All Forum Posts by: Jack Barkow

I know a lender that will go as low as 45k.. I think @Clint Moore is right about the predatory lending rules being tough once you get into lower loan values.

I've never tried, but I guess technically you could try to hope for a good appraisal and take out a larger loan... could be a gamble though.

Could you do a HELOC on your primary residence and use that to buy the duplex?

The water apparently is higher.. maybe 3-400/mo

There isn’t any rehab to be done from what i saw the units were well cared for and in great shape (I saw 3/8).  So it’s either raise rents or this is what you get.

Financing would be 20 year ARM for a commercial loan. My understanding is that is the norm. Rate would probably start at 5.5-6%.

@Jay Helms yes I’m mostly curious if other investors would do this deal.  Obviously I’m not going to offer the full asking price of 250k, but just in general if other people would do the deal if they get an accepted offer at say 200k or something lower. 

@Anthony Dooley It is a modest 10 cap at the 650/mo price point.  Otherwise it is a 5.5..

One of the main things that I'm struggling with is the water bill for the property.  8 units and the city is telling me that the bill is usually around 150 and its been around that for a long time.  My other 4-plex gets billed more than that per month from the city so either I have a leak there or this 8-plex is very under-utilized.

I know that I have more due diligence work to do.  I was just looking for some general feedback.  The only pro forma I didn't take the time to look into was the insurance cost.

Do you have a formula that you use based on the NOI, Cap Rate, and cash flow for making an offer or do you just play with the purchase price number until those items meet your target numbers?

Are you saying cashflow is 500 per unit so 2k monthly or 500 monthly on the entire 4-plex?  It sounds like the rents are too low maybe or if they can't be increased I would walk away.

$500 per month can get eaten up pretty quickly  by capEx and miscellaneous maintenance.  

I agree with @Dennis Wasilewski.. use the BP calculator and see how it looks for the long term. $500 a month sounds wonderful, but is it really going to end up being 500 for three months then spend 4k on a repair and come out making 2k at the end of the year assuming no other repairs.  Don't forget to account for vacancy.  That can really hurt you.

I'm not an expert in commercial business space/strip malls, but I would offer something based on the specifics.  

What is the reason that it isn't fully leased?

Can you get it fully leased very easily?  Are you set up with a broker for commercial real estate to get someone in there?  What is the curb appeal?

What is the quality of the current tenants?  Is there a chipotle and a starbucks in there or are there businesses that one may consider less stable?

I would factor all of that into my offer as well as my interest in the space.

I'm currently looking at an 8-unit building in a C- neighborhood and trying to justify it.  One of the bigger concerns for me from a snowballing perspective is that since I have to put 30% down it is going to significantly eat into my available cash for other investments.  The other concern is the current leases and the timeline to raise rents.  Here is the information.

8 one bedroom units currently renting at $500 each with all utilities included (My PM thinks they can rent for 650-675 with hot water and heating included.  I think that the current owner is even paying all of the individual heating and electricity meter bills)

The heating is one system with radiators in the units.  The hot water is one central water heater.  Both systems are more than 10 years old.  Heating the units and providing hot water is a significant cost (pro forma around 5k annually, but I'm thinking closer to 6k or 7k).

This building does have coin op laundry and claims 1k annual from that on pro forma... I'll just call that icing on the cake.

Taxes 5k annually, insurance 3.5k (pro forma.. i'm not sure why its so high), and management/repairs/capEx/vacancy @ 33%

One thing that has me totally confused is the water usage.  In this area water is not sub metered so the owner pays that bill.  The city is claiming monthly bills around $150, which for an 8-unit that is 7/8 rented makes no sense to me unless people are using the place as a glorified storage unit in most of the units.  I usually budget 40-45 a month on water/sewer per unit.

What do yall think of the deal? What price would you pay for this place considering the 30% downpayment requirement (Seller wants over 200k per the MLS listing). I considered that I could get it for lower on account of the lower rents and then get it reappraised in 6 months with the higher unit rents and do a cashout refi based on the higher value of the property due to higher rents since its technically a commercial property or at least a commercial loan. I'm expecting to need to replace the furnace and water heater in the next 10-15 years (I'll have a better idea when I tour the property).

to update on this..

I talked to the lawyer at the title company and the reason for the delay was because the seller got the property through foreclosure.  The prior owner had died.  Because the old owner had died it took longer than usual to clear up all of the liens.

All good now and closing next Friday 

@Dana Whicker I thought so as well.. over half of the purchase price.  I’ll let y’all know what happens.  Probably end up closing next week 

@Tom Gimer so if the title company sends out documentation saying that the title is free and clear when it isn’t and myself and the mortgage company are skeptical that the title hasn’t become clear in 2 days time is there any concern etc?  Or since they insured the title I shouldn’t really care if they haven’t finished up on their end and just move along and close on the refi?

@Roman M.

Thanks for the response.  My concern is that the title company said they haven’t done the work to clear the liens yet (at least not all of them).  It sounds like they are just “clearing” it to close and plan on clearing the other liens after the fact since they are slow moving.  There are definitely still active liens on the property.

I also don’t have any documentation on lien releases since I haven’t created any liens yet on this property myself.