All Forum Posts by: Milton Rivera

@Alex Staunton

A quick analysis:

Monthly Expenses

Debt +Taxes+Insurance+Other Expenses ($4,800+1,100+200+3,000)=9,100

Total Monthly Revenue = 9,000

You still have not included property management (if we assume a 10%) you are looking at about 10k in expenses and 9k in revenue.  Based on this information alone, it does not look like a prudent deal.  

I am not sure what the plan is in terms of metering each unit and passing that cost on to the tenants as well as other improvements that could increase rent, however, those costs should be part of the negotiations and hence on the overall price.  

@Ayne C.

The rent back sounds like a reasonable solution.  You do have to consider the length of the delay, if each delay has been about a month or two then, express the fact these delays are costing you time and money.  Being that this is a wholesale deal, we don't know how well the wholesaler managed the seller's the expectations and perhaps they were not as ready to move. If the delays are only a week here and a week there, then I would just work with them.   

The issue with a rent back is that you have to draft and put a lease in place.  This includes documenting the existing conditions to ensure they don't damage the property when they move and deposits.   It is not a quick fix but if the seller really needs more time, then perhaps you can agree to a three (3) month lease.

@Nicholas Griffin

Building your own home will give you some general ideas but making the move from homeowner/builder to an investor/developer is a significant one. 

First, in most jurisdictions you can "act" as the GC in your own home, meaning you can actually do all of the work and/or hire other trades and you can pull your own permits to build your primary residence.  This all changes when you are not going to live in the home. 

You will need to hire a GC to pull permits and manage the other trades (concrete, MEP, etc.).  I would focus on learning basic project management skills (this teaches you about keeping the triple constraints in line - money, time and quality).  I would develop relationships with architects, engineers, general and specialty contractors as well as permitting and zoning officials.  Your primary job should be to manage and hold the team accountable.   

Good luck 

Welcome to BP

@Bruce Gardner

Try vertex42.com they have tons of excel templates. 

@Chris Rubin

There are other things aside of price that makes a deal work.  

• They should be able to contribute 2% closing costs (about 6k), 
• You can also ask for a home warranty (not a huge value but it could help with maintenance for the first year)
• If there are tenants do you want to take over the leases or do you want the property empty? 

Sounds like the property is not under contract just yet, so at the point, I would focus on getting it under contract (you already know your worse case scenario by paying the seller's offer) once under contract,  you may discover other things during due diligence that will drive the price down.   

@Account Closed

I use both depending on the strategy. 95% of my deals are a typical buy and hold and I can do those faster via a simple spreadsheet. I have not set the spreadsheets up to generate reports and graphs but just a quick plugin to see if a deal meets my financial criteria (cash on cash return, ROI, profit per door, etc.) If a deal passes the initial test, I can then use the calculator to generate a report for potential lenders.

@Alicia Gates

To answer some of your concerns:

Some other concerns:

• We haven't formed a business yet - should we before closing on a deal? - Not really a need. First, most lenders will not lend to an entity (LLC or other). There are ways around this via a change in the deed after the property closes.

• We don't have any business insurance - is the property insurance enough in the mean time?  Your property insurance will change to a landlord policy, your second layer of defense is an umbrella policy.

• Not knowing anything about the tenants yet, would we be able to start new leases with them as new owners (I would think yes?), require them to get renters insurance (if they don't already have it)? This depends on the laws of your state.  If there is a current lease in place you will need to honor that, you can request copies during due diligence.  

• The property is 30-45 min away, so we need to build into our expenses at the very least a handy man and a maintenance man for emergencies and then routine lawn care and the like. Have we already accounted for that using the 50% rule? In general, yes, but the 50% rule is just a broad guideline.  I would break those number down and get actual costs (example, $50/month for lawn, 15% of rent for repairs, etc.)

@Will Gates

Great job at being pro-active and getting involved.  A few things to consider:

• What are the area comps?  Is this the going price for similar properties in the area, if not, why are these properties priced at this rate?  Two duplexes @ 120k = $30k each and getting a rent of about $750/month makes it a 2+% deal which on paper looks good. 
• At this point, make an offer to get the property under contract.  There is still a long way between running your initial number and actually owning the property.  Once under contract, you have to do a thorough due diligence:
  • Request a copy of the leases and rent roll for the properties.
  • The fact that there are no pictures, there may be more deferred maintenance that you think.   I suggest getting an inspection. 
  • You will need to include the cost of any potential deferred maintenance into the overall price.  This will change your numbers.   

To address some of your questions:

• Did I miss anything? - I would include a property management fee (10% in case you have to use a PM at some point), the price may change with the actual repairs that are needed.
• Are my calculations and assumptions correct? (I know, assume makes an A** out of U and ME.) but humor me, please :)  In general, yes, I would create more detail breakdown of the expenses (vacancy, property management, repairs, cap X vs. using 50%).  Use the BP calculators.
• Is this worth pursuing as a first deal even if we're not able to get a lower price via an offer? - This depends:
  • What is your profit criteria? What is your COC return target? Monthly cashflow target, etc.
  • We can assume but until you get it under contract, that creates your baseline number.   

These last four are more personal and only you and your wife can determine that.  Sooner or later if you are going to be an investor you are going to have to go from running numbers to actually acquiring properties.  You will never have all of the information and fears will always be present.  All you can do is put a process in place that covers most of your bases and allow the process to re-assure your decisions. 

• Is this too much too soon?
• Is my wife correct in her fears of jumping in right away?
• Is it worth trying to partner with someone for a learning curve?
• Or...should we dive in?

Good luck

@Carlos C. undefined

Did you complete a move-in inspection?  If so, is there a checklist?  Both parties should review and sign and this creates the baseline conditions.  A similar move-out inspection is then performed and this documents the damages.  Again, both parties need to review/sign.  

I concur with Kyle - the damages are the damages and hence the costs of repairs is what the tenant is on the hook for.  You can share the costs incurred if so remember to account for your time.