All Forum Posts by: Nick Baldo

Hi Bob, 

My initial numbers had a cap rate of ~3%. Obviously this will change as Michell updates with actual data. 

Most markets would demand a cap rate of at least 6%...many much higher. 

This was just an "on the surface" look. There are several factors that would influence whether or not this is a good deal...we are just getting started.

Hi Michelle, 

Happy to help you walk through the analysis on this! I made a copy of the rental analysis template my business uses: Michelle's Rental Analysis

On the surface, the deal seems to have tight, if not negative cashflow. Feel free to play with some of the numbers that I was guessing on. For example, I took a swing at a 5% interest rate, 30 year term for you $168,000 loan. You can make adjustments to that to see how it influences the figures. 

Some other numbers to keep in mind: 

• I put vacancy at 0% because of your guaranteed rental income
• I have a 5% allowance for property management and repairs/ maintenance. 
• I put in some initial numbers for property tax/ insurance. You will need to adjust this based on the property. This was a complete guess. 
• Water and Sewer was a guess as well. 
• Sanity check in any of the other categories...some may be zero...but some may not be. 

Based on the numbers currently in (which will change), the deal seems to have a poor cap rate, negative cashflow, and all in all a relatively bad deal. The only potential upside you have is the expectation that the property will appreciate quickly and you will be able to sell for significantly more than you purchased for. 

Please let me know if you have any specific questions and/or if you need help working through the analysis.

Cedric,

In my experience, I have found the following to be key indicators as to whether or not I have a potentially "hot" deal:

• Where is the property located? - This is the very first question I ask. We have learned to stay away from certain areas of our market. This helps me to quickly disqualify those sellers with homes in undesirable areas (at least for my company). This information will also help you to quickly "ballpark" an ARV on the fly
• Is there a mortgage and/or taxes outstanding? - Any outstanding obligations immediately increases the basement of your offer. It will be extremely difficult (and probably not worth your time) to pursue a deal in which you try to offer an amount under what is owed on the property. A seller who owns a home "free and clear" is definitely a hot lead.
• Is the house listed? - Sellers who already have their property listed are most likely unwilling to sell at a price much lower than this list price. We have seen sellers frustrated with their selling agent start calling investors. They point you to the listing as if you are a typical buyer. These deals are generally tough...however, not impossible. 
• How quickly are they looking to sell? - "Yesterday" - This is the best answer you can get. The quicker they want to seller, the more motivated. They know that the traditional selling process (RE Agent) will not help them. 
• Why are you selling? - Similar to above. You are a problem solver. The more problems they have, the better chances you can come in and help them out. Some good answers: Moved out of town, inherited a property, massive ____ damage, tenants ran out on me, etc. 
• What is the minimum you are willing to accept? - It can be hard to get an answer to this...but try to push. At least try to gain a ballpark. Even if the seller sounds motivated, they may have a price in mind that is way too high. You need to find out if you are even on the same playing field. If they say a number that is close to your initial ballpark of an acceptable purchase price, the lead is still alive. After you complete your due diligence you can negotiate down based on what you find. But if you are not in the same range, you will most likely waste everyone's time. 

Those are some items that come to mind. Feel free to respond/ reach out with any specific questions. 

Not a problem @Tyisha G.!

Hi @Stephanie Ugboaja,

If an agent is helping you to find properties, it makes sense for them to help you put together and submit offers. Especially on your first few deals, you will benefit from having an agent represent you. 

It is possible that you will come across some potential deals that are not listed on the MLS. If this is the case, the seller will not be prepared to pay a broker fee (buyer or seller). In these instances, you may want to prepare the contract yourself. In our county, we have a standard purchase contract that is generally recognized and accepted. I would imagine your area may have something like this as well.

Feel free to reply with additional follow ups and/or requests for further detail.

Hi @Josh Richter,

Seller financing means that the person from whom you purchase a property becomes the lender and mortgage holder for the home once you take ownership. 

Seller financing is a form of private lending. Private lending simply means that you are borrowing money from an individual rather than a conventional financial institution (bank). The seller will typically require some amount of down payment...though often they require less than a conventional lender would need. You come up with the down payment, execute a promissory note with the seller and on the day you close a mortgage is filed. In my experience, seller financing can be achieved at rates slightly higher than banks but lower than hard money lenders. 

Seller financing is typically an option when the seller owns a property free and clear or with a very small mortgage amount. 

Personally, my business has found sellers to be motivated to offer seller financing if they want a passive monthly income stream. In a rental property situation, they desire the passive income without the hassle of managing a property and tenants. Lastly, sellers may find a tax benefit from receiving sale proceeds over time as opposed to all at once at closing. 

Hope that helps...feel free to reach out with any specific questions. 

That is correct. To start, it probably makes sense to have a separate bank account for all of your REI activity. This makes the accounting easy. But you can use this account for any/all properties within your investing portfolio.

@Jason V.,

I would definitely recommend Google voice as a free way to separate your personal phone from your business phone. You get a free number and you are able to distinguish incoming calls as either personal or business. 

You don't necessarily need a separate bank account for each property. You would want/ need separate accounts if you had different entities. For example, your current DBA should not pay for repairs for a property owned by your future LLC. However, you should build a mechanism within your accounting system to distinguish expenses between different properties. Quickbooks Online has the "Class" feature. This allows you to tag each expense by property. You can then report on each property. If you are not to the point of using quickbooks or another accounting software, use a separate column in excel to tag your expenses by property.

If you plan to grow, I recommend creating LLCs/ S-Corps sooner rather than later. There is the obvious benefit of diversifying your liability. In addition, you can start building up a business history. After a couple years of running a successful REI/ Property Management company, you may be able to reach out to local/ regional banks for business loans/ lines of credit. You will be taken much more seriously if you have an established business entity. Its possible to keep growing as an individual/ DBA but you will be restricted by lending constraints put on individuals.

Any other specific questions I can help with?

This practice is common in the east. We typically meet at the County Clerk's office to close/ record our deals. This allows us to keep the need for third-party involvement relatively low. 

That being said, if this is something you don't typically do in Nevada, insist that you close on your terms, with your process. No need to feel uneasy about a deal. If they are dealing in your area, they should be willing to conform to the typical way of doing business. 

Hi @Taylor Pariseau,

We have found success with Regional banks. It seems a bit more difficult to build strong personal relationships with the larger national banks. However, First Niagara has been a solid "hybrid" (Although soon to be acquired by Key!). 

Looking forward to connecting!