All Forum Posts by: Michael D.

I sure do appreciate the aggressive offers! I'd have to decline even $55k though. :-(

But I will post them on this forum and see what happens.

I own a number of single families that I bought for myself as part of a buy/hold plan. They're now performing nicely and my CoC is good - but I'm starting to wonder if I might not be better off just selling them at a healthy cap rate to some else who wants solid turnkeys, so that I can turn around and do it again. I'm pretty good now at the acquisition, rehab, rent, management process.

Any ideas how I can go about looking for buyers for the these 4 houses (and possible future houses)? I wouldn't want to put on MLS or list with traditional realtor I don't think. I also don't want to have a parade of potential buyers bothering the tenants. I'd rather have someone very well qualified and serious before doing any showings.

Any advice much appreciated.

You don't mention all the expenses that you're considering, and you've mixed two important expenses in with your mortgage by giving us "PITI." Better to give the mortgage payment and then separately the Taxes and Insurance.

The comps are important, but keep in mind that in a lot of neighborhoods all the comps are quite distressed, and some distance from "turn-key."

If this is a true turn-key, then it should come with a tenant and management in place. Does it? If not, then it's not a TK, it's just a house you're buying.

Anyway, I'm guessing based on your rough numbers that you cash flow somewhere around $100/mo or so, based on NOI around $500/mo and mortgage payment of $400.

So your CoC is $1200/yr / $22k = 5.5%

$500/mo = $6000/yr, which is about 6.5% cap rate. Not horrible, but not that great either. 

@Marci Stein - the worst part of this is not the painting or the fact that the tenant wants a rent reduction or any of that - it's that "you really need the rent money." That's a big problem, and one you need to address as an emergency. If there is no other way for you to improve your monthly headroom and stockpile some liquid assets, then your best bet is probably to sell this property.

If you want to get started, then find a way to add value. If you think a partnership is a good idea, then what are you bringing to it? If your answer is effort or time, then honestly you don't have much chance. Those things are easy to buy by the hour, and nobody needs a partner for that.

(Warning, I'm about to give ideas that I don't really know anything about)

The total short-term cash that you need is $200k. Structurally, I think you would setup an LLC to be the exclusive owner of the property. This LLC would need to be funded with the $200k, which you'd get from however many people, including yourself, can come up with the money, dividing ownership appropriately. $100k would be used for the initial down-payment, and the other $100k would be used for all initial repairs. You'll also certainly have to personally guarantee the loan, so be careful what you're signing up for.

Income from the property would be distributed according to the LLC operating agreement, probably according to ownership interest, with maybe an override for whoever is doing management tasks.

I think you need to find a partner. You don't have enough cash to do this properly, which would require spending $100k in the first year to get everything dialed in, rather than bit-by-bit over time. As you point out, even doing it bit-by-bit is a struggle based on expected cash flow.

I wouldn't think it's a good idea to make the seller a partner - he's trying to cash out.

I think you'd be somewhat limiting your buyer or renter pool, but I'd hardly call it a deal breaker. How many people actually use a tub? Well, we do, but then we have little kids.

You're about to lose a bunch of money on this building. Trust me. In my mind, the numbers are horrible, there's likely a ton of deferred maintenance, it's been poorly managed, etc. The two vacancies are likely your best tenants.

The reality is that right now there is about $1150/mo in scheduled income, because two units are rented. If the other two units were easy to rent, then they wouldn't be vacant. Don't pay the seller for all the work YOU are going to put into it. You pay for the building as it is now, which is crappy.

Let's say it was completely fixed up, you've done all the work, spent all the money to fix it up, and gotten new tenants (probably 4 new ones, to be honest). Then you'll have a building which is still only bringing in around $2300, which is probably an annual net of $14,000 or so. In which case it's worth $140k at a 10% cap rate, and that's AFTER all the hard work and headache. You don't need to pay the seller for all the hard work you're going to have to do.

You're going to have to put $50k into this project. Offer them $120k and if they don't take it, just walk away. Sadly, if you walk away you won't know how lucky you got. But if you take it, you'll regret it.

@Lane Kawaoka

I would expect the expense ratio to go down a bit, but not until you get a little higher than $1000, and not as much as people hope. Certainly if you're renting a house for $3000 you shouldn't expect $1500/mo in expenses. OTOH, Taxes and insurance on such a house might run you $1000/mo all by themselves - so it might actually be close.