All Forum Posts by: Mike Makkar

Scott, Wayne & Bob, Thanks for your advise on the matter. I failed to mention that this is a 1st lien. So if I evict the person and pay of taxes, I'll have full rights to the property, title deed and all. Exits would be to do a rehab and rent on the 66k house.

@Scott Mclaren, I started off with 9.9k and the seller wants 21.6k

@Wayne Brooks, Yes, I spend 21.6k (note price) and 4k (foreclosure). But where does 29.2k come from? How am I owed that?

@Bob E., Neighborhood aint the best. Lots of rough areas but lately getting an infusion of improvement. I'll have to dig in on the time when Note was written. Don't know if Dodd-Frank will kick in here. I'll dig in

Again, thanks for all the advise!

I'm a Note noob. Need some help analyzing.

Property Valuation = 66k

Note's Unpaid Balance = 25.2k

Note Sellers price = 21.6k (standard 85% of UPB)

Sellers claims note "performing", but has unpaid taxes of 8.5k

Loan maturity in 5 months with balloon of 25.2k payment

Chances are this will foreclose! I spend 21.6k + 4k + 8.5k = 34k for a property valued at 66k (50% discount). What else am I missing here? Any other contingencies to plan for? Is 50% discount worth the trouble of a foreclosure and getting it back to performance?   

@Nate R., It's common for engineers like us to get into analysis paralysis mode. Every rule has to be met and vetted before a decision can be made. However, there are a lot of metrics you need to assess. And sometimes, you won't meet all of them. There are several tangibles and intangibles to consider. Not every investment is going to fit every rule that you read on here. The 30% below ARV-repairs rule, the 2% rule, the OpEx below 50% rule. Here's my last "Retail" purchase from MLS.

MLS Advertised Price: $101,000

Purchase Price: $90,500 cash (Only 10% below advertised)

Repair Costs: $3500 (Now only 7% below retail advertised)

Monthly Rental Rate: $1650 (2 yr lease)

Cash Flow: 809 /mo

Last Zillow Zestimate: $135,000 (surprise appreciation???, but i'm not counting on it)

Cap Rate: 15.5%

Cash on Cash Return: 36%

I failed on all 3 of the golden rules here; paid only 7% below retail - Rental rate is lower than the golden 2% - My expenses (PITI+Maint) is 51% of the rent.

And yet I took the plunge for the 36% CoC return!

Hi @Jenny Pennock

I agree with @Gail K. on trying to do a regular tenant first before dealing with Section-8. 30% of my properties cater to Section-8, but I "graduated" to this after a handful of regular tenants and once I got comfortable with the standard rental practices. Ofcourse there's always the appeal of a virtually-guaranteed rent and a potential longer-term tenant. However, section-8 will have other unknowns on typically a slightly larger wear/tear on property (not generalizing but section-8 individuals are generally from a different socio-economic background). Depending on the neighborhood, you may have to answer to the neighbors on section-8 people. You could also be rent-locked with section-8 especially if the market is growing faster than what section-8 covers. Also on the subject of inspections, you could be given the run-around on simple things depending on the housing authorities rules/regulations. 

My advise, try marketing to the general rental market first before you go all section-8. Nonetheless, you are building relationships with the S8 case workers. 

Good luck, Mike!

Hmm, @Ibrahim Hughes

Chase took over all of 1st liens and 2nd liens from WAMU during the crisis. But apparently most of their 2nd liens were unloaded to private hedge funds and institutions. I know this because a colleague of mine in the east coast, got a call from private party to pay up to get current on the 2nds or get summoned for an eviction. She hadn't paid her 2nds, due to missing account tracking. In her case, she was able to contest the 2nd lien and was able to get this ruled in her favor, due to negligence of account tracking by the lien holder. Again, this is for her particular case. It could be totally different for your case.

@Nate R., Its all about hedging your risk. Non-Retail buying allows you to get 20% to 30% below intrinsic value. So even if the market tanks, you may be covered. As I understand Ben is in a non-growing part of Ohio, where he may have to take extra steps to hedge. But if you're in a market which is greatly devoid of inventory, Austin for e.g., if the property cash flows with a healthy return, why worry if its retail or not?

My first property was a retail property from MLS. Well, technically it was a "back on market" that I bid 15% below and the seller emotionally gave in to. I probably got it for 5% below its intrinsic value. However, I bought it in a region that had extremely low inventory and was able to get above-market rent within 4 days, getting me 13% cap rate or 1.2% of property value in monthly rent. Was this is good buy? According to most BP investors who strive for the 2% unicorn properties, probably not. But in 3 months, I was able to get 4 properties on the same street from door-knocking at around 1.6% or caprates at 18%. So in hindsight, the first property wasn't too bad after all. Lesson learned, although, I didn't hedge for a discounted price, the apparent growth in the local market helped boost the intrinsic value, albeit through some managed luck, and thereby try out the BRRR strategy to finance on the appreciated value.

For those of us, who have a hard time getting non-Retail due to time constraints or lack of interests, lets just make sure our at least properties cash flows healthily!

PS: Some investors around here are so obsessed with **non-retail**, that they would pay higher dollars for properties from wholesalers requiring TLC than for clean staged property on MLS set at lower prices! Lol!

Nice article, @Fred Heller

Gotta love the inefficiencies of Real Estate in our great state! One particular house rents for $1600 and the house next door rents for $700. The 120% spread in rent is the very inefficiency that could be tapped into. Lets see how long we can ride the bull of Texas!

Hi @Fernando Guerra,

Congrats on getting your family on RE. If your triplex is in the US, I recommend your brother getting an FHA loan. He would need to show some income to qualify. But there is no other loan that lets you do a 97% leverage, which is perfect for a duplex / triplex / 4-plex in a college town and be a live-in landlord on one of the units and rent out the other units.

Cheers, Mike 

@Scott Szurek, Most states have a governing body that does child care assessments to make sure the property is kosher for running a day care. I've seen several models, 1600sqft condo, 4000sqft home, a 5000sqft rented facility in a strip mall and a 10k+ sqft new construction catered primarily to a daycare facility.  

@Dave Jimenez, If you make 150k a year, then you shouldn't have trouble getting a quick signature loan or LOC for 30k. You could essentially go to 3 different big banks and get 30k each. Interest rates won't be the best (6 to 8%), but this will be a better option than hard money. Once fixed up, just do a standard fixed-term refinance on the property.