All Forum Posts by: Hugh Hartwig

Hello BP, This question isn't exactly about investing, but it could be relevant for someone looking to develop or flip commercial properties. My brokerage is listing a vacant commercial lot on a busy highway in a rapidly growing area about a half mile from a brand new Walmart. This lot is 1 acre and is adjacent to the corner lot, also 1 acre, occupied by a dilapidated gas station that could possibly be torn down and developed. Two new Mapco's occupy two of the other corners. The lot is narrow and deep so the possible uses are limited for something such as fast food or a single tenant office, however together with the adjacent corner lot it would be perfect for a pharmacy or small retail development.

Does anyone have suggestions on how to go about marketing this property? What kind of business/investor should I be targeting for such a property: franchise owners, businesses, developers, etc., and how would I go about contacting such individuals? Do pharmacies such as CVS and Walgreens develop their own building, or would they rather do a ground lease with an investor developing the building?

Thanks,

Hugh

It looks like a really nice property. I like how you were persistent with the county about cutting down the trees. Another owner might have just given up after the initial phone call.

It sounds like you are proposing to do a Master Lease Option (MLO) agreement. Basically, you agree to take over management for a period of time with an option to purchase the property within at a previously agreed price. Do a search for that term to learn more about how they work. You would still need to negotiate terms that make this a good deal.

As a beginner in multi-family investing myself, I would be willing to take over management just for the practice as long as I don't bear any financial risk, even if I don't end up buying it.

If you did improve the NOI up to the mortgage payment, is there still room for improvement even further such that it would cash flow? If so, then the terms of your MLO could be such that you only pay the net until it equals the mortgage payment, but then you take any profits above the mortgage payments with an agreement to purchase the property subject to the existing loan. This of course is dependent on the mortgage balance being at or below the new market value, and that you can improve the NOI with minimal capital expenditure. Crunch the numbers to see if they make sense. This might be a good chance to purchase a property with no money down if you can make it cash flow. As I said, I am a beginner, so take it for what it is.

@Roc P.I have used Google voice for signs and it works but I am wary about Google sniffing the conversation. I get a little uneasy whenever I see an ad about something that was said in the voice mail.

I haven't used voip.ms yet, but it was referred to me by another local investor. They require a $25 deposit, but only charge a few cents per minute rather than a monthly fee. This works well if you want more than 1 number.

For my office phone I use Voipo. You can get both 800 numbers and local numbers. Additional virtual numbers are about $3 each for doing split testing on letters and other marketing.

Hi @Paul B., it is nice to finally meet a fellow Huntsville investor. I would like to learn more about your investing strategy. To summarize what you and @Shawn S. are saying, I should not settle for anything less than 1% rental rate to purchase price. So to make deals like this work, I would still need to pay less than $95K for this property if it only rents for $950/month, correct?

I'll test your <1% theory

• Purchase Price $95,000
• Down Payment 20% = $19,000
• Monthly Payment PI @ 4.7% for 30yr = $394
• Closing costs 3% = $2850
• Tax + Ins = $1200 + $700 = $1900/yr
• Gross Rent = $11,400/yr
• Management 8% = $912/yr
• Maintenance/Captial Improvements 10% = $1,140/yr
• Vacancy 10% = $1,140/yr
• NOI = $6308
• Debt Service = $4728
• Net Profit = $1580/yr

I see your point. Even at a purchase price of $95K, this would barely cash flow. It would rely on appreciation and principle reduction for profit. I guess that could be acceptable if appreciation could be guaranteed and I don't need the cash flow. Change to a $120,000 purchase price net profit changes to only $332 net profit. At $80K it would be $2264, and at the 2% rule it would be a whopping $4184 net profit, not to mention all the instant equity.

Hi @Joel Owens. I had a chance to get more details of the house. They would like to get $10K-15K out at purchase, and a realtor told them they could sell for $120K-$125K. The comps are strong for $120K so my guess is they would list for $125K and get $120K. They do owe around $100K as I expected, but after talking with them, I don't think they could carry this mortgage and qualify for another mortgage. The only way I could acquire this would be to finance it with a third party, and they would probably need $110K net before they could sell.

Thinking in more broad terms, assuming I could get similar houses at between 90-100% off retail, and get the sellers to carry back a mortgage or sell subject to, is this a viable business model? If not, what changes would make it viable?

Hugh

Some friends of mine are planning to sell their house, but haven't done any repairs or listed it yet. The house is in pretty good shape. I mentioned to them that I may like to buy it as a rental and they are interested in talking. They bought it 7 years ago for $115,500, and I estimate they still owe about $100,000. It may sell for about $120,000 minus $6000 in estimated concessions, closing costs, and requested repairs. They would also need to pay 6% ($7200) realtor commission to sell it. So their net would only be about $106,800 if they listed. Market rent is about $900-$950 with $150/month in tax and insurance. The house is about 15 years old so roof and HVAC are probably original. It is a starter home community, and the area is fairly nice. I expect appreciation to be slow to moderate (3-5%/year) over the next few years. Since they are friends I would only buy if this benefited both of us.

What purchase price or terms would make this a deal in your eyes?

• Retail value $120,000
• Estimated $107000 Net to sellers if they listed
• Rental Rate - $900-$950
• Tax + Ins. - $120/month
• 15 y/old HVAC and Roof.
• Slow to moderate appreciation (3-5%/year)

Here are some purchase methods I would consider:

• Take over payments with some down payment.
• Lease option
• buy it with a seller carry back.

@Jesse Rivera, I really like your approach to working with investors. Even with dozens of listings crossing your desk each week, I'm sure you can quickly weed out properties that aren't worth considering. Even though it takes 5 minutes per property, you are focused on the best ones. Do you have any recommendations about building that type relationship with agents in my local area?

@JOAN DICKIE, thanks for the feedback. A follow-up email she sent indicated that her other investor client keeps his own spreadsheet and does his own comps. I have already decided not to work with this agent for other reasons, but as I continue my search for an agent, I would like to understand what to expect.

On another post, J Scott said that most agents will inundate you with lists of houses, whereas a good agent will weed them out for you. I have found the first half of this statement to be true as I am inundated with lists of houses that don't mean anything without knowing their repaired value. My expectation is that an experienced agent could quickly estimate the retail value of a property given certain assumptions about the finished product, and send that along with the listing. I intend to buy, rehab, and sell many houses this year and the next, so is it unreasonable for me to ask for this when interviewing agents, or will I only attracting the eager yet inexperienced agents by doing so?

I thought people were just trying to stand out. You are on to something there William.