All Forum Posts by: Nathan Emmert

Replacement cost is irrelevant... especially on older buildings.  If you were using that as a basis for the appraisal you were misled.

If it was boarded over I wouldn't imagine it being completely ignored, but it would have little value as it present isn't usable space.

Other than not matching the replacement cost, what is your basis for believing the appraisal is bad?

Where are you getting that repair estimate from?  Seems REALLY low for a house that needs a complete cosmetic makeover plus unknown other issues.  Given the state of the kitchen and bathroom, not to mention the holes in the walls, I'm guessing it goes beyond cosmetic.

Any time I can buy a house with a credit card I get a little concerned personally.  You could almost make more money gutting the house and selling the piece parts for profit.

Given 100% financing, it's an okay deal... but not great.  With taxes being 2 months rent alone and having to pay utilities, you'll probably break even on the property.  It would be a pure equity play, likely won't cash flow.

Diversification is great... risk reduction... but the question is, do you have the time and skill to diversify well?

Finding good buy and hold properties is a skill... so is managing them.

Being able to understand markets well enough to time them for appreciation is a skill.

Finding properties that have enough meat on the bone to flip is a skill... or locating a good wholesaler, also a skill.

Forecasting rehab costs is a skill.

Running a rehab is a skill.

Try to be great at everything and you'll likely fail at everything.  Find your niche and then expand upon it.  Flip houses... maybe flip every 4th to yourself through a refinance.  Buy rental properties... start with rent ready and then start buying homes that need cosmetic repairs... and move from there.

Your top level math is pretty accurate but is very hypothetical.

Getting just over 1% of purchase price in rents will cash flow some (hypothetically with 50% rule) but will be a pretty lousy CoC.

Generally on a 2 - 4 unit building you'll have to put down 25% (20% would be for single family homes).

For interest, you can get conventional NOO in the 4.25 - 4.75% range today dependent on your credit.

For people that are looking for $100/rental or door... they're looking for $200 of cash flow out of a duplex (2 family, 2 doors, 2 * $100)... it's not a per bedroom calculation.

Things to always watch for are taxes (I like them in the 5 - 10% of GOI range, lower is obviously better)... insurance (floor insurance can be a killer)... and utilities (many landlords pay water though few are happy about it... you really don't want to be paying gas and/or electric as that will blow 50% out of the water).  You can also look into vacancy rates and Property Management costs in your area.  They will vary some.

Believing the listed cap rate is about as naïve as buying a bridge out of an alley in Brooklyn. Always run your own numbers. If you're buying residential... 1% of purchase price in rents is generally about break even with 75% LTV (which is standard). 1.5% can get you a nice Cash on Cash return... 2% gives you a very nice buffer due to a tremendous CoC return.

Remember, your realtor has a reputation to protect as well. They will likely only make so many embarrassingly low offers before they ask you to work with someone else. Many that are going to work the MLS in this way get their license for that reason.

If it's on the MLS it generally means the seller has a realtor... an "expert" that has told them how much their house is worth. You're trying to signal the seller that expert was wrong by a factor of 2... going to be a tough sell.

I'd work directly with the seller's agent to find out what the background was... let them know you're an investor and flipper and that there needs to be enough meat on the bone for you to profit.  If you can get them to be more rational and help you sell it to the seller, you'll be in better shape.

Also, I hate that saying that if you aren't embarrassed you offered too much... frankly, I'm not out to maximize my return to the last penny... I'm looking for win/win situations where I can offer what they need and still make a nice return in the process.  Don't focus so much on the maximum (or minimums) but figure out where you need to get happy and work from there.

I'm with Ben (did I really just type that?? Yikes!)... it's a bit confusing what you're asking.

From your point of view you want 3 things... minimum downpayment... minimum interest rates... long amortizations... and maybe a 4th, a long balloon (if there is a balloon).

Now what are the sellers pain points?  You can talk to them about how the 4% interest you're offering is WAY better than the .01% their savings account would get or the 1% a 6 month CD would offer.  You can talk to them about the tax savings of getting smaller payments over a longer period of time, the steady stream of passive income they'll be receiving to fund life for their retirement, etc.  On the downpayment side you can let them know how much money you're going to invest out of pocket to improve the property (a property they still have an ownership interest in through the lien).  All of these help justify your position but may not meet the seller's needs.  They may have an immediate bill to pay off.  They may be able to generate 6 - 8% returns elsewhere pretty passively.  They may only have 3 - 5 years to live and not want a 30 year note (a seller I'm working with right now is like this!).

Understand what their needs are and try to meet them at the minimum loss of value against your 3 of 4 goals above.

Investors will buy headaches as they see them as a way to walk into equity... Owner Occupants generally don't want that.  You'll find a couple that are looking for fixer uppers for sweat equity but generally a roof falls outside of something they can do themselves so it wouldn't really be attractive to them either.

If you're selling to someone as a home, I'd fix the roof.

Generally speaking the rebate you'd have to offer to get someone to ignore the problem will be larger than fixing the problem.

Also look at it from a cash perspective... would they rather put their 3.5% down on $250k or put 3.5% down on $240k and immediately have to spend $10k to fix the roof?  Pretty easy math for most... most buyers value cash pretty similarly to investors.

Someone posted a blog yesterday suggesting that you inspect your properties every 8 months versus every 6... the reason, season changes.  The property might do things a bit differently in summer and winter versus spring and fall... every 6 months locks you into a recurring cycle where every 8 months you'll rotate over the years (and your portfolio). 

It made sense to me...