All Forum Posts by: Eliot M.

Found a MHP in my area that I'm interested in.  This would be my first so I really need help on analysis and due diligence.  Here are their financials for last 3 years, with specifics taken out to protect the innocent.

71 lots, 45 TOH's.  So only lot rent.  Lot rents seem low at an average of $111, but I will confirm this during due diligence.  

The 60 or 70 GRM that I've been seeing repeatedly would impute a value of $300k but they are asking $700k.

One thing that pops out is there are no provisions for on-premise manager.  The owner/agent tells me this is because all tenants send only lot rent and there is no need for management except for the occasional drive through done by the owner.  This seems too good to be true and I would like to bake in an entry in my own pro forma for management.  What should I put for management?

Also from my research it seems like 40% expense ratio seems average. These financials would imply an 8% for this particular property. Should I just ignore the 8% and make my own pro forma to have 40% and base my own valuation off that? At that expense ratio, a 10 cap would impute a value of $350k, in the ballpark of my calc using GRM above.

These would all need to be confirmed during due diligence, but assuming the above are all validated, I wouldn't pay more than $350k for this property.  What do you think?

I have really been marinating on Brandon’s LAPS acronym (Leads, Analysis, Proposals, Success) and trying to think about where the bottleneck is in my business.  I have recently been wondering if my bottleneck has been lack of bids. I do plenty of looking and analysis. Last week I formulated 5 or 6 offers and my agent only really submitted 1. She told me the others were not realistic. 

I just listened to the podcast today with the attorney (Rob??) who went from 1 condo to 300 in a very short time. He mentions in the podcast that he has made upwards of 100 offers per day and expects to lose 90% of the time but the other 10% will be homeruns. 

My question is- what are the logistics of that? I mean, how is that even possible? If I told my agent I wanted to start making 100 offers per day she would fire me immediately. I am intrigued by this strategy though, because it’s basically a great way to turn over every rock in your market and really get the best available deal. 

But how do you convince your agent to do this? Or do you not even go through a buyers agent but go straight to the selling agent? And then how do the inspections work out? If you make 100 offers a day and 90 of them fail, that means you lock up the other 10 under contract and are in due diligence. Does that mean 10 inspections at $300-$400 a pop? 

Just looking for some tactical answers to this strategy from people who have had success with it. 

And wondering how your agent didn’t punch you in the face in the process!

this was a great podcast and great info. I listen to both BP and Joes podcasts frequently.both are great and informative. However I caught something early in the podcast where Brandon and Josh went back and asked him the details about how he raised the money and he started talking about doing a PPM and only getting accredited investors (folks earning $200k per or worth >$1million. I loved the podcast but that part really discouraged me because I don't know anyone that meets that criteria. I suppose I'm stuck with single families... anyone else catch that part and feel the same way?

@Sam Bates thanks for the info on the bank requiring your net worth to be equal to the loan amount. I had not heard this before relating to a commercial loan. Have others run into this problem? I have the 20% down payment no problem but I am not worth the half a million or more that would be required to get into a large complex deal. I wonder how the lender defines net worth? Is it liquid net worth or can they include your primary res? How would they value your other real estate holdings to derive your net worth?

If you had $100k to invest, and knowing what you know now, how would you go about investing it? Would you max out your 10 mortgage limit and buy numerous smaller properties that cash flow, or would you go big and plop that $100k as a deposit on a beach condo or apartment complex? Would you use debt? Would you not? Would you start a direct mail biz? Or knowing what you know now, would you even be in real estate at all? Would you open a restaurant franchise or go after storage unit businesses, dry cleaners, etc?

Hi everyone. This thread has gone cold so I feel like I owe it to the discussion to give an update on where I am with this neighbor of mine. I have started a different thread where I would love any feedback on my current dilemma between doing a BRRRR vs continuing with the flip option. I would love feedback on that thread, which is here:

https://www.biggerpockets.com/forums/67/topics/440...

But in terms of where I am with my neighbor, here's the update.

I have been in off-and-on contact with my neighbor since I purchased my house last September.  He was initially willing to sell to me, although my price was too high.  So instead, he said that he was going to get a guy to work on it for him so he could sell it himself.  I left it at that around Thanksgiving, Christmas time frame and let him soak in that decision.  I knew he would not move on it, and that I should follow back up in a couple months.  So, my rehab work was complete at the beginning of January and I listed the house.  In about March, I was getting way less interest than I should've been, and I knew it was the neighbor.  So, I got back in touch with him and he let me take the boards down and walk my contractor through the house so I could get a quote on the rehab needed.  I got the quote, ran the numbers and made him another offer.  He declined and we parted ways for another several weeks.  Then, in April, with my house still not selling after I had reduced the price on my flip by about $40k, I mailed my neighbor a rental contract so that I could rent his house from him, and in return, I would maintain the curb appeal of his home (in addition to paying him rent, obviously).  He declined that as well, saying "it's not the money, it's the liability of having a tenant in there."  So, a few weeks passed and I got back in touch with him, asking him if I could basically get a few of my investor friends over there to see if they're interested in buying his home.  He said, "Sure."  So I contacted them and walked them through.  We structured a deal and made him an offer, and he promptly rejected.  

