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All Forum Posts by: Glenn Lovelace

Glenn Lovelace has started 3 posts and replied 23 times.

Post: So I tripped on to a great deal... i think

Glenn LovelacePosted
  • Baltimore, MD
  • Posts 24
  • Votes 3
Originally posted by @Zach Kidd:

Let me break this down properly. 

The deal is potentially financially viable. It's not a home run, but it works.

You still need a few questions answered, and your strategy examined for anything you might have missed. No due diligence yet, but certainly worth a deeper look.

The deal would put you at the limits of your financial capability. No room for error or the unexpected.

And something smells fishy. @Nick Harrington covered that.

With those points in mind, I would go out of my way to buy Nick a very nice lunch. 

Then if you still want to move forward, absolutely bring in a partner. Someone with a different set of eyes, perhaps some experience with how this would be handled if the seller kicks off, and with a credit card capable of handling the unexpected.

If you move forward, ignore the seller's age. Negotiate like he's 30 years old with 50 years of training.

Treat the whole deal as a learning experience, whether you pull the trigger or not.

 Hey Zach, 

Your last statement is how I try to approach every property I see. I keep my spreadsheet handy for breaking down the numbers, and I'm getting a world of knowledge from the users on this site. Thanks everyone!

Glenn

Post: So I tripped on to a great deal... i think

Glenn LovelacePosted
  • Baltimore, MD
  • Posts 24
  • Votes 3
Originally posted by @Glenn Lovelace:

Apologizes for the unorthodox replies. I'll be the first to admit I'm not a professional. I'll keep this in mind when I'm posting from here on out.

Aside from that I'd like to thank you for putting everything in perspective. It all comes down to risk and if I have the experience and stomach to deal with it. I think I may pass on this one and continue to save until I find a deal that is a little more my speed. We'll see.

 Sorry this was mentioned as a reply to @Ned Carey

Post: So I tripped on to a great deal... i think

Glenn LovelacePosted
  • Baltimore, MD
  • Posts 24
  • Votes 3
Originally posted by @Aaron Mazzrillo:
Originally posted by @Glenn Lovelace:
Originally posted by @John Casmon:

Want to make sure I'm following. The seller agreed to sell the property at $625k with seller financing of $595k after your $35k down payment. He's charging 0% interest on a 7 year note amortized over 30 years, correct? If so, monthly payments should be $1,652.78 or roughly $20k a year.

For your analysis, I think you are underestimating expenses and potential CapEx items, so you should revisit these projections.

What's the upside with the property? Is it fully rented? Are rents below market? If $35k is all you have, I would be hesitant to go all in especially if there is deferred maintenance.  Also, is the property paid off? If not, why the 0% interest rate? Doesn't seem to help him much and is less than appealing to someone buying the note. Not to be morbid, but at 80 years old, you can't plan for him to hold it for two years to sell, you better operate as if he may be gone the moment he signs his name on the contract. 

You are exactly right on the terms.  All units are rented with long term/young professional tenants.  Police officers and so on.The property owner is retiring and has the property paid off.  

I think it's for the age reason that he's willing to do this deal.  He's trying to get liquid asap.

How would you deal with a financier that is close to the "End"?

 His math is wrong and you said he is "exactly right on the terms." Just so you don't beat yourself up trying to figure it out, $625-$35 is $590. At least on my calculator, but I did buy it at Staples, so you never know...

That 0% loan has a street value of $273K (6%) on the high side, but probably more in the $223K (8%) or less range. You're not doing this guy any favors, but he probably won't be around much longer to complain about it. The real discount will come when his heir gets that note and wants to be cashed out. You'll do real well that day.

 Aaron,

I'm replying on my phone while two toddlers click to my legs. I won't be able to catch everything but that you for the clarification.

Do you think structuring the deal with a rate of 5% with a lower principal would bring the seller closer to where he would ultimately like to be?

