All Forum Posts by: Doyle Brown Jr.

@Juan Turner Yes, I use the 2 percent rule on commercial properties as well. Generally I use it for added value properties where I know there's mismanagement and deferred maintenance aka capex expenditures that are long pass the point of service. The property will only be as good as it appraises for and/or the income it generates relative to cash flow, ROI, & Cap Rate.

Generally added value properties don't include B-A+ properties but capex expenses should always reduce your offer price. Like a standard flip that's your ARV. I use these tools to get a discounted purchases price that yields equity with and without repairs. Now in my book that's the ultimate because a good investment is one where I make money when I buy, I make money cash flowing as I operate, and have multiple exist strategies provided I decide to unload & scale to a larger asset.

Most certainly I'd run the numbers in the actuals, ie, the 6 leased income producing units. If your inheriting tenants there's some X & O's. involving security deposits,  rent roll history by unit, dual rent roll verification: 1. Bank account deposits and if necessary 2. tax returns.

I advise your assessment be made in actuals, verifiable data, and what it takes to get to proforma. 

Here again this is my methodology, I'll never state that's it's right but it has provides me leverage to account for unforeseen expense after closings. 

Hey Juan. As a rule of thumb I never buy negative cash flowing properties. Why should you pay for another operators deferred capex? You shouldn't. At a minimum, that's a basis to better negotiate your purchase price. Don't buy in pro forma or presumed appreciation, buy in actuals! Leverage the value add in your negotiations

You have a multitude of munition to negotiate a discount purchase price that accounts for underperforming operations and deferred maintenance. Assess thoroughly 

Routinely, I analyze deals using the 2% percent rule. For every incremental $180k of the purchase price I recess the 2% by .0018 percentage points. Again this is just my baseline assessment that takes 1 minute. If the numbers fall within a certain tolerance I take it the step further and run a full scale financial assessment. 

Sounds like you have the ear of the seller but your not speaking her language. Question, what's her motivation to sell? And why do you want to buy this property. Is this a Single Family or multifamily property? What's the Gross Monthly income or is this a prospective primary residence purchase?

Need More info

Is it possible to refi before seasoning property deeds?

@Ronaldo Carvalho  I agree with @Brent Coombs that you need to know the cap rate in your area so that you can purchase above market. 

Thou cap rates are important, you need find out what you want your return on investment to be. I generally use the 2% rule to determine a quick quant purchase price. This will give you a better idea of what your cash flow (profits) could look like if you were to purchase a property at that given price considering the associated expenses with servicing the debt and operating the property. Here's my general start to assess a deal. 

1. Calculate what the Gross Operating Income is per month

2. Divide that number by 2%

3. The result is a purchase price that would yield a 24% annual cap rate. 

3. Find out all cost associated with operating the property: debt coverage, management fees if your not going to self manage, taxes, maintenance, management, capital repairs funds,....etc.

4. Create a mock operating financial statement. :Income = gross months rent - 10% vacancy rate; Expenses = #3

5. Assess the numbers

6. Determine a offer price and if the property is a good deal. 

There's so many other things to consider beside the cap rate but this will start you on the activity of assessing deals. Hope this helps! Message me if I can be of assistance!

DGBJR

Survey completed! 

Look forward to assisting however I can Gary!

Hey Gary! Welcome to BP. I'm in Rutherford County, about one hour and twenty minutes from you, due southwest. I'm a avid buy & hold/ note/ wholesale investor. I come across many deals in the desirable Cornelius Lake Norman area. I'd love to network with you further and discuss your investment goals and needs.

Best Regards,

Doyle

Greetings,

What's their budget?

Hey I think the ball is plenty in your court. Simply ask her to carry a note for you, i.e. Owner finance. You get the deed for a down payment and allow her siblings to stay for 1 year at $300 a month for each unit (providing each sibling stays in each of the 2 units). Purchase price should be conducive to you incurring little holding cost. So long as you have ownership of the property  for 9-12months you can use the property as collateral to get a loan. Use the proceeds to pay her off, rehab the units, and bring rents to market rates in preparation for new tenants. I'd sign leases with the sibling tenants for 1 year at the $300 each. While you'll have receive no cash flow during the seasoning period, you would have vested yourself in the property and financed capital to recoup your down payment & annual taxes, purchase, and rehab. There's many other things to take into consideration but providing everything being equal, if she's not pressed for cash, you've solved her problem of providing tenaments for her siblings, purchasing the RE, and satisfying your need to acquire the property.