All Forum Posts by: Justin Workman

Yes if you have 200 invested and they only invest 180 for the same NOI the cap rates would be different. definition of cap rate noi (net operating income)/asset value. How fast will your money return to you assuming no leverage.

In this case i am using it as a return on the investment with out leverage.  Which it is.  The market only sets cape rates by driving up or down purchase prices, rental rates, and expences. Which change the rate of return. This is the unleveraged rate of return, which assumes its a cash deal, same thing as a cape rate. Baised on your assumptions above if you can only get 500 for the apartments and 800 for the comercial, i would probably do comercial, but it depends on the area, demand, and outlook of that neighborhood.  Where is it heading, is it moving towards a walkable community where retial is desirable, or is it a place where it dosent fit the surroundings and would better serve the area as apartments.  All things to decide before you jump in, because the numbers will be different.

lets start by looking at the numbers.  Your projected rents are 3000 per month or 36k per year in gros rents.  Subtract out all of your expences, taxes, insurance, vacancy, maintance, lawn care snow removal ... roughly 50% of your income is the rule of thunb but run the numbers.  It leaves you with a net of 18k per year.  With the repairs mentioned i think your rehab budget is way to small.  I would gues you would be closer to 100k posibly, because you are spliting the utilities and updating you are also going to have to build firewalls to seperate each unit per code. It depends on what you do.  Lets say you buy it for 100k put 100k into it on the rehab and rents and expences net you 18k per year.  18000/200000 = .09 or a 9 cap.  Not the best deal for the risk and work required.  If you only put 50k into it, its a 12 cap which is beter, but again its a lot of risk.  Also consider comercial space normaly has longer vacancies between tenets, and the property taxes will uncap once you buy it and could raise your tax bill significantly.  Keep digging into the numbers, and be conservative on your estimate, make sure you cover everything.

I have not purchased anything from the land bank, but i have heard its quite a process.  You need to supply tons of documentation with your offer, and highest bid dose not guarantee you get the house.  You have to supply an itemized bid for the rehab, list of contractors, as well as a history of your company and the contractors.  Show proof of funds for the purchase price, rehab cost, and additional funds for overages. There are more things required, but thats some of what I have heard people complain about.  I dont think its an easy process, but it may be worth it.  Good luck

I would pass, negotiate a longer term or use conventional financing at a better price.  It sounds like a smart seller and a novice buyer.  You could pay slightly more for the properties if the seller is giving you great terms that will make up for the high price, in this case he is offering higher than conventional intrest rates and a short term. You will need to improve the value by 10% above your purchase price in the next two years in order to refi with a traditional lender. Sounds unlikely with the limited improvements listed.  I would keep negotiating or move on.

It has been a very hot market, once forbes rated gr as the best city to invest we have been flooded with investors, driving prices up.  We are at record low inventoryand a high demand.  You can find deals but its harder then ever.  Current cap rates on sf are 8 or 9 multi are 6 or 7.   Get aligned with a good pm and realtor and they can help you out, but I would be cautious about anything they say is a great deal.  If you find a good deals you need to act fast because it wont last.  Good luck.

congratulations, on all of your hard work, preparation, and action.  You have succeeded because you went out and killed it.  Keep going.

I would just sit down and talk to the seller.  Find out what they deam reasonable.  Making a low or unreasonable  offer may turn the seller off and kill the deal.  Typically comercial loans have an interest rate 1% higher then a standard mortgage.  If the property is listed the selling agent will often advise them to get around 7% or more.  Also if it is listed make sure the down payment is large enough to cover the commissions and closing cost.  The best option is to talk through it, and then run the numbers after the discussion to make sure it works.  If you need any help please let me know.

I would consider selling it and taking the small loss.  It sounds like the rent will not cover the payment.  You now have to switch your mindset and treat it as an investment.  You would buy it as an investment property?  Probably not, because it wont cashflow.  With it constantly eating cash for monthly mortgage payments, property management fees, turn over and repairs,  it may hurt your investment goals and will effect your mindset.  I wouls sell it and start fresh in Grand Rapids with something that you can make money on.  Real estate is a numbers game, so run the numbers.

If you sell today and lose 20k its over.  If you rent and lose 300 per month hoping for market apreciation it buys you 5 years to sell and break even.  Thats assuming the market will rise and you can sell it for what you have into it during that time.  If the market drops you would still loose 300 per month and may have to take the loss anyway.  Personally I would sell it and start fresh, if its new you shouldn't be out any more than the realtors comissions and some closing cost.

Grand Rapids has a great investor community.  Check out the RPOA for all of your documentation, training, and networking.  Also join the meet up group.  Lots of great people that are willing to share and assist in your journey.  Grand rapids is a hot market, so do your homework, run the numbers and keep pushing forward.