Glenn

Post: So I tripped on to a great deal... i think

Glenn LovelacePosted
  • Baltimore, MD
  • Posts 24
  • Votes 3

Apologizes for the unorthodox replies. I'll be the first to admit I'm not a professional. I'll keep this in mind when I'm posting from here on out.

Aside from that I'd like to thank you for putting everything in perspective. It all comes down to risk and if I have the experience and stomach to deal with it. I think I may pass on this one and continue to save until I find a deal that is a little more my speed. We'll see.

Post: So I tripped on to a great deal... i think

Glenn LovelacePosted
  • Baltimore, MD
  • Posts 24
  • Votes 3
Originally posted by @Ned Carey:

@Glenn Lovelace and any one else reading Please Please Please use consistent numbers. Don't use a percentage and a monthly amount and an annual amount in the same post. And frankly I hate monthly numbers. Professionals use annual numbers not monthly ones. 

Now back off my soap box to answer your questions. This works out to about a 6% cap rate. That may be about right for what the market is paying now in Bolton Hill. But I don't care. I think the market is grossly overpaying for the risk the multifamily represents right now.

The reason this might still be a viable deal is the potential zero percent loan. That makes your debt coverage ratio about 185, that is very good. You are building equity at about $20K a year, that is very good. The spread between your interest rate and the cap rate is 6%, which is also very good.

You will need about $450 to refinance in 7 years. At 80% LTV that means you need an appraisal of $562. Will it appraise for that (or more if you can only get a 75%LTV) What will cap and interest rates be in 7 years? The odds are they will both be higher. this is a longer term risk to you.

The shorter term  risk as pointed out is the lack of reserves. This will in part depend on the condition of the property. Are components of the building new with modest risk of replacement or repairs needed or are the systems dated.

Apologizes for the unorthodox replies. I'll be the first to admit I'm not a professional. I'll keep this in mind when I'm posting from here on out.

Aside from that I'd like to thank you for putting everything in perspective. It all comes down to risk and if I have the experience cash and stomach to deal with it. I think I may pass on this one and continue to save until I find a deal that is a little more my speed. Big thanks to everyone who had some great advice on this thread!

Post: So I tripped on to a great deal... i think

Glenn LovelacePosted
  • Baltimore, MD
  • Posts 24
  • Votes 3
Originally posted by @Nick Harrington:

I know the property you speak of, I spoke with the seller about financing too and considered it and I passed on it. Have you asked yourself why it hasn't sold yet, especially since the seller would consider financing it? It's not as if it's a off market deal that only you knew about or anything and yet it hasn't sold in quite a while. I could go into more detail but that's all I'm going to say.. Oh, and there would be no equity in the deal either, at $625k, which is pretty much what it's worth, probably a bit less, though.

 Hi Nick,

Thanks for the insight. I have yet to see the inside. When all is said and done, all of this could be nothing more that a study in due diligence which I'm greatful to all the great investors for their input on this thread.

My thought for this property is to do a long term hold. But to make it past the balloon it'll need to have at least 20%-25% equity. I was banking that after 7 years I'll have right in that ballpark. 

Is this the wrong way to look at it?

Post: So I tripped on to a great deal... i think

Glenn LovelacePosted
  • Baltimore, MD
  • Posts 24
  • Votes 3
Originally posted by @John Casmon:

Want to make sure I'm following. The seller agreed to sell the property at $625k with seller financing of $595k after your $35k down payment. He's charging 0% interest on a 7 year note amortized over 30 years, correct? If so, monthly payments should be $1,652.78 or roughly $20k a year.

For your analysis, I think you are underestimating expenses and potential CapEx items, so you should revisit these projections.

What's the upside with the property? Is it fully rented? Are rents below market? If $35k is all you have, I would be hesitant to go all in especially if there is deferred maintenance.  Also, is the property paid off? If not, why the 0% interest rate? Doesn't seem to help him much and is less than appealing to someone buying the note. Not to be morbid, but at 80 years old, you can't plan for him to hold it for two years to sell, you better operate as if he may be gone the moment he signs his name on the contract. 

