All Forum Posts by: Jeff O'Neal

@Joe Crabb - mark your calendar

@Joe G.  That's correct -- the broker (who also owns the property management company) had full access to actual operating data but chose to omit these larger expenditures with the justification that they were non-recurring and therefore wouldn't be representative of future operating costs.  I guess the same situation could occur anytime a seller makes significant improvements before a sale.  Including the cost of a roof replacement on the proforma, for example, would likely drive the cap rate to zero even though the property may cash flow well in subsequent years.  I think I understand the broker's rationale, but I would have been more understanding had this info been disclosed as a footnote on the proforma.

I have okay financing terms for this type of property (80% LTV, 5.5%, 20 year amortization) -- not sure how much better I could do with respect to the cost of capital with two more rate increases expected this year.

I’m currently under contract on a 16-unit apartment complex. The broker’s pro-forma showed NOI of $51K, however, when I dug into the income statements, actual NOI was only $36K. I called the broker, and she explained that she had omitted a few expenses from her pro-forma (new paint, carpet, plumbing repairs) since they were one-time, non-recurring charges. What appeared to be a deal with decent cash flow is now close to a break-even deal after considering mortgage expenses. I feel that these are very real expenses that should be taken into account when arriving at the cap rate and sale price of the property - regardless of whether or not they were one-time charges. How would you handle this situation? Renegotiate? Walk away? Accept the “non-recurring expense” rationale and move forward with the deal? Thanks in advance for the second opinions!

@Tom S.  No, I couldn't make the cash flow numbers work after receiving the income statement.  Those broker pro formas always paint a pretty picture!  I'm still working with the same lender, but we've had two rate hikes since then, so we're now up to 5.5% at the same terms.  I'm hoping to land something soon to avoid the two other rate hikes that are scheduled for later this year.

Sorry for the late notice, but I plan on attending and look forward to meeting you all then.

I'm pursuing the purchase of my first small apartment building (6-units), and I received a commercial loan commitment from the local branch of a mid-sized regional bank.  The details of the loan are as follows:

• $250,000 purchase price
• 80% LTV (lessor of the purchase price or the appraisal)
• 20 year term
• 4.75% rate fixed for five years, adjusted at each 5 year anniversary to the current 5 year Libor Swap plus 300 basis points
• 0.5% origination fee
• Operating checking account maintained with lender

Does this sound like a decent loan?  Is the 5-year adjustment typical?  Should I try to negotiate the origination fee, or is it reasonable?

Thanks in advance for your input!

I'm in the final stages of my first rehab project, and I found the estimating tools at homewyse.com to be surprisingly accurate for my area.  My contractor's pricing has been coming in toward the low side of the estimate range, but I would use the high side estimate and maybe even pad it a little to account for a worst-case scenario.  It's not an app per se, but rather a mobile-friendly website calculator that provides material and labor costs for just about any repair/upgrade you can think of.  I'm sure it's no substitute for years of rehab experience and in-depth knowledge of your local rehab costs, but for a newbie, it's certainly going to be better than pulling numbers out of thin air.  I used it in conjunction with J. Scott's rehab analysis spreadsheet:

http://www.biggerpockets.com/files/user/JasonScott...

I'm sure this isn't the most elegant solution, but it worked for me.  Hope this helps - happy rehabbing! 

While rehabbing a property prior to putting it on the rental market, are holding costs added to the basis as a capital improvement or treated as deductible expenses?  I'm referring specifically to costs such as utilities, taxes, insurance, lawn care, etc.  What about mileage to and from the property during the rehab process?

Thanks everyone for the feedback.  Lessons learned:

• have a realistic/conservative view of upfront costs & ongoing monthly expenses
• insure your investments (or hope for favorable rezoning, lol)
• don't allow your properties to become animal shelters

A question for both newbies and seasoned pros:  What was the first major mistake you made as an RE investor, and what did you learn from it?