All Forum Posts by: Trevor Brunckhorst

J Scott,

Once again, thank you for the reply. Mike, you too! The owner is willing to carry the land contract interest free. He wants a balloon payment in year 5. I will review their maintenance logs, CapEx projections, etc...

Thanks again.

I'm going to put together a bulletin with the information I have and distribute it to the investors I know that might be interested. I guess their responses will determine how good of a deal this is, or is not.

Realtyman,

Yes, I agree the decision needs to come from within. I guess what I'm looking for is any of feedback or anything I may have overlooked. What kind of NOI/Cap Rates are investors seeking on MFH units? What else could I do with the $50,000 down payment?

Would this be a deal that fits your investment criteria? If not, what needs to change for you to be interested? At what price would you feel comfortable buying this deal?

Right now, with rents where they are and a $350k purchase price, the cap rate is 13.29%. If I can get the deal for $300k, the cap rate is 15.5%.This seems very attractive to me. Any additional feedback is greatly appreciated. I would like to get an option on this property in January when I meet with the owner again.

Thanks,
Trevor

...Or, better yet, is the deal just that good that people think I am joking? I have never once done this and feel like this might be a deal that I would want for myself. I am in the "paralyzed by the unknown" mind-frame right now. Should I ask the buyer for an option contract now?

Anybody??

Thanks,
Trevor

257 views and 2 people reply? Did I post in the wrong discussion or is the deal that bad? I met with the owners today to inspect the properties, discuss their desires, and try and craft a deal. The 4 unit apartment is an old farm building that was converted to multi-family. Each unit is separately metered. These units are dated with radiated heating. Each unit is furnished with updated appliances. The seller is working on rehabbing these. He is thoroughly cleaning, painting, cleaning carpets, and getting these units rent ready. He already has commitments for two of the units. These will be ready January 1st.
Rents on these are as follows: $600, 600, 600, and 500. $2,300 gross rents.

The 5 unit building is very nice. It could use a coat of paint, but the actual units are very nice. He did a good job on getting these units fixed up and rented. These bring in 550, 650, 650, 490, and 660. $3,000 gross rents.

The 5 unit building has units that are also furnished with updated appliances. It is also attached to a very large open space. It's a huge garage that has been subdivided. 1 storage unit is about 2,000 sq. ft., and the other is under 1,500. These could be further subdivided or rented to landscaping companies, or anyone else that would need storage space. These units bring in $400 and $250 each.

The two single family homes are what they are. Both homes are rented and bring in $1,800 combined.

In total, gross rents are $7,750. NOI is $3,875. The owner is asking $350,000 with a $50,000 down payment. He will do a 5 year LC and wants $2,500 monthly payments. Here's the sweetener, all $2,500 goes towards principle. The owner is willing to sell on a 0% interest.

Annual rent roll is $93,000. NOI is $46,500 and debt service would be $30,000 - leaving a pretax profit of $16,500. Buyer will refinance $150,000 on a 30 year fixed. At this point rent rolls are about $8,500 per month. NOI is $4,250 monthly and debt service is roughly $1,000 per month. This generates a monthly cash flow of $3,250 after year 5.

Am I missing something in this? It seems like a no-brainer to me, but I can't seem to rise anyone's interest. What other kind of deals are there out there requiring $50,000? It seems like people are spending that much on single family homes in some areas?! I'd like to be able to show the owner different investments, the expected returns, and some comparables to his deal. If anyone can help, I certainly appreciate your responses!

Trevor Brunckhorst

J,
I forgot to add, if I were the purchaser, I absolutely would sell the two SFHs. Recent comps are $47/sq. ft. If current owner does a good job on the rehab these can be sold at $45/sq. ft. $108,000 in proceeds. As a long term investor, I'd hold the remaining 9 units and 2 storage units.

This is fun. :D
Trevor Brunckhrost

Here's an update. Owners have finished rehabbing both the 4 and 5 unit and are working on the 2 SFHs. 50 telephone calls from a 1 week newspaper listing. Rental rates are being bumped up $25 per unit.