 For the expenses I've budgeted the following

$200 Insurance

$666 for taxes

$613 for Management (10%)

$480 for Utilities

$613 For Vacancy and CapEx (10%)

What am I missing?

Glenn

Post: So I tripped on to a great deal... i think

Glenn LovelacePosted
  • Baltimore, MD
  • Posts 24
  • Votes 3
Originally posted by @John Casmon:

Want to make sure I'm following. The seller agreed to sell the property at $625k with seller financing of $595k after your $35k down payment. He's charging 0% interest on a 7 year note amortized over 30 years, correct? If so, monthly payments should be $1,652.78 or roughly $20k a year.

For your analysis, I think you are underestimating expenses and potential CapEx items, so you should revisit these projections.

What's the upside with the property? Is it fully rented? Are rents below market? If $35k is all you have, I would be hesitant to go all in especially if there is deferred maintenance.  Also, is the property paid off? If not, why the 0% interest rate? Doesn't seem to help him much and is less than appealing to someone buying the note. Not to be morbid, but at 80 years old, you can't plan for him to hold it for two years to sell, you better operate as if he may be gone the moment he signs his name on the contract. 

You are exactly right on the terms.  All units are rented with long term/young professional tenants.  Police officers and so on.The property owner is retiring and has the property paid off.  

I think it's for the age reason that he's willing to do this deal.  He's trying to get liquid asap.

How would you deal with a financier that is close to the "End"?

Post: So I tripped on to a great deal... i think

Glenn LovelacePosted
  • Baltimore, MD
  • Posts 24
  • Votes 3
Originally posted by @William Jenkins:

Without knowing your market I would suggest you do the following:

1.  Estimate your own income and expenses based on your knowledge and determine the current cap rate.  Don't always go by what the owner tells you.  I would then research the comps regarding the cap rate and see how it compares.

2.  Review the rents and comp it out to similar units.  Any room for upside, which would increase value?  Are they high for the area, and is there a possibility that you may have to reduce them to attract tenants?  What is the outlook for the area in general? 

3.  Sounds like the $35k is most if not all of what you have.  Nothing wrong with that, but you need to be prepared for things that could cost serious money with this property.  I would hate to see you close, and then not be able to do a repair 6 months down the line that would render some if not all of the units un-rentable.  DO NOT USE CREDIT CARDS

Owner financing is a great way to buy but a deal still needs to be a deal.  The owner financing terms look attractive but you need to make sure the purchase price is attractive as well.   

1 CAP comes out to around 6.8%

Income 6138 - (Ins 200/mo + VACMaint 10% (613) + Utilities 480 + Tax 666 + Mgmt 613) * 12 / 650 Value = 6.842% CAP Val

2 I believe the unit itself is under priced. Comps for 4br in the area come in around 620.  I'm not a pro at this though

3.I'm with you. I'm leaning towards finding a way to lessen the risk for both myself and the seller

 Glenn

Post: So I tripped on to a great deal... i think

Glenn LovelacePosted
  • Baltimore, MD
  • Posts 24
  • Votes 3
Originally posted by @Eric Munson:

@Glenn Lovelace- Is there rent control in that area? Would the sale trigger city inspections that could cost you up front for code compliance? Maybe he could take a lump sum(say $100k) second mortgage ballon(no payments) payable in 5years. This will help cash flow and give you more monthly income to cover unexpected expenses.

Without reserves or access to credit I would pass. You would  be putting yourself and the seller at risk. 

 Hey Eric,

I'm not sure how the City would see the change of owner.  Maybe someone with this knowledge will be able comment. I think he was pretty reluctant to agree to the terms as they are now. Not sure how the lump sum idea would go over.

The more I think about it the more I think I need to find a partner with more experience and capitol to split the deal.

Glenn