All Forum Posts by: Ed Long

@Matthew Rutter

Thank you for sharing your story. I have a few just like this. I've never seen a flip cost less than anticipated.

Geography is so important, I wish I lived in So Cal during the good years, because flipping a $500K house there was similar to a $100K house where I am, and what you find is that the rehab cost is essentially the same (sheetrock to sinks costs the same, as well as labor), but the margins are larger, balanced against the need for more cash to get in.

I've yet to come across a $90K house that has been very profitable in flipping and have stopped at that level of the market and I can say that $10K was about the avg. profit made.

Property is currently a pocket listing, not on the MLS. I'm pretty sure he'll take a wait an see. Mr. Market is interesting, because it depends what range in the market you are. Since there's no other garden apts. listed units > 4 for sale in this zip, it's hard to say. I'm acquiring historical multi sales in the area from the agent.

I'll have my due diligence well along, as well as understood the nuances of commercial lending from meeting with a few banks.

Update: the seller has agreed to provide below, and include a 2 unit next door (3 bedrooms per side, stand alone side by side house, $2k/month).

This brings the Gross to: ~$198K/yr.

NOI: $101K

I calculate that $1mm is a fair offer, seller is sticking firm at $1.4mm. I think it probably makes sense to walk?

A current rent roll dated no later than 30 days prior to the date of Seller's execution of this Letter of Intent, which rent roll lists at a minimum: the unit number, unit type, tenant name, date of lease, amount of monthly rent, amounts of any delinquencies, lease expiration date, and all security and other deposits.

Detailed operating statements for the last two (2) calendar years, year-to-date detailed operating statements, and the Property's approved 2013 budget.

Real estate tax bill for the last two (2) years on the Property (2011, 2012).

Summary of all capital improvements completed during the previous two (2) years for property.

Copies of all tenant leases.

Details and a list of all insurance claims (past or present) for the Property.

Copies of properties' tax returns for last two calendar years

Copies of any capital project warranties if any.

@carole,

Multis in this area are highly desirable. There's 6 other multis, none over 4 units on the MLS currently. (Quads are not too common here) The closest, (and I know it's not the same), comp is a decent two family (side by side), 2 bed / 1 bath each 2,300sq ft, $4K taxes, for $125K ask. should also rent at $750/side.

My AGI is a little higher due to some ancillary income.

I'd love to get the numbers that you show on the quads.

Thanks for the feedback, looks like I might be stretching on this one.

@joel,

Absolutely agree with your logic. When I started investing it was all about OPM. Obviously my IRR has gone down as I've paid down principle in the properties. I'd love some agents that would say "just put 60% down and this property cash flows!" No joke how many times I heard that.

Here, I'm factoring that I've more than enough exposure to the stock market and other investments at this time, and this would round out my real estate portfolio. Part of this is playing the rate game, cash is a paltry 1% interest. Does Bernanke start raising rates, if so when and how aggressive? I'd almost rather pay myself the 6% interest than to a bank. At the same time, getting cash at 4% makes one want to borrow.

I'd love to find a true 10% cap rate property. So many are listed as such, but when you dig into the numbers, they fall way short. Most sales that I've seen have been in the 5%-8% range, based on my calculations. I've been looking at larger units for about 3 years. There's been a few with 10-15% cap rates, but we are talking (D?) level properties. Bad neighborhoods, no parking, section 8/SSI tenants. There's a 24 unit 2bdroom across 2 brick buildings, built about the same time, but in a bad section, rent is $565 including utilities (except electric), asking $850K. I see no opportunity for improvement because of the area. I wouldn't pay more than $500K. You can make this work, but it's not my sweet spot.

I appreciate the chance to discuss this with yourself and other investors.

- Ed

@joel.

Thank you for the quick response and I appreciate the comments.

Some additional background, I'm very familiar with the area and have been renting the smaller units there for 10+ years. I understand the market and rental histories, albeit this is a larger complex and may have some nuances that I'm not 100% familiar with. I'm also familiar with standard repair costs (as I've flipped a few props, and have a team that I've worked with closely on repairs for the last 10 years).

