All Forum Posts by: Wesley W.

Thank you to everyone who weighed in with their opinion. I killed the deal this afternoon. I knew that was the right thing to do. Our $30K down payment went from yielding us $500/mo. to $250/mo. Which meant we'd have to save another $15K to get the same return on the original investment.

So, we're waiting for the next deal to come along. Thanks again!

Yes. My realtor (whom I really like, by the way) tells me that it would be very difficult to get each seller to produce the swath of paperwork required during the approval period prior to submitting an offer. He also says that that's what the att'y approval period is for. I put up $2K in earnest money. Not sure why that is germane. Please explain!

Hello, all!

Well, we are under contract for our first of hopefully many multi-family investment properties to create a buy-and-hold portfolio.

Here's the issue. The seller grossly underreported the taxes, insurance, and water expenses for the property (they were listed on the MLS). So, during the attorney approval period, we get copies of the paperwork and discover the discrepancy.

How much were they underestimated? By $3000 a year. This cuts into our cashflow significantly - our analyses showed a little more than $500 positive cashflow a month (it's a 5-family unit), and these new figures will cut that in half.

After speaking to my realtor, he says we should ask for money back at the closing for the difference over a few years. (He suggested $4000-$6000.) basically, the seller writes us a check at closing for that amount.

Here's what I totally dislike about this notion: after 2 years, we are still going to have those expenses (hell, they'll almost certainly be higher by then), and we'll have a few more decades of debt service to pay on the property.

I'd like to call upon the collective wisdom of the BP community to ask: given the situation, would you walk away? If not, what would you ask for as compensation?

I'd be happy to provide additional details if it helps make a more informed decision.

Thank you in advance!

Hi Michele,

Thanks for the feedback. Yes, my vacancy estimate, like other parts of my worksheet, are overly conservative - which, I guess, makes the deal look marginal. My goal in doing that is to not lose money by unexpected expenses.

The insurance in upstate NY is out of control since two major storms (Irene, Sandy) hit in recent years. My personal residence has seen a 45% increase in premium over the last two years, and believe me I have shopped around! One of the many great reasons to leave NYS, in my opinion. But, I digress...

The insurance broker I will probably use charges a 40% premium for a circuit panel with fuses (which this property has). I plan on upgrading it, but left in the higher premium in the meantime.

The mortgage rate was accurate as of a month ago, but rates have risen since then, so no - the debt service is probably low on the worksheet.

The street is posted at 30 mph, and is a typical "city street", yet it is getting more use these days with chib fab plant up the road. There is not much of a front yard, but has a very nice back yard.

Regarding "rentable features" - it needs a bit of upgrading (see OP), but it is probably close to par for the course. My idea was to make it a BIT nicer than others, as the vacancy average in the city is around 9%.

Floor plan isn't non-traditional; one unit's kitchen does not have any countertops or cabinets, just a built in hutch for dishes. The tenant uses the kitchen table as a counter, I guess! I've planned for that update in my rehab costs.

And yes, I was thinking of totally throwing a low-ball number that would work, all things considered. Which I may do, but I think I am going to hold for a bit and let the seller come back down to reality. In the meantime, we may begin working with a realtor and looking for some larger (5+) multi-unit properties and see where that leads.

Please accept my continued gratitude for your past and future input!

Doesn't financing too much allow me to leverage my principle?

The property is in a small blue collar city (appropriately named, Mechanicville) that is about 5 miles from a very large manufacturing facility (employs a few thousand people). The property is on the edge of town, on one of the primary roads people use to commute to the facility.

I don't belivee the owner has a mortgage - his father owned the property for many, many decades (current owner grew up in property), but passed away last year. Current owner does not want to be a landlord; estate will be divided three ways among next of kin.

So, in my opinion, he is motivated - but I'm not sure his expectations for the property and mine are close enough to come to a deal. I was thinking of just putting in a low ball offer, but at this point that would be like 40% of his asking price.

