All Forum Posts by: Mary Cronin

I commend you for your investing. I haven't had much luck buying houses of late. Those $800/$1000 houses will rent for ever increasing rents in the future (assuming you're keeping them in good repair and updating as needed).

If you're considering buying a new home and hoping for appreciation you're not investing, you're speculating. Why do you want a 4 bedroom house if you don't need it? I don't understand the logic. I'd like to find a well-designed 800-1000 sf house with no unwasted space, but designed for living. (Is there such a thing?)

Why not work up into a multi-unit property for more cash flow and to simplify management?

If you haven't studied RE investing, try some of these:

Rich Dad, Poor Dad
& sequels - Cash Flow Quadrant is his best as it addresses the total change in the economy that others seem to have missed.

I'm totally blank about others. It depends on what you're trying to do. There are good (and bad) books on every aspect.

Nothing Down (1980s version not newer) for the basic methods of buying investments

Mary

Have you talked to an attorney?

I attended a seminar by Mark J Kohler, Esq., CPA, who wrote Lawyers Are Liars and What Your CPA Isn't Telling You. I recommend both books. He specializes in law and tax issues for real estate investors.

He advises using a corporation for flips, rehabs and other short term income (lease options, etc) and LLCs only for buy and hold. This is due to the self employment tax and treatment of income.

At least in CA, single member LLCs aren't recommended very much, but there are work-arounds.

Mary

I'll probably get slammed for this, but here goes.

Why are you using an agent at all? I have lost more deals than I ever found from them. In the last 30 years I've met only 2 agents who actually had an inkling what an investor wants. And that includes the commercial agents who should know better. (Thinking about a listing yesterday for a 33 unit - realtor says 6.7% cap rate; using his numbers I come in at 1% cap rate.)

If you find something you're interested in that is listed - go to listing agent, not an agent you're using to find property. Only bring in a second agent if you're getting a run around .... "well, if you'd rather not show it to me, I'll call an agent friend and she can split the commission with you ..."

You can try educating agents to work for you, but I've found that they aren't interested ... they're car salesmen pure and simple. (How and when am I going to get paid?)

Better yet, put up bandit signs ("We Buy Houses") and get owners to come to you or check out craigslist etc. Walk your target neighborhoods and talk to people - they'll tell you who's having problems and want out. (After you get going, you can farm this out to assistants.)

My $0.02 worth.

Mary

Arm's length wouldn't apply to a neighbor unless they're related. Think when person sells house to brother for $1 to spite wife or creditor or ...

Talk to the guy and see what's going on. If he's going to walk he may sell it to subject to the existing loan if not underwater or even if it is slightly if it will cash flow. If very underwater, get a lease option conditioned on getting a loan modification. (You'll need his cooperation for you to deal with the bank.)

Be sure to figure out repairs as well as the financing. You already know it needs roof work.

Mary

Another option - if you see a vacant property with a lock box but not on MLS, its between the bank and the MLS. If you contact the bank and ask who will be agent you can talk to the agent and tell him/her that you understand he/she will be the agent on the property and as soon as the listing comes through you want to make an offer. The agent will likely give you a call before putting it on the MLS. Works best if your offer is at bank's asking or better.

That's how properties go on mls already pending.

Don't bother asking the bank anything besides who the agent will be. Good luck.

Mary

I bet the owner is willing to be creative. His alligator is eating him. Make sure his alligator doesn't become yours ...

Also, you need to define what you want out of your investment. You can figure that if you need investors (for the down payment and repairs) you will need a minimum Cap Rate of 8% and a minimum first year Cash on Cash Return (COCR) of 12%.

I always ask for the rent roll and the profit and loss (P&L), and if they can't give that to you, assume their numbers are guestimates (i.e. "Pro Forma") There are quick analyses that might help in the future:

1) NOI/Cap Rate = Price

All income less vacancy = effective income
Effective income less expenses = net operating income OR
I-E = NOI
I= (14 x 750) + (8 x 1000) + (4 x 1250) = $23500/mo or $282,000/yr
less 4% vacancy = 11,280
Effective income = $282,000 - 11,280 = $270,720
Expenses = 22,875/mo x 12 months = $274,500
Return = $270,720- $274,500 = -3,780

Negative cash flow before paying for the mortgage, ouch! I think this is how an alligator is defined, and that is assuming that the numbers are real and not "pro forma".

NOI/price = Cap Rate
Or maybe more useful, reversing the formula: NOI/CR = price with you choosing the return (cap rate) you want.

Assuming the above was a positive 5200/mo x 12 months = 62,400/8% = $780,000 price

I assumed the 5200 as 200 net positive cash flow (target for this kind of property; with larger ones you might take $100/door/month) per unit and chose the minimum 8% cap rate.

2) Quick and dirty - but not very accurate - but you can do the calculation on the fly ...

monthly rent = 1% of value, so
14 1 bdr - $700-800 (i'll use 750) = (14 x 750)/1% = $1,050,000
8 2 bdr - $900-1100 (using 1000) = (8 x 1000)/1% = 800,000
4 3 bdr - $1250 ........................... = (4 x 1250)/1% = 500,000
----------------------------------------------$2,350,000

But that doesn't take into account high expenses or a lot of other variables.

And a comment... not a very good unit mix. You want 33 ones to 64 more than ones. 1bdr have more turnover. Say a maximum of 7 1/1s to 19 - 2/1s and 3/?s

I don't see a deal here any way you look at it. You might be able to bill tenants for the cable, but do you see any way it's a turnaround story?

Just a comment - a loan on a 2 family is usually not a multi-family loan. There are different rules and requirements for loans on 1-4 units than on 5+.

Do you own it free and clear or does your seller?

Mary

Who's the condo seller? Can you buy "subject-to" seller's loan?

Mary