland right now. Trust me, they're there!

I'm not sure this is the best deal for you, or anyone, sir.

Just my two cents.

Hope this helps!!

 Van, thank you for your insight. We analyzed this property and made a low offer so we could get in negotiations. We gained access to all 4 units and found the Hvac system needed to be redone. The system in use had pvc pipes coming from the attic to provide air for each room... That was a first for me. Some units had cat piss and smoke smell in them so the floors and possibly sub floors needed to be done. The kitchen cabinets had not been replaced (but were painted white) since it was built.  All new paint throughout. I will continue my search and try to create a deal. My goal with asking for help to analyze these numbers was to fully understand how much and why to use the percentages for variable expenses (vacancy, cap ex, repairs, management). I know now that accounting for management is a must. All of these responses have been super helpful.  

I want to understand the BRRRR strategy more so I will do some research. When the best time to use BRRRR. For what properties and situations it is most useful.

I'm glad you and your team are killin it up there in Chicagoland. Thank you so much again for your insight.

@JohnLeavelle 

"Just remember, except for PM, the others I’ve listed are reserves. You only use them when they are needed. That doesn’t mean you spend them on something else. Keep building the reserves. You will need it for future loans. Lenders like you having good reserves."

This is the part that I have in the back of my mind. I know the variable expense money is being saved for a reserve. By doing it this way it drops the cash on cash return (below 10-12%) because it is increasing the expenses. In turn your monthly cash flow is lowered as well. It's appearing to be a worse off deal than it may truly be and I am proceed to move on from the property because the numbers don't appear to be in the right range. Am I thinking about this wrong or is this just how it is supposed to be?