Potential Rents:
$2,990.00 5 Unit Bldg
$2,075.00 4 Unit Bldg
$800.00 House #1
$700.00 House #2
$200.00 Storage Units
$6,765.00 Total Rent / Month

$3,382.50 Net Operating Income

Owner has proposed $350,000 purchase price, seller financing, 3 or 5 years. $50,000 down. They haven't stated an interest rate, but let's assume 8%. They want $2,500 monthly payments toward P and I.

I have not done any deals, but I would consider myself a long term investor. To me, this would be a decent purchase around $320ish? Please let me know your thoughts.

Being a rookie in the real estate game, I would like to broker a deal with a potential investor. I am open to ideas, thoughts, tips, direction or anything else that could help.

Thank you in advance!
Trevor Brunckhorst

J Scott,

I think you are right that the sum of the pieces might be greater than the sum of the whole. I know the owner would prefer to sell as a package.

Thanks for taking the time to clarify the 50% rule - even though it's been done numerous times before.

So for the above scenario, NOI would be the $40,290 (assuming owner provided rents are accurate).

Trevor

Don, that was all on your first rehab? Have you done any since? How long did you study and analyze before you "pulled the trigger?"

Brooks, you seem pretty knowledgable. I just posted another thread in the Real Estate Basics - Buying Real Estate Forum. Feel free to check it out and weigh in. Any responses are appreciated.

Trevor

Hello all. Thank you in advance to anyone who takes the time to respond to this thread or help me understand. I've never invested in any real estate. In fact, I bought my primary residence June 4th. I primarily work business development for a Metro Detroit property management company. I've been asked to look into the details of a potential deal a would-be client sent my way. They inherited a few properties and instead of having us manage them, they would prefer to sell. Aside from a college course two years ago, I've never done this before. I am looking for some help to understand the process and identify if this is even a deal worth passing on to others.

Here is what the owner has provided me:

(1) - 5 unit MFH; this property also has two small storage spaces available to rent
(1) - 4 unit MFH;
(2) - SFH's.

Now, the rent numbers I am about to provide are "guestimates" provided by the owner. Upon inheritance, they evicted all of the tenants and decided to spend the last year rehabbing all of the units and 2 homes.

The rents provided by the owner are as follows:

5 unit - $500, $500, $650, $650, $490 - two storage units totaling $50 per month rent
total $2,840

4 unit - $425, $500, $550, $600.
[b]$2,075)

1st SFH - $1,100
2nd SFH - $700

Total rent roll per month: $6,715
20% Vacancy (monthly): $1,343 (maybe high, but we are in Michigan)
Rents - Vacancies: $5,372

Now, this is where I get confused. If I use the 50% rule, are vacancies included in the 50%, or do I take vacancies out before I apply 50% rule.

Lets assume this:
Taxes: $17,000
Property Insurance $5,000
Off Site Management $6,044
Repairs & Maintenance $5,000
Utilities $5,000
Accounting & Legal $2,000

Total Annual Expenses: $40,044

Rents - Vacancies - Expenses: $24,420 NOI

50% rule (50% of rents-vacancies) would say NOI is closer to $32,000. If I take 50% of the total rent roll (before taking out vacancies) my NOI is closer to $40,290.

I don't know which one it is, or which one to use. Clarification here could help greatly!

Asking price is $350K, but lets assume everything is free and clear and can be bought for $300k. What are you looking at in this scenario. If this was your first deal, how would you structure it? Seller is open to owner financing. How would the deal need to be structured, what terms would you look for, and is there anything I am missing?

I realize a much deeper analysis of the market is required to be absolutely certain on our assumptions.

If anyone is able to follow my scattered thoughts and is willing to work with me through this case study, I'd greatly appreciate it. I look forward to a productive discussion.

If i'm off my rocker, tell me.

Sincerely,
Trevor Brunckhorst

Will, thanks for the heads up on the previous threads. I was thinking that it would make a good forum section where people could post specific deals that didn't pan out and the details. You know, what went wrong, why did it go wrong, and what'd you learn?

Anyone else?