All Forum Posts by: Phil Bottfeld

Do you know what your principal payments year 1 will be? I'm guessing they will be approximately $100 a month or $1200 a year. While I agree with the others that the cash on cash return of 5% is fair low. Your overall return should be closer to 8% a year considering the amortization of the loan assuming no appreciation. If you factor 1% appreciation. You're total return is closer to 10-12%.... Still not a great deal, but the best part is....you can get better at it. Keep it up and keep learning.

Rick, the bank will likely not tell you but there's nothing wrong with asking the owner. Before asking the owner that question, I would try your best to ask the owner some easy questions he/she can answer and maybe will start to feel comfortable with you. Ask questions like what needs work in the house, how long they have live there, why they are moving, and then if they have gotten comfortable, ask  what the loan balance is. It's helped me in the past when I progress into the more probing questions with an owner. 

FYI some counties have the recorded mortgage available for public view. If this county allows it, you might be able to find what the original balance was and calculate back, but this again is not 100% and if missed payments are made or secondary loans were recorded, you may not have all the info you need to make the most educated decision.

Hope this is helpful,

Regards,

Phil

 Only commercial properties are bought and sold based on income (cap rate). A single family residence is mostly valued based on comparables. In tabitha's case, her subject property does not qualify as a commercial unit and therefore should not be valued based on income. 

A single family residence in the same areas maybe generate two drastically different yields but that does not mean one is better than the other as appreciation, class of asset, and other qualitative measures should be considered.

I think we should discontinue our dialogue. I respect your points of view but I don't think our ongoing discussion is helpful to others. Probably entertaining though.

NOI can be for any period of time, it does not have to be for just year 1. But I specifically said direct cap rate, direct cap rate is the forward 12 month NOI divided by cost. If you are referring to cap rate upon sale after holding the asset for x period of time you'd be referring to the terminal cap rate. I'm happy to continue to the lesson.

Additionally I was generic with my response, and specifically used the acronym etc to highlight that other costs exists associated with operating costs. I agree with you in that those costs such as vacancy should be considered. 

Operating expenses also differ across different geographies and different asset classes. For examaple on our 89,000 square office center in Denver, I have a lot of snow removal costs that I can't collect for because the tenants are all on gross leases instead of NNN, while I can't collect them in the form of recoverables they are still operating expenses and are still negatively impacting my NOI. However, we also have a 42,000 square foot fresh market anchored center but it does not have snow removal costs and the leases are all NNN which makes the NOI comparison vary across these two commercial deals.

My point is simply this, I think it's important we keep a mood that fosters support and education versus harsh criticism.

Mike drop.

Hi Brit, I agree with Brandon, get a referral, while attorneys can only practice law in the state they are licensed in. A CPA in DC or Montana can help a tax client in Fort Myers.

The tax planning, strategizing, etc… can all be done from someone in Florida or outside. Especially because Florida does not charge state income taxes to individuals (businesses are treated differently) you can get some great advise outside of the Fort Myers area.

Get a referral, have a meeting, see if it a good fit.

Best of luck,

Phil

 Hi tabitha you are doing great, let me explain what a direct cap rate is.

Take the annual income of the property less all expenses (taxes, insurance, maintenance , commission...etc) do not include any debt related costs. Debt related costs included PMI, interest, principal payments etc. The net profit from your all your annual revenues and your expenses is called your net operating income or NOI.

Take your NOI and divide by the cost of the property. The % is your cap rate.

Feel free to message me if you have any questions.

Best of luck,

Phil

First and foremost I am not an attorney. I agree with Darnell it might be difficult to get your capital back in the near term. However, if the contractor is licensed, file a complaint with the better business bureau or state regulatory agency. You are doing others a big favor. Secondly, if you had a contract with him and he has breached it, consider talking with an attorney, be make sure not to breach the contract yourself.

Third, structure contracts with contractors that favor you regarding when payment is made.

On my last rehab I had an executed rehab contract where I paid 1/3 after paint was complete 1/3 after flooring was complete and 1/3 after the kitchen was remodeled. It kept my contractors incentivized and they liked it because I kept to my word.

Hope this is helpful.

Kind regards,

Phil

Hi Brian, forming an LLC in my state costs less than $150, transferring ownership from you personally to the LLC is not something that is very cumbersome.$1800 is a lot in my opinion for what you are asking for. What did the attorney do? A quitclaim deed? Did he write up your operating agreement? Did he or she file your articles of organization?

I would want to know exactly what was done to garner that. It might be fair but again I would want to know what they did to determine if it was fair. Paperwork can get lengthy.

Kind regards,

Phil

Jean,

I think a lot of people run away from problems.

A lot of times problems can present opportunities. In this particular case, I see a lot of risk. While the cash flow numbers are great on the $51k purchase price, you have a lot of variables that are very expensive and would result in the deal being not as lucrative or worse a losing investment. Unless you have experience working with these kinds of foundation issues and you have run the numbers on the absolute worst case scenario and you still think it's s good deal.... Look for something with a better risk/reward scenario.

I applaud you for trying to make it happen most people just run without considering it all. I might be wrong about this but your brief commentary makes me think catastrophe is inevitable on this property.

Kind regards ,

Phil