All Forum Posts by: Chris A

Caitlin, at this point we are all speculating. The DPA idea creaps me out a little and I am definitely in MikeOH's camp that it borders on fraud. The question is whether it actually crosses into fraud or just walks the gray line. I suppose if you were honest with your lender about the whole scenario and let them decide then you could be totally above board. Please let us know what you learn as you move forward with it. My personal prediction is that your appraisal will not come in high enough to make the deal work but that's just me.

I have several properties near the University of Wyoming. The key to them even more than other properties is LOCATION! I won't typically buy farther than 4 blocks from campus unless it's a killer deal. I've found my expenses to be 35% but I recognize that might be low compared to the national scene. Year leases are absolutely required also. Good luck.

IF you can rent even half of those units (and I do mean IF) then it's the best deal I've ever seen. The trick is going to be financing that with such low incomes. My commercial appraisals are almost entirely based on income and the income history for your property sucks. It's a gamble but if you have deep enough pockets then it's a potential grand slam.

Caitlin,
I see two primary risks with your deal. First, your entire deal hinges on the property appraising for 3.35M and with the current vacancies your appraisal will likely suffer. Commercial property values are largely driven by cashflow so if your property isn't fully rented then your appraisal will be lowered by a relative amount. Second, you are also banking on being able to do a cash-out refi in 12 months. That sounds risky to me unless you have a lender willing to bend some rules for you. I am not an expert on these things but my lenders are nervous and not sticking their necks out.

If you can be sure to deal with those two uncertainties then I like the deal. You should have significant upside in terms of property values (by optimizing rents) and paying down principal. But make no mistake, it's definitely risky.

Rich,
The problem I see with ignoring positive cashflow as a requirement in a deal is that you get to the point I am where you run out of working capital to finance anything else. I have several properties but am fully leveraged 80% LTV and am stuck. I can see other decent apartment building opportunities but simply can't come up with the downpayments anymore. Exploring the hard-money options looks like it would destroy the profitability of the ventures and make them significantly cashflow negative. Suggestions?

Chris A.

By definition, every commercial investor was a newbie once.

Thanks!

The 12-unit has been great for us simply because this is the first property that we are having somebody else manage. I'm typically a DIYer and have a tendency to over-commit myself. We purchased in a very low-risk location that will always resell quickly if we ever needed to. The plan, however, is to hold it for 30+ years and use it as a retirement plan. The drawback is that it was big enough to tap all of my working capital and now I am staring at a very attractive market with empty pockets. still the cash-flow is awesome and the risk is far lower due to the size. I recommend it.

Hope all goes well with you and I'd be happy to provide any insights on going through the process as a first-timer.

Chris

Honestly would any of you toss this deal away for a $2500 water bill? I wouldn't. It's a smokin' deal and while you should definitely try to get the bank to pay the back water bill, don't let it stop you if they don't. This is not a dealbreaker regardless with those numbers.

I agree with the others that the description you gave does not explain your goals well.

Regardless, you need to better analyze the numbers before you jump into it. Be sure to include costs for insurance, carrying costs while you are renovating, and more detailed reno costs. At the offering price this house seems too risky for the limited return. So you need to focus on how to justify a lower price. This goes back to the numbers. Calculate all of your costs, price in the value of your diy time, realtor costs, and then add in expected profit to find the highest amount you can pay for the house. Jon's back of the napkin numbers look pretty reasonable to me but they might just serve as a starting point for your offer. I'd be willing to go a tiny bit above those myself.

The places I've looked at in Wyoming have been in the 7.5-10 range. While that may seem awesome compared to what I have heard about in the rest of the country they still carry significant vacancy % and rental income risk. Unfortunately my pockets aren't always deep enough to come up with the 20% down. Still this should give you another perspective. As with anything cap rate related, whether it cash flows or not depends entirely on how much a person puts into the down pmt.