All Forum Posts by: Michael Le

That's a great story. And for you to have done it remotely too is awesome.

One of the big appeals of a NNN lease is that you won't have to worry about the maintenance of the building. But the assumption is that the lessee will be doing the maintenance. If the current owner is not taking care of the property when they still own it, what do you think will happen when you own it? I'm sure there are ways to structure the lease to take these things into account so I'll let the more experienced members speak to that, but I would personally be very wary.

Personally I think the tax value and the previous purchased price is irrelevant. The fact that it's sat on the market with no bites is more telling of it's true market value. So there might not be any instant equity. The bedroom situation you can likely rectify by moving some walls around. If the architecture is that out of whack with the local market I would be more concerned with that. 

However, if you personally like the style and get it at a good enough price, just enjoy it and you'll probably be able to sell it in the future if you price it right. Sounds like it might be more of a YOLO-play than an investment.

@Henry L., the cash flow amount should depend on the purchase cost. That's why there's the 2% rule, which states that should try to get your cash flow to be 2% of our purchase price. It's a percentage because $100/door cash flow is good if you paid $50k a door but bad if it's a SFR home that cost $1 million. That 2% rule is not always going to work depending on where you buy so some people do 1%. Even at that number the rule states the property above should be cash flowing $100/door. And if your number is coming out to $100/m that's only $33/door. And that's with no management fee which I don't believe anyone advocates. Even if you plan to self-manage, you have to put a price on your time.

@Tristan S., what's even more about condos/townhomes is not only is there a maintenance fee but if they have to replace the roof of the building and their current fund is not enough to cover... they will issue a one time fee to cover the cost. So you might run into a situation where you buy the condo and a year into it, they charge $3000 to each unit owner to cover replacement. That might kill a year or two of your cash flow.

Hi @Henry L., you didn't say how much your tax and insurance was but based on your other numbers and the NOI you said you would have, I guess it's around $11,200 for both. Is that right? Is that realistic going forward or might it increase? Are you sure there are absolutely no other expenses? No common area expenses like lawn care or garbage? No HOA? Do you have closing costs and holding costs factored?

The 50% rule says you'll cash flow $335/m (1%). Granted it's just a rule of thumb but that's a $500/m spread in the two methods. Even factoring 10% vacancy into the 50% rule to make it based on collectible rent, it says you'll cash flow $185/m. Not sure what to think there.

If this is your first deal, maybe you should pass and wait for more of a sure thing?

Sounds like they want a retail price so that wouldn't work from the perspective of an investor. And even though they have the same square footage, missing that extra bedroom is a big deal. Looking at the last 6 months for Weston Lakes, I could only find a single sale of a 2-bedroom house. Add on that the fact that the section is marketed for retired couples, that will shrink your potential pool of buyers.

What are you thinking to do with this property? Why were you considering it?

@Kumar Paj, you'll have to make an offer with an inspection contingency. Similar to your concern of putting in effort to analyze the property and it not working out, consider how many tire kickers the seller has to deal with. Surely if you were in that position you would not share your financial information to just anyone that asks. You'll have to use their proforma data and any other information you can find (area rental rates, area trends, area cap rates), make some assumptions and come up with your offer. Then you'll have to pay for an inspector to walk the building with you. You can revise your offer after really look at their books. In the end, after spending time, energy, a few hundred or more it might not come to anything. Consider it the cost of doing business.

@Kumar Paj, if you were going to make a serious offer on the place you would demand to see the entire building. There is no way you would not see each and every single individual unit. Would you buy your personal home on just the kitchen?

As for pro-forma numbers, those are misleading at best and possibly outright lies in some situations. They'll make pie in the sky 'market guesses' and then expect you to pay based on those numbers. "This apartment only has 50% occupancy but you would make $X amount if it was 100% occupied. So why not pay us as if it was 100%." Yeah right.

As for documentation, a tax return would be a good start. If they had expenses you know they'll deduct that for tax purposes. Check their bank statements and see if it matches the money they should be bringing in from the rent roll. 

Welcome to BP, @Oscar Freiman. I don't think it's too late to start. If you have the drive I think you can meet your goal. Read some of the success stories on here and you'll be amazed at what some people were able to achieve in a relatively short period of time. It'll take a lot of work. I don't think anyone here will sugar coat that with guru fairy dust but it definitely is possible.

Good luck to you.