All Forum Posts by: Mark Douglas

@Ben Thomas   If you purchase it all cash, or through the LLC upfront (with a 20-25% commercial loan, through a portfolio lender) you should be ok. If it's a residential loan, the due on sale clause is something to watch out for, as John Anderson mentioned. I would consult with the lender you plan on working with beforehand, just to be on the safe side.

Sounds like it's worked out for you so far.  The property should attract tenants easily enough, just worried about the class of tenant for the area.  More turnover, more headache phone calls over non-issues, etc.

I know it shouldn't be a deal-breaker, if the mgmt co doesn't want to manage a C/C- property, but do you contact them before you buy, just to see what their thoughts on managing it would be?

I'm running the numbers on this, and I'm getting the feeling I might be over-leveraged (not a good feeling!)  Here's what I'm looking at:

10 units

9 2bd & 1 1bd

Offer price - $125k

*Currently vacant*

Needs roughly $60-80k in work

- There is only sheetrock, plumbing, electric, and subflooring

- I'll need flooring, doors, trim, casing, paint, appliances, cabinets/countertops, light fixtures, duct work for existing HVAC units, other misc. items

I'm in the process of getting a few bids for the work, but it'll be at least $60k easily.

Here's what I'm thinking in the way of financing:

20-25% down, commercial loan (if they'll loan on a vacant property needing this much work..????)

- Mortgage ~ $1,200/mo

Line of credit up to $50k for the rehab, the balance will be out of pocket funds

- LOC repayment ~ $300/mo (interest only, 5 yr balloon)

2 bd rents conservatively, $400/mo * 9 = $3,600/mo

1 bd rent conservatively, $325/mo * 1 = $325/mo

Gross rents ~ $3,925

Finance expenses ~ $1,500/mo

Gross profit ~ $2,425/mo

Using 50% expense rule ----->  $1,962.50/mo cash flow

The town has a population of 65k.  Most of the jobs are tied to a large factory, the school system, etc.

Property SHOULD be worth at least $300k after rehab is finished.

My thought was to refinance, pull cash out to pay off the $50k line of credit, and recover as much of the down payment as possible.

Am I spreading myself too thin, trying to pull financing together?

How do lenders feel about vacant properties?? 

Need a couple of bids for before I lock it in under contract.  I'd like to have a walk through with a GC setup in the next 1-2 weeks, tops.  

About 7,000 sqft living space.  Most of the work will be interior paint, installing flooring, trim, cabinets, toilets, and fixtures.  

Turnaround for job should be less than 6 weeks.  

Serious inquiries and referrals only, please.  

Thanks in advance !

-Mark Douglas  

@Mark Allen I actually just started reading that. Will pay close attention to the info.  Thanks

I've heard more and more frequently in the various podcasts I listen to, that the more seasoned investors go by the general philosophy of never selling their multifamily properties.  Assuming that these properties are phenomenal in terms of cash flow, does this strategy have a downside?

I've heard people recently mentioning that the US is headed towards a market correction.  In what ways is this different than a full crash, like in '08?

Whether one starts with no/low money, or a lot of money, at some point in the business' operation, capital is required.  An investor doesn't want to be in a situation where they are living off of credit cards/borrowed money.  Cash is king, as they say.  Makes thing much less stressful if you can put out fires as they pop up.  If you can't (don't have the money readily available), the fires will naturally spread. 

Investor discretion is advised...

If the $1,800 is per duplex, the monthly gross income is $3,600.  If this is the case, this proposal is barely scraping the 1% rule if you bought it at $360k....$230k less than what he's wanting...  I'd pass.  Even if they're in a fantastic location.... if you've got the 20% to put down on $590k, there are hundreds of better deals out there, that will give you way more than 4 doors. 

What are the appraised values coming in at?  If he doesn't have a recent (6 month or less) appraisal, check the county assessor's last valuation.  It's usually a little 8-10% low, but it'll give you a ballpark of where to come in, if you were to make a serious offer.  

Ask him what he REALISTICALLY needs to get from the sale.  

Best, 

Mark Douglas