All Forum Posts by: Abraham Anderson

My philosophy is, if your offer doesn't embarrass you, it's too high! You'd be surprised at how inflated it can be sometimes. Asking price was $150K on a property I looked at recently, and I got it under contract for $97.5K.

@Mark Patino Quick update, I do have the park under contract and I am working towards closing/am doing due diligence. There's so many moving parts, I'm not going to celebrate until this deal is finalized. Once it is, I will post all the details.

@Mark Patino I've been going back and forth with the owners since August. This coming week I should know for sure whether or not I'll be proceeding. I'll give a more thorough update either way at the end of this week.

If you can get a loan/have enough for a down payment, go as big as possible. My first rental property was a 20 unit. Step 1 should be define your strategy & make a credibility book which shows what you invest in, your chosen market, strategy, and why you personally are a bankable (list your assets, income, savings etc). Then take that to banks until you get one who will give you a pre approval letter. 2nd is to take that letter & give a copy to every broker you talk to so they take you serious and know you're financially able to do the deal. The larger the property, the easier it is to manage. That sounds counter intuitive, but the reason it's true is because with more units, you can afford to save more money in maintenance reserves, you can afford property management or a full time repairman, they are much easier to finance (I've had bankers tell me that multimillion dollar properties are easier to finance than single family homes) and so on. Go big! Good luck!

@Rohit Jindal depends if the utilities are public/private and who pays them. For public utilities that are billed from the city directly to the residents, expenses average 30-35%. For private utilities it can be 40-50%.

I've been back and forth with mom & pop (off market) for about a month. This deal has a lot of moving parts, I’ll try to keep it simple:

100 lots, lot rent $250 (substantially under market) city water/sewer 100% occupied paved roads owner is willing to finance 100% of it at $5K/month for 20 years BUT, they want $3M purchase price. Right now park is realistically worth $2.1M before any improvements

Another major issue is, currently the entire park is land-leased to another guy (75 years old) who owns 70 (!) of the homes. I also talked with him and he wants to work out a deal where I manage the entire park for him for 15% of the gross income ($469K last year), and convert all the park owned to tenant owned homes (he wants to do this).

The $5k/month with the actual land owners (also 75 years old) wouldn’t start until the current land-lease is up, so my expenses for the next 7 years would be zero, I’d essentially be managing & improving the park that I’ll eventually own. If I went for this deal, my plan would be:

Get it under contract with actual land owner, air-tight where he nor his heirs can back out of the deal Then get a deal worked out with the current lessee to manage his park for 10-15% Convert all homes to rent-to-own (rent credit, etc) Gradually raise rents to market

The fruits of my labor won’t come into effect for 7 years, but then I’ll be cashflowing like a beast for the next 20 years since $5K/month won’t even be 1/3rd of what actual bank financing would cost. After raising rents to market (within 1-2 years) the park would be valued at over $3M. In 20 years it should be no problem refinancing at a bank.

I'm in Sevierville, I'd be interested in a meetup also.

Here's a quick way to evaluate a property: take the annual gross income, multiply times .5 (half goes to expenses, divide this (the net operating income), by your desired cap rate (e.g. 8%)

Here's an example: $100,000 gross income, x .5 = $50,000 net operating income, divide this by .08 and you get the purchase price of $625,000.

If they're asking $650K, the property is probably worth looking into. If they're asking $800K, I would probably pass.

@Kay Kay Singh I really enjoyed your recent podcast with Jake & Gino, lots of good info there! https://www.youtube.com/watch?v=TmfokyNk4jw

You're never too young to start :) my first deal was at 18, New construction flip of a quadraplex. My next investment property was a 20 unit apartment community at age 21 (last year). Now I'm looking at bigger deals. My advice is: save as much as you can, increase your earning ability, and invest wisely (real estate is the best way to build wealth)!

Originally posted by @Chris Ebert:

@Abraham Anderson, who pays for the water? Park or tenants? Based on the expense ratio it appears to be the tenants. If that's the case I would lower the cap rate closer to 9%. I do agree w/ @Aman S. on variables to consider and believe that metering of units is a big factor in pricing becuase of the ability to minimize variability in your expenses. 

Residents pay all utilities. The roads are also paved (a bit of deferred maintenance there), also the homes are laid out sideways like stick built homes, so it's going to look beautiful once it's rehabbed.

The only "risky" thing to me is the sewer is on septic. How much would you set aside per month, per unit, for period pumping/replacement of tanks that may fail? The septic's are hooked up to leach fields.