So, here we sit 8 months later and $50k less on my list price. Still no interest as of yet, and I'm wondering if I shouldn't BRRRR it and just wait the guy out. I would welcome any comments over on my other thread, as I have laid out the options as I see them currently available to me. Would love any help or feedback. Thanks!

@Matt Gragg The house is vacant.

Thanks all for your comments and suggestions. Does anybody else have any thoughts about my 2 options as I presented them above? Do they look fairly accurate to you? Do they reasonably represent my reality right now? Do I have my tax placeholder in the ballpark (I'm using 35% x profits)? Although I've been involved with rentals, I've never done a BRRRR and never done a flip, and am not familiar with the tax consequences, so any additional help would be welcomed.

As the other thread has shown, I feel like I have exhausted all options in terms of getting the neighbor to clean up his act. While there may always be an additional creative solution that I haven't thought of, I have pursued this guy for 9 months and have talked to the city inspector, neighbors, etc. There's just nothing I can do about my neighbor right now. He is current on all taxes, mortgages, and there is no HOA in the neighborhood.

So, this thread is not necessarily a question of how to deal with my neighbor, but rather a thread to ask people 1) do I have my thought process correct in my options presented above, and 2) what would you do in this current situation (which option would you pick)?

Thanks guys for any other comments!

@Linda Weygant thanks for the info!

@Jordan Butz I have other rentals and am experienced. I have read those books and much more. Bought at a purchase price of around 1/5th of arv.  

@Sean Cassidy yes. 

@Berny Petersen sounds like I need to read up some more. That looks like a wide range of %.

@Katherine S. yes I've been in talks with the owner for about 9 months now to do just that but it ain't gonna happen. 

@Berny Petersen the house is in Alabama. There is some law there that says if a house has been trespassed in and is vacant, the owner must secure the house or the city will do it and fine you. 

Hi everybody. This is a continuation of a thread I started last year about my neighbor screwing up my flip:

https://www.biggerpockets.com/forums/67/topics/373...

Well my flip is still on the market and I’ve had multitudes of people see pictures and set up appointments to go view the house, but instead drive by and not go in because of my neighbor’s house (if you’re not familiar with my original post, the gist is that I have a neighbor who boarded up his house’s windows and doors… long long story, but that’s where we’re at right now. So it’s turning off potential buyers by the droves.) I listed this house in January and have reduced the price by $50k from original list price ($50k!!!). There’s still room to make a healthy profit on the flip, but I’m beginning to think I need to dust off my Plan B.

Plan B would be the BRRRR strategy and so right now I'm comparing the two options, and the more I look at this, I'm beginning to wonder if BRRRR should've been Plan A! For one, I forgot to estimate capital gains tax on this flip (rookie mistake), which I think could actually be my biggest expense besides the rehab.

So, on the tax cost… I’ve done some reading and research and I’ve found conflicting and convoluted information – as all tax discussions are. Anywho, I keep seeing 30-40% pop up as a good placeholder for estimating tax expense on a flip. Is this a good placeholder for me to use? And 40% of what? Should I just multiply the 40% x “profit” as we all would define profit on this site? Or is there another esoteric, mythical number that I need to find instead of “profit” to calculate the 40% on (like purchase price, minus 1/27.5th of depreciation, minus rehab costs, plus how much gas prices are at the moment, rounded up to the nearest integer of your mother’s birth year?)?

If the calculation is indeed just profits x 40%, then I’m looking at an after-tax profit on the flip at $40,000. The calculation is below:

Basically what it looks like is in my previous pro forma I was estimating profit to be $60k, but when subtracting 35% from that number, I’m left with $40k. Can you guys please let me know if I’m using a fairly good rule of thumb on the tax cost?  Does this look right to you so far?

So, in considering the BRRRR option, below is the pro forma. I will assume a same $145k for appraisal value. I have stellar credit, so assuming I can get 70% LTV on that, that means I get a check for $101,500 when I refi. The monthly payment on this loan is $533 at current rates over 30 years. I pay off my previous lender and my HELOC and am left with around $45k to go invest. The reason this is Plan B is because I'm not cash flowing anything on this house (see below the $247 annual cash flow this baby would throw off), so I'm basically treading water for 30 years while I pay it off. But the $100k check from the refi is enticing. And, I could just basically rent it out while I wait-out the next door neighbor to get his act together and sell, or at the very least, get the boards off his house. But then I could sell and unlock the other 30% of equity and move on.

So basically what I'm looking at here is either 1) sell and give the IRS 40% of my profits and walk away with $40k (assuming the above sales price works out... it could very well NOT work out this way), OR 2) retain the house, rent it out at $0 cash flow per year, but get a $100k check in 5 months to go reinvest.

Is my thought process correct here? What would you guys do in this situation?