All Forum Posts by: Cole Swartz

You say this is an "off-MLS" deal. Did you get this lead via direct mail or what? The purpose of getting off-market leads is to find better deals than you would normally via the MLS. And to do so, you try and target motivated seller whether those be owner-occupants or landlords. Owner occupant can be everything ranging from probate, absentee, back taxes while landlords can be target based on recent evictions, getting too old to manage properties themselves, etc.

These numbers definitely do not support this being a motivated individual. Why does this landlord want to sell these units? If they are not sufficiently motivated, you need not bother anymore.

And as Chris said, you are barely above 1% on Rent to Value, your Cash on Cash is around 2%, and your DCR isn't even above 1.20. Here in the midwest, you need to shoot for higher rent to value ratios than you would on the coasts and they are certainly attainable.

So to answer your question, no this is not a "deal" with the numbers you presented. However, there are better ones out there, you just need to keep looking. If you are looking off-market, figure out ways you can target motivated individuals in your desired investing area. There are more than enough suggestions here on BP of how to do sp. Kudos to you for taking the first step as that is often the most difficult. Don't manipulate your own numbers to make a deal work but rather manipulate the deal to meet your own requirements. If you can't do that, then you need to move on.

Tired unsophisticated landlord who wants out on all 9 of current units (4 duplexes and 1 SFH). Properties were acquired in early 2000s on 30 year fixed mortgages. The seller is losing money on roughly half of the units and wants to get rid of them all. This alone is an impressive accomplishment as these units should be cash kings. Landlord manages own properties and has no clue what they are doing. Rents are all substantially below market ($125+ per unit) and that doesn't include that tenants are not charged utilities as is custom in this market. So in actuality, rents are even further below market. Thus, all current tenants have been there a while (I don't blame them, rent is so cheap). $175,000 is left on them as they were originally bought well above market price. Combined market value for the properties is around $190,000. She wants what she owes on them and that is extremely doable.

Monthly Debt Service: $1500

Current Monthly Rental Income: $4,700

Market Monthly Rental Income: $5,325

I normally work with landlords who have free and clear properties so this is new territory. My question is whether I proceed with a subject-to or a master lease?

I would prefer to do subject-to, but my lack of exits worries me. If the loan doesn't get called due, I am golden but obviously not wise to ignore Murphy's law here. If loan is called due, then I do not have sufficient capital to cover the difference nor can I refinance due to my current lack of income as a college student. I have around $30K in liquid capital currently and based on how high above market these properties were originally acquired, I am getting very little initial equity by acquiring these units for what is owed. That isn't anywhere close to sufficient.

With regards to a Master lease, it seems that most master lease are done with the intent to sell the property. Properties are acquired, value is increased by bumping rental income and decreasing expenses, and then sold. The goal here is long term passive income and I would obviously refinance in 5 years or so down the road. My concern is obviously having enough equity by then to refinance without having to bring any money out of pocket. And I don't want to do a lease of longer than 5 years if I don't have to.

I'm curious which route folks here would recommend and why?

What are "EP" and "OP" abbreviations for? 

@Brent Coombs What if such a deal were to be funded with Private Money, which in this case would be the $32K (Acquisition + Rehab Costs). Then, after 6 months when the home equity loan is used at the 75% LTV, the private lender would be paid back his/her original $32K, plus whatever the agreed upon return would be, out of this $52,500. The remaining funds would be left to me in addition to the title of the house.

So I imagine I could calculate my individual return and then calculate the Private Money Lender's return separately?

So my return would be my CFBT (rents)/Cash Invested (which would be Zero) + the returns I got on whatever I invest my share of what remains of the Home Equity Loan (which would be the $52,500 - Whatever Cut Private Lender Gets), correct? Obviously one can't divide by zero.

How would I calculate the Private Money Lender's return then? If I were to approach Private Money about a similar deal, I am curious as to how I would present the CoCR and ROI numbers?

I have a question based around this topic of calculating ROI and CoCR of a property that is purchased All-cash, and then an equity loan is taken out at 75% LTV after 6 months. In particular, I am a little confused about how the equity gained and then extracted in the form of a home equity loan would factor into the Total Annual ROI and the CoCR in this case. The hypothetical scenario would be based around the following property:

123 Cashflow Lane

Purchase Price: $22,000

Closing Costs: $0

Holding Costs: $0

Rehab Costs: $10,000

Annual GSI: $11,000

Annual Cashflow: $7,500

Annual Expenses: $3,500

ARV/After-Rehab Appraised Value: $70,000

As stated above, after 6 months you take out a home equity loan of 75% LTV of the new appraised ARV, which in this case comes out to $52,500. Since this is then cash that you can spend as the above poster points out, would it then be included in the CoCR?

I know CoCR = CFBT / Cash Invested, I'm just confused what can be counted towards CFBT in this case?

And then what would be the Annualized Total Return?

Any help would be greatly appreciated. If the property was merely flipped and sold after the 6 months, I wouldn't have a problem with the above metrics but the addition of a home equity loan into the equation is confusing me. Maybe I'm overthinking it.

You sure the cap rate is 9%?

Using the numbers given to generate your NOI and using a cap rate of 9 percent, the vale of the property is only around $186,000.

Value = NOI / Cap Rate

Thus, if Value of the home is truly at $250,000 and your NOI is correct, your cap rate is going to be around 6.7 percent.

Market Value = NOI / Cap Rate

It appears you already know the Cap Rate, so just figure out the NOI and plug in to figure out the value.

 I agree, from running the numbers given it does not seem to be a good deal to even house hack, and especially not as a stand alone rental. If bought for 275K and using given expenses, came out with a Purchase Cap Rate of around 4 percent and a negative cashflow.

Curious as to whether the OP ended up pursuing this deal or not?

Curious to your estimated ARV?

When calculating the GRM, why does the BP Rental Property Calculator use the Purchase Price as opposed to the ARV? As it currently stands, it uses the after-rehab rent values for the GSI in the denominator, but uses the before-rehab value of the home (purchase price) in the numerator? If you are going to use the after-rehab rent values, should you not also use the ARV for the value of the home? Not too big of a deal, but just curious.