I don't know how long it's been on the market - we noticed it in late June. FSBO with sign in yard; no online ads that I could find.

Annette Hibbler

Hi, Annette!

Thanks for your input.

The cap rate on the property is 7%; is that still too low in your opinion?

What does that tell me - the offer is still too high or GMI too low? I think once I rehab I can get the GMI higher, but I am leaving the estimate at $1500 (about $100 above what current owner is getting) on the worksheet.

The property also has a walk-up attic I could make into a third unit, but I left that out because that should be the gravy, not the staple.

Hi All!

I am hoping several of you with a much more experienced eye can review my potential first deal and provide some feedback. I'm looking at submitting my very first offer on a FSBO 2-family home in Upstate, NY that I am looking to hold and rent out.

Here are some of the details on the property:

2 flats (3/1; 2/1) - both will be vacant by Sept. (rented out at $700/mo. each)
2200 sq. ft. total
built c. 1932
hot water (radiators)
aluminum siding
detached 2 car garage
Zillow estimates value at $139,000 (but also has the incorrect age of home - about 40 years newer than it is)

Rehab needs - I based many of the cost estimates below very conservatively (new to business, no experience - wanted to build in cushion) based on local prices I got from professionals, but I may be significantly over on some estimates; although I may do much of the rehab myself, I based estimates on paying someone else to do it.

- new kitchen (countertops, cabinets, sink, DW) in one unit $5000
- asphalt shingle roof about 20 yrs. old $6000
- exterior paint (garage, rear porch) $1000
- refinish hardwood floor (one unit) $1500
- interior paint $1000
- one unit's boiler (looks original!) $5000
- clothes dryer (one broken) $500
- replace circuit panel (has fuses) $1500
- misc. other stuff not listed above $400

TOTAL rehab I estimate as being at or below $22,000

Below is my cash flow analysis worksheet. Although I have built in property management as a cost, I will manage this myself at first. (I tried to build in some contingency costs to maintain cash flow if I decide to hire a PM or contract rehab work.)

http://s24.postimg.org/nvg7omq79/image.jpg

I would really LOVE some feedback on my numbers. Where have I made mistakes? Is my offer too high/low?

Thank you, thank you, thank you in advance for your collective wisdom! I am meeting with my attorney on Friday.

Thanks for the suggestions thusfar.

I haven't the inventory with accumulated equity to be able to swing cash deals, but I was thinking of a workaround.

What if I buy a property using equity in my personal home? That is, I write a check for the full amount of the sale from my HELOC. Then, once the transaction is complete, I go and look for financing from a bank at my leisure - at that point putting the equity back into my home with the money from the loan. Is it worth the savings I would get on a cash offer? What's the downside?

Hi all!

I've done some searching, but haven't found something akin to "The Idiot's Guide to Presenting Your Own Offer."

I've only ever purchased/sold property using a realtor. So, if I am looking at a FSBO property for a buy-and-hold portfolio, I go to my attorney and we construct a contract.

Then, how does it get presented? Do I walk over to the owner and hand it to him? Do I mail it? Do I verbally discuss my offer with him beforehand?

I'd obviously like to have the offer presented in the way that will maximize the chance of success, so how is it done?

I know if my offer is "so low as to be insulting" the seller is obviously not motivated enough (yet!) - so how do I couch a low-ball offer to him in a non-adversarial way? Do I let him know how I came up with such a low offer? Do I provide documentation?

How is it done?

Thanks for your collective wisdom!

As I begin my investing career, I've heard more than once that one can get the "deepest discount" on an investment property if it is a cash offer.

Excuse my ignorance, but I don't understand why?

There still has to be a closing, with attorneys for each participant, right? If I'm buying a house the bank I am lending money from is going to write a check to the seller, much like I would if I am paying cash, no?

Does the lending piece delay the closing? In other words, if I am paying cash is the primary advantage the speed of closing? If so, what is the typical time difference between a mortgage closing and cash?

Thanks in advance!