All Forum Posts by: Pearce G.

BS Biology

MS Microbiology

MBA

Working on my PhD from BiggerPockets University

@Cesar M. Will he take seller financing? Offer him terms comparable to a conventional FHA loan. 5% down (6K), 5% 30yr fixed rate. P&I payments will be around $550/mo. Should cash flow very nicely. Allows you to hold on to some of your savings, so you're ready if the water heater goes out, for example, or to build up a down payment for your next property. You will get the educational experience and your dad will earn a decent return.

Hi @Joel Perlinger and welcome to Charleston.

I'm a nerd too, so I get it in terms of building a matrix, but I don't think a matrix is going to be hugely valuable.  For one thing, there just aren't that many small multi-plexes available in Charleston that you can compare one to another by running them through your matrix.  Second, comps are going to dictate the income side of the equation.  That may be a function of location, schools, amenities, etc., but for the most part, the market has already decided how much you can charge for rent.  And third, while you have some control on the expense side, the experience of other RE investors before us tells us what we should expect for repairs, vacancy, etc.

So, to me, the decision process is:

--What is the spread between projected income and expenses?

--What does that mean in terms of cash-on-cash return?

--Are there other ways to extract value (e.g. adding sqft or charging fees for pets/laundry/parking)?

@Aaron Crow  Some carefully chosen keywords might help refine your search.

Enter your usual search criteria...# of sqft, # of bedrooms, zip code, etc.  Then add a keyword like "motivated" and you might find motivated sellers.

"seller" or "financing" might select for properties where 'seller financing' is available

"bring" might select for 'bring all offers'

"estate" might select for inherited properties 

All of these are relatively common descriptors that could indicate opportunities to get a deal. You may come up with some of your own depending on your objectives.

@Jeff Minc at $450/mo, you're earning 6.75% annually on that 80K of equity.  P&I on 80K at 4.65% 30yr adds $412 to your cost of owning the condo.  To generate a higher return, you have to cash flow more than $412/mo after reinvesting the 80K.  Very doable, but don't forget to figure in your transaction costs.

Not too much interest here.  I guess my question was a little too obscure.

Anyway, I promised to explain how it went down, so it will be searchable if the issue comes up for anybody else.  Here's how it played out:

The sale of the first sub-parcel closed in late April.  The (buyer's) closing attorney calculated my share of the property tax based on 117/365 days times the 2016 tax bill or ~32% of last year's tax bill.  I wasn't able to check the math until I got home from closing, but I had signed a re-proration agreement anyway, so I wasn't concerned about whether it was a little off.

Then, a few days later, the buyer of the second sub-parcel was ready to close.  His closing attorney calculated my share of the property tax based on the acreage of the two sub-parcels.  In this case, the second sub-parcel was 68% of the total land area, so the attorney calculated that I owed 68% of the 2016 property tax for the first 123 days of 2017.

Add them together and I was bringing 55% of 2016 taxes to closing when I only owned the parent parcel for 4 months of 2017.  Since the first closing was done, there was no remedy available there.  My attorney recalculated for the second closing, and determined the buyer should pay me for 2017 taxes, since I would probably get the tax bill anyway.  The buyer didn't like that, so we agreed that his closing attorney would hold his amount in escrow until tax bills come out and we make final adjustments.  Finally closed yesterday.

Lesson learned:  If you're in a situation where you are selling subdivided property to different buyers, make sure all property tax prorations are calculated by the same closing attorney using the same basis.  Yes, there is a re-proration agreement in place for both closings, so it will be adjusted when the actual property tax bills come out in November, but at least I'm not making an interest-free loan to the buyer's until that time.

Thank you @Bob B.@Nathan Gesner all for the input.  The house has a big yard and would need to be mowed, so a storage shed would provide a place to store it.

Here's an example of what I had in mind:  

https://www.lowes.com/pd/Rubbermaid-Common-7-ft-x-...

Not exactly pre-fab, since it needs assembly, but at $700, it would pay for itself pretty quickly if it allows $50-$100 more in rent.  (An aluminum version costs about half as much.)  Not sure if you could ever actually measure whether it enables higher rent, but it is something I would put in an ad.  And if the tenant has a bunch of junk stored, it might make them stay longer.

I just put an offer on a 1100sqft 3/2 SFR on a half acre. Should rent for $1000-$1200. Was wondering if putting a pre-fab storage building in the back yard might allow me to charge an extra $100 or so. Any opinions on this?

@Joshua Manning I don't think you're going to get much info you can use with this question.  BP members run the gamut from newbies to veterans.  Some of us have just a few doors and others have hundreds.  Some have different profit margins from being more or less leveraged than others.  Then you add the variables of flipping vs. buy/hold vs. wholesaling vs. lending etc. and you get a jumble of data without much correlation.

A better way to ask your question(s) might be:

--For buy/hold investors, what is your average cash flow per door?

--For flippers, what is your average profit per flip and how many can you do in a year?

--For wholesalers, what is your average per deal, and how many can you do in a year?

etc.

And you might want to restrict your question to people who have been investing at least 10 years, so you get the long view you're looking for.

Keep reading, keep asking questions, keep listening to podcasts, and you'll start to get a feel for what to expect based on your unique circumstances.

OK, fellow math geeks.  I’ll keep it simple…

You bought a property for 100K.  A house on 1 acre.  You paid 1K in property tax last year.

This year, you subdivided into two half-acre sub-parcels…one with the house and one just vacant land.

Exactly halfway through the year, you sell the house to one buyer for 100K and the vacant land to a different buyer for 50K.

Realizing property tax liabilities will be adjusted when actual tax notices come out later in the year, how would you calculate the current year tax liability each party contributes at closing?

Let’s get some feedback and then I’ll tell you how it went down.