Additionally, I've personally viewed all of the competition from a commercial apt. standpoint within the neighborhood. So I'm aware of quality, price and amenities of similar complexes. (Note: I've seen a lot of posts questioning what rental rates should be, IMHO if you can't walk into a place and nail the going rental rate, that's trouble)

The property is not listed, and expect that buyer will be paying full brokers commission. If not, I just look at this as an expense, and factor that into my rate of return and thus the offer price

Rents are not growing strongly in the area, I'm factoring in a 1% increase per year. (I know that may seem low, but the area is lacking job growth) Vacancy numbers essentially puts me at a little over 1 vacant apt. for the whole year. It may be a little low, but the rental market in this area is very strong with a desirable school district, close to everything, etc. But, I'm going to run the numbers at 10% also.

I'm not looking for a pie in the sky no money down deal. I plan on putting 25-35% down with a rate < 6%, if possible. I'll have enough cash in reserve for a total of 60% of the prop value. I calculated cash flow over 10 years with a 25 amort. schedule, to put me at ability to pay off, if necessary. Seller almost definitely has the prop. paid off.

Agree on the cap rate, I'd really like the prop to be at $990K, and may have to dig deeper on the negotiations. Garden apts. just don't come up that often and sell quickly. Plus these are all brick exterior, which I love and in relatively maintenance free, some green grass yard area, plenty of parking. Many similar places always seemed to be lacking something from the parking to on-site laundry.

Not clear on your LLC statement, the prop. would be in the LLC, thus collateral on the loan. Plus, I prefer to put all my props in LLCs vs. my personal name.

Thanks again.

- Ed

Hello,

I'm making an offer on my first commercial property. I've been investing in the area in 2-4 unit properties for about 15 years, and have decided that a larger unit will better fit my investing/return requirements. I've read all the forums here, as well as others and am looking to touch base with someone that has gone through this as a mentor.

Details on the property.

20 Unit, 2 bedroom (master and second, both good size), eat in kitchen, 1 bath, good sized living room. Arranged as a garden complex of 4 buildings with 5 apts. each. 1 apt. in basement, 2 first floor , 2 second floor. Coin op laundry and storage in other side of basement.

Apts. look to be 10-15 years w.o any updates, they are livable and clean, but a outdated. Carpets, kitchens and baths will have to be replaced over the next 1-5 years. Everything else, the structure, roof, furnaces, etc. looks to have 7-10+ years of life left in them.

Avg rent is $750+

All utilities, including water is paid be tenant (which is nice in this area, as separate utilities for these sized units is rare)

Numbers: AGI is 182K with 5% vacancy

ESTIMATED: all non-loan expenses , including taxes is 72K/year

Asking price is $1.4mm

Offer is $1.0mm, and hoping to settle at $1.2mm

Cap rate of ~9%

I have good credit, last check my score was 790.

Questions

- I have to apply for financing. Should I ask the owner for financing? He may agree to a 2-3 yr. loan. (Not sure terms yet).

- If I owner finance, will I have issues refing with the bank in 2-3 years?

- I will request no penalty for early payment.

- What strategies have buyers used to reduce the tax burden on the seller? In other words, I'd like to offer an lower price with better tax implications for the seller, netting him the same amount.

- Is there a great template that I can use to take to the bank, spreadsheet, plus word document of my landlording experience. Any input on calculating the best loans (e.g. fixed vs. variable etc) and dealing with banks/lenders would be very much appreciated.

- How much impact will owning a half dozen other smaller properties have on the lending potential? Tax wise they break even and are all in the range of 20-60% paid off.

- Going to incorporate into an LLC. Will the bank request personal guarantees on the loan? Is so, how does one remove this contingency, as I don't want to put my life savings at risk.

- Any advise on private lending through some of the new P2P lending sites vs. traditional methods?

- What should I expect the buyer to provide? I expect leases, rent rolls , tax returns? The agent looks at me funny for some of these things. I would expect at least leases.

- Any input on great ideas to execute once the property is turned over to me in terms of communicating with the tenants on where to send checks, maintenance calls etc?

- Anyone with experience negotiating deals with Cable/Internet providers to reduce costs to tenant, or allow me to provide and recover costs?

I'd be happy to provide any other information.

Thank you very much.

- Ed