All Forum Posts by: Michael Randle

I know when the foreclosure paperwork is filed in court there should be a number (mortgage $ amount) on the court documents which state how much is still owed to the bank (along with other fees).

The trick is to find what court the foreclosure process is taking place in (google), and then it is a matter of pulling the public records for your land lord and reading the documents. This usually means physically heading to the court, talking with a clerk, and paying some cash.

If you plan on truly heading down this path you might want to get per-approved ASAP with a lender, that way if the numbers match up you can go to the landlord for a quick sale, or if need be go to the bank to take over his mortgage.

Hello everyone,

I am currently educating myself on underwriting small sized (sub 10 unit) multifamily deals to sharpen my skills. Usually I am going through MLS portals (ugh) or loopnet (boo!) to find buildings for sell so I can crunch numbers. But not wanting to crunch numbers on the obviously horrible properties I am looking for a quick rule of thumb people use to get past most of the garbage on these sites.

I was originally using 10% for Capex, repairs, 10% PM, 10% Vacancy rate, and 10% profit. I would then roll Insurance, P&I, and Taxes into the broad category of Mortgage and have that as part of the other 60%.

I know there are other expenses like, water/gas/sewer/electric, Garbage but usually you cannot get these numbers from public websites and you need to reach out to the broker/owner to get these. 

My question is what other expenses do you look for to factor into your calculations?

Also I picked up on the 50% rule (recently), is that what most people go by before jumping too deep into underwriting and how useful have you found it? Do you feel like you are missing out on some decent properties with it you wish you had picked up or are you comfortable with how accurate it has been?

I will be the first one to jump in on this. I am by no means an expert and I believe other people will be able to talk more about numbers in greater details.

I see a few little things I could poke at but lets just go with the Elephant in the room. You are claiming a purchase price of $474k and an ARV of $800k with a repair budget of only $19k. This means you are essentially buying a $800k apartment building for for only $504k.

While this is possible to do, it usually requires a few years of appreciation, tenant stabilization, and much more money investing in the rehab then just just 3.3% of the purchase price.

I cannot stress how much of a red flag to myself this deal looks like with that purchase price vs ARV and that little of capital invested to fix it up.

But putting that aside you will then be operating at a net loss when it comes to cap flow. While this isn't a big deal if you can offload the property fast and take your $300k all the way to the bank. You pitching a 3.41% pro forma with a negative cash flow as a 'attention investor special' on loopnet might not get the amount of traffic you are hoping for.

And lets say your property is a solid B property after your investment. And you have an NOI of $27k, if your cap rate in your area for B is say 5.5% you would be looking at a sales price of $500k, so you will need to justify higher rents if your area can even support it.

There are just a whole bunch of red flags from my (amateur) point of view on this one.

Just out of curiosity, where did you find this deal and where did you get your numbers?

@Jason Lee It sounds like you are asking how people decide where to invest. This is a tricky question, mainly because it depends on what you are looking for in a property. Cash-Flow, Appreciation, stability, fix-n-flip etc.

It sounds like you are looking for cash flow, and you are right mid-west (right now) is the cash flow king. And although I have not looked into those areas very much, plenty of active investors on here swear by these markets. If you want to get into the nuts and bolts message @James Wise.

Now if you are looking into different criteria or a different area you have to identify who/what you want to be marketing towards. You say college/military bases, great starting criteria, but you should probably get into more of # college students or advantage of the military base. A military base with a critical mission, something other then a depot or staging/housing, and a 4 year state public college, so you get that government money from student loans coming in.

@Chrissy Parsons, what list source or mailing list broker do you use that gets that in-depht with Age/Financial stability scores?

"Its on the front of the building..."

But sarcasm aside, I would say something like "I got your address from the public record on file in *blah blah* county/city/state."

Then follow up with the pitch,

"I noticed you are getting tax bill for *property I want* sent to *out of area*, would you be interested in selling your out-of-area property?"

Trying to think of a better term then out-of-area but you get the idea I assume.

@Ivan Barratt, I have noticed that about the sub 5 cap rate. But more of the deals I am looking at are off loopnet (where deals go to die) in order to just get the idea down and to see what some agents leave off or add in (pro forma) in order to try and push the property.

Right now I am trying to get more of a feel for what market I want to jump into and find the tricks (red flags) I can expect to see when it is time to start making moves. Also trying to get on a few mailing lists from non-loopnet type sites so I can get a flow of info to work with.

@Bjorn Ahlblad I like the shoe size comment. And I agree, but when I send out an information sheet to the realtors I know cap rate is something they expect to see so they can hunt down properties. It is just odd that something so easily manipulated is the 'baseline' for finding deals.

Well I have $270k of equity in our primary residence and house hold income is $130k a year with only a monthly mortgage payment of $1600 being the only debt. So I am not too worried about supporting the debt of a small (sub 10 unit) multi-family. Just the main hurdle is getting the 70%-80% LTV, and hence the 20-30% down payment, that is generally (from what I have read so far) the requirements for a commercial loan of this size.

It would seem that a HELOC for a down payment on a new investment property when it comes to SFR or 2,3,4 Plex is a no go due to Debt to Income ratio.

But can I use a HELOC as a down payment on a 5+ unit?

@Todd Dexheimer Thank you for the excellent mailing list leads!