All Forum Posts by: Daniel Miller

@Duncan Taylor

Hahahaha, yes I do have $0 Cash Flow going into the property. I use Cap Rate and Cash on Cash Return predominantly to compare multi-family properties. In this "unique" scenario I wanted to try and gauge what my annual return would be, irregardless of sweat equity.

My post was already long...I could have provided all the pertinent financial information but it would have been a novel.

Good point about "not eating equity". I have never heard it put that way. It makes a lot of sense.

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A few more points about the properties. Property A is in an area I believe will appreciate at a much quicker rate (rents) than Property B. Also, Property A is 1 mile from my home while Property B is 15 miles from my home. These thought processes have gone into my decision making process as well.

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@Steven Hamilton II

Yes Sir, been verified.

I have a $150,000 equity line that I can borrow from. I have two properties that I am currently looking at. Property A is a 13 unit apartment complex and Property B is a 5 unit apartment complex.

Property A is for sale for $560,000. It has a $49,547.13 NOI equating to an 8.85 cap rate. The owner would hold the remaining note.

Property B is for sale for $150,000. It has an NOI of $16,593. Its cap rate is 11.06%. I would pay cash (from the equity line) for this property.

If we strictly looked at Cap Rate and COC return, property B would win hands down. But, if I am looking for a long term investment property A would probably win. Here is why;

(I am going to self-manage, like many people on BP Forums and will thus be counting the management fee towards my "Total Equitable Profit" annually.)

Property A Analysis:

CBT - $2995.08

Mgmt Fee - $5384.87

Principal Reduction - $15444.37

TOTAL EQUITABLE PROFIT YEAR 1 - $23824.32

Property B Analysis:

CBT - $5373.08

Mgmt Fee - $2332.00

Principal Reduction - $4016

TOTAL EQUITABLE PROFIT YEAR 1 - $11721.09

Property A affords me the ability to completely leverage the $150,000 I have to spend AND doubles the equity/cash flow I create annually compared to property B. I understand that this is not perfect (and the fact that purchasing a property at a lower cap rate compared to a higher cap rate property means that the purchasor paid a higher price for a similar investment and thus has a higher principal balance compared to the other investment) and that leaving Cash Flow on the table to take a lower cash flowing property is not typical. BUT, I see a lot of merit in evaluating the deal this way. Opinons?

Analysis Assumptions:

5.66% Equity Line borrowing Rate

20 year loans

10% Vacancy Loss

6% Mgmt Fee

Ok, its been a month but here is the update.

We have gutted two of the bedrooms and the bathroom. The bathroom was previously approximately 30-40 square feet. Very small.

A wall separated the bathroom from a 140 square foot laundry room. We tore down the wall and now have a 175 square foot washroom/bathroom that previously did not have a bath tub.

We decided that we could get $900 a month (I am a licensed commercial multi-family specialist. I did my research for the area) if we framed in part of the carport area (creating a third bedroom) and re-did the bathroom washroom area. The new washroom will be completely tiled and open-spaced. It will contain a washer/dryer (stackable), toilet, claw bathtub and double vanity sink. Also, around the toilet will be a half-wall framed in to give the toilet a little privacy if someone is bathing.

Selling this house as a 3/1 with a ,luxury bathroom/washroom will be easier and more profitable when that time comes as oppose to selling it as a 2/1 with a 30 square foot, shower-only, bathroom.

There have no issues or bones to pick with any of my partners thus far. We have barely used anything from our budget. We have re-used most of the wood that we took out of the house to re-frame new walls or hallways.

Ill keep everyone updated!

Sad UPDATE:

I was scouring the county records for an hour and I came across a document, signed by the Regional Regions CFO, stating that they were a lienholder on the property and that there was a balance of $311,000. It was dated two days post tax deed sale. Disturbing evidence. There is no clear and marketable title and potentially (I say potentially because the information is not substantiated by a professional. That being said I trust my intuition) there is a mortgage with a balance of $311,000 on the property. I have an out in the contract. Contract stated that title insurance was mandatory. I am ready to bounce back, a little discouraging though. A surprise issue or poor negotiations have left me 0 for the last four. Oh well, it will not be the last time. This deal was good though. Thanks for all the advice...it paid off (pun intended) big time.

E-mail from agent...

Hi Dan, I am also working on this for you as well....My title company is finding out what to do. You will have to do suit for quite title after you own the property.

My understanding is that because Regions did not pay taxes the property was legally sold and they no longer have a lien on the property. I will also check with a Real Estate broker I know that does this all the time.

Talk to you soon.

Ok, update from before.

The listing agent had the property previously. She owned it from 2002 through 2013. She purchased the property with a general warranty deed. Regions bank decided not to pursue her mortgages. They never foreclosed and they let the property go to Tax Deed auction.

A gentleman purchased it in October. He is now selling it.

I know its a good deal and I put it under contract the day it went on the market.

I am doing my research now and looking back over the county records.

Since the listing agent was the last person with a general warranty deed, would she be the only person who could hypothetically try to get the property back if I only got it through Special Warranty Deed? Or could previous owners come back? It is a weird situation, but this is a great deal.

I have a pretty good feeling about everyone's intentions. I am a pisces...I have the ability to read people well. The listing agent is a machine. She doesnt care about this property she has ten closing scheduled for the remainder of the month. The gentleman who purchased at Tax Deed Auction wants to cash out.

He bought it for 55-60% of FMV. He got a great deal.

He is now selling it for around 90% of FMV and I bid 75% of FMV and he accepted it. So perform a title search with a my closing company. Make sure there are no past claims to title, liens, or encumberances. Then proceed?

It is a great property in a great area.

Its tough to walk away from it.

Any RE attorneys on here?

No earnest money put down yet.

It is 25% off of Market Value.

Does anyone have any experience purchasing a property through a Special Warranty Deed with NO Title Insurance and then performing a suit to quiet title?

Need some advice.

Thanks

The weird thing is that the owner who was foreclosed on was the listing agent for the property this time around. She was very aware that it went to Tax Deed Sale and even told me that if the mortgage was not so ridiculous she would have tried to pay it down and pay the taxes. She was very aware that it sold.

Do I need to attempt to force the current seller to perform a suit to quiet title or is it satisfactory to go ahead with the purchase of the property and do a suit to quiet title myself?

I am currently under contract with an individual who purchased a property, via Florida Tax Deed Sale, less than three months ago.

I have looked up the county records and he did actually purchase it from the county. I just received an e-mail back from the title company stating that they cannot grant title insurance on the property because he has not filed a suit to quiet title. He can either file the suit to quiet title or wait four years to make this property eligible for title insurance.

I am having one of my friends (a woman at a closing agency) dig into this and see if there are any existing liens, encumberances, etc.

He does not want to do that. Also, he will only sell through a Special Warranty Deed. I understand that MORE THAN LIKELY everything would work out but I am not willing to take that chance.

What would your next move be? I want the property and am willing to work with the seller.

Should I go through and purchase the property and file a suit to quiet title myself (I will take $5,000 off the purchase price or negotiate something like that)

Should I attempt to force the gentleman selling the property to file a suit to quiet title?

I am uncomfortable because I have no recourse against anyone who owned the property before this previous seller.