All Forum Posts by: John Leavelle

@Rick H. Thanks for the book suggestion. I will put it on my list. I definitely am not the lender (Yet!). I'm am looking at it from a Buy and Hold prospective using the BRRRR method (Buy with creative finance, Rehab, Rent, Refinance, Repeat).

Should I be concerned witch type of loan (Fully-Recourse or Non-Recourse) I use?  Any Pro's or con's?

Hello BP community,

Not sure if this is the right forum.

While looking for all my creative finance options I came across the terms Recourse Loans and Non-Recourse Loans.

My understanding is Recourse requires collateral (The Property) in case the borrower (Me) defaults on the debt.  “Full Recourse” meaning the lender can go after my personal property as well to meet the obligation.  “Non-Recourse” means collateral only and no personal property at risk.

Am I understanding this correctly?

Also, what are the pro’s and con’s for each type?

Any inputs will be appreciated.

John

@Ben D. you state a NOI of $11,000. That's only $917 per month.

How would you finance it?  Conventional Bank loan?  Even with excellent credit, you might get something like $260,000 - $52,000 (20% down) = $208,000 mortgage

3.625% APR (30 yr.) = $949 PMI

That's  $32 in negative cash flow

I wouldn't  give this a second look.

John

30 Day Challenge:  Property #4

List $249,900, San Antonio Tri-Plex, 1,842 SF, Built 1949 Reno 1989, “C” Neighborhood, 1 Bed/1 Bath ($600) Occupied, 2 Bed/1 Bath ($750) Occupied, 1 Bed/1 Bath ($650) Handicap Access – Vacant.  Separate electric and common water meters.

Seller Performa:

GAI:  $24,000 ($2,000 month) – Fully Rented

Expense:  $4,000 (Tax & Ins.)

NOI: $20,000 ($1,667 month)

Tax:  $3,670

Vacancy:  8% ?? ($1,920)

My Analysis:

GAI:  $24,000

Expense (55%):  $13,200

NOI: $10,800 ($900 month)

Finance: List $249,900 - $49,980 (20% Down) = $199,920 Mortgage 4% APR (30yr) or $954 PMI.

Seller Cash Flow:  $1,667 - $954 = $713 ($238 unit)

My Cash Flow:  $900 - $954 = -$54 (-$18 unit)

Additional Info:

Rent is close to market rates for the area.  However, Sellers numbers are way off so I will go by my analysis.

Further Action:

1.  Property does not come close to minimum Cash Flow requirement ($100 per unit).  The property price would need to be almost 50% of List to be profitable Cash Flow.

2.  Pass on this property.

30 Day Challenge:  Property #3

List $152,000, San Antonio Duplex, 1,428 SF, Built 1920 Reno 1981, “C” Neighborhood, Both 2 Bed/1Bath and rent for $725/$695, Separate electric and common water meter.

Seller Performa:

GAI:  $17,040 ($1,420 month)

Expense:  $3,950 (Tax & Ins.)

NOI: $13,090

Vacancy: 0%

Tax:  $2,029

My Analysis:

GAI:  $17,040

Expense (55%):  $9,372

NOI: $7,668 ($639 month)

Finance: List $152,000 - $30,400 (20% Down) = $121,600 mortgage or $589 PMI

Seller Cash Flow = $1,091 - $589 = $502 month ($251 unit)

My Cash Flow = $639 - $589 = $50 ($20 unit)

Additional Info:

Rent-o-Meter.  Rents ($725/$695) are close to market rate.

Median:$750

Average:$755

60% $632 - $879

80% $567 - $944

Follow-up Action:

1.  Property does not meet my minimum Cash Flow requirement of $100 per unit to justify any further analysis.

2.  Pass on this property.

30 Day Challenge:  Property #2

Property description:

List $123,900, San Antonio Duplex, 1748 SF, built 1984 Reno 1988, “B” neighborhood, 2B/2B – Both rent for $795, has foundation issues. Separate Electric, common water meters.

Seller Performa:

GAI:$18,000

Expense:$3,600 (incl: tax, ins., Maint., PM)

NOI:$14,400 ($1,200 month)

Vacancy: 6%

Tax: $2215 (2013)

My Analysis:

GAI:Rent $795 x 2 = $1,590 x 12 = $19,080

Expense (55%) = $10,494

NOI:$8,586 ($715.50 month)

Finance:List Price $123,900 - $24,780 (20% down) = $99,120 mortgage; 4.1% APR (30yr) = $473 PMI

Seller Cash Flow:  $1,200 - $473 = $727 ($363.50 unit)

My Cash Flow:  $715.50 - $473 = $242.50 ($121.25 unit)

Additional Info:

(Rent-o-meter): Based on 36 2-Bed rentals in 1.26 miles.  Rent ($795) is at market rate.

Median: $755; Average: $769; 60% $604 - $933; 80% $517 - $1020

Sellers numbers do not add up for GAI based on rent stated.  His expense amount ($3,600) also is not correct (6% vacancy = $1,145; tax = $2215; that leaves  $240 for ins., maint., and PM).

There are foundation issues, therefore, I would not be able to get bank financing. Options would be Seller Finance, Private or Hard Money Lenders, or cash partners.

This property still meets my minimum standards of $100 per unit cash flow at List Price.  It would warrant more in-depth analysis.

Alternative Price Points:

List:$123,900

Strike:  $111,510 (90%)

Goal:  $99,120 (80%)

Low Offer:  $86,730 (70%)

Follow-up Actions:

1.Request additional info from Seller/Broker.

2.Get comps for area.

3.Find financing.

Please provide any coments

@Cory Damon, @Chirag Parikh, @Jamane Y.

Thanks for the support and interest.

@Neal Collins  Thanks for the comments.   I would love to get my boots on the ground like you say, however, like I have mentioned in my blog, 

https://www.biggerpockets.com/blogs/7176/blog_post...

 , I work an average of 60 - 70 hrs per week.  I do drive some of the streets in my target area, on my way to/from work, when I can.  Therefore, this is my best way to get familiar with the market area. 

I will not be paying List Price for any properties I purchase.  It is and has been very beneficial to me.  I plan on using creative financing for my purchases (No or Low money Down).  Like @Brandon Turner says I must be extremely conservative in my analysis.  That's why I am using @Michael Blanks method of analysis using 55% for expenses.

This process has already given me a few properties to take a more in-depth look at.  Once I finish the 30 days I will be looking/needing a Realtor to get off market properties and additional info on those I identify.

Again, Thanks for the support and comments.  :)

John  

Thanks @Shannon Keating for the support.  Jump in and enjoy the ride.  @Nick B. is already making it worth the time.

@Nick B.

I plan on using the BRRR system. Buy with Private money, Hard Money, or Seller Finance. The Refi with Portfolio Loan once property is stable. I am actually putting this one on a short list to watch. Still need to get a team together (Realtor, GC, PM, etc) before I move on anything.

Also, rent info is from RentoMeter.   How reliable is that site.  Still want to drive the area to get better feel.

@Nick B.

Right, If I were purchasing this property I would work to raise the rent to that level.