All Forum Posts by: Elford Stephens

Anthony, I am by no means a professional analyst, but I have run enough analysis and being a owner/property manager who does all his own maintenance, and repairs, and I would advise you to listen to your gut, and run the number from a conservative position. Sellers will make those numbers look as good as possible to you. Quite honestly I never even look at what the seller discloses for maintenance during my initial analysis. I run my own numbers from a conservative and aggressive position to understand my conservative upside and my greatest potential upside, and then compare to a sellers disclosed pricing and 9/10 times my number are far off theirs

Hi Anthony & James,

I sent a letter to the seller detailing  the projected monthly income, monthly mortgage payment and annual cashflow using his expense ratio.  This returned a little over $5000 / year on a $380K property.  Then, like James recommended, I  showed him the monthly income and cashflow using our usual expense ratio.  This resulted in a negative monthly return. I explained that strong cash flow was important for us.  I asked if he had any creative solutions that would help improve our returns.   

Thanks for checking in,

Elford 

So how did things go ?

@Elford Stephens well obviously the vacancy rate is higher than 2% if the commercial unit has been vacant for years. I would use only the actual income and a 5% or so vacancy rate on that number.  Many lenders will assume the higher vacancy rate regardless if the lower number is correct. I agree the expense numbers are low. 

You can put in an offer with a due diligence period while you verify their numbers. Get tax returns and bank statements etc. They are not going to overstate their income of understate the expenses on their tax return..

I would ask for his book work info. And run your numbers. And see what repairs have been done if any. Also why a 20 year mortgage and not a 30 year one or is that not able to be done? Put a higher repair cost in. Or capx higher for the repairs. Would get the price down for the repais that need to be done. 

You have gotten lots of great advice. One other thing to consider is what your plans are for the building. When you resell you will have to notify them of the termites in the disclosures. Depending on your area, that might affect value or ability to sell fast.
Definitely get a thorough inspection and see what you are looking at. This size of building are sometimes hard to come by. Don't pass it up if it's doable. Good luck! 

@Elford Stephens I was scared of termites as well, but as others have mentioned, they're treatable and great to negotiate on.

Smells like opportunity to me. My first property had more pests living there than people. It's an opportunity and gets fixed with money. Get estimates, ask for X dollars off the price based on the estimates, or for a credit at closing. Don't be scared. 

Anytime I have a wall opened up, I treat any exposed wood with Boracare. It absorbs into the wood and basically makes anything that’s treated termite proof.

Termites can be anywhere from a ‘whatever’ to a significant repair bill. You’ll need more details from your inspector.

If there isn’t much damage, you’ll just pay for a termite treatment ($750-$1500) where they will spray and inject stuff into the ground to take care of the active ones and keep new ones at bay for a while. If it’s just some tubes and a little bit of wood, you’re done there - other than maybe a yearly checkup.

Of course if they’ve been around for a while, you might be taking about trait and replacement beams, joists, etc etc... but it all depends.

In the northeast, it’s rare to find an older house without some old termite activity. But it could be an easy and cheap (ish) fix. Or maybe not :)