All Forum Posts by: Raden Mantuano

Originally posted by @Matt P.:

@Raden Mantuano One more thing, I refinanced to a traditional 30 year loan in my personal name. If your using commercial financing it could change what appraisal technique they use but IDK, someone with more experience on that side of things could answer that question.

appreciate your insight on this.... so im determining the two options.. either hard money this and get it sub $90k or below or seller finance deal with a 5% - 10% "IF" i can negotiate it and just leverage the rehab loan through the hard money, therefore not having to pay on the purchase price + rehab till refi.. instead just paying on the rehab loan..if the seller and us can work out some good terms..   

Originally posted by @Chase Louderback:

@Raden Mantuano

@Joshua Hively had a great idea with running the property by a local hard money lender. You should have your own ARV determined by running comps. It sounds like there isn't a lot of comps in the market based on your original post so do you best to determine the ARV then keep it a little on the conservative side.

You can get your hard money lender's opinion or another seasoned local investor's opinion.  If you really want to you could get a BPO (Broker's price opinion) with current market value in "as-is" condition and an "as completed" report based on your projected repairs.  However, be sure to take those with a grain of salt as only YOU really know how the end product is going to look so their "as-completed" report could heavily skew the value in one direction or the other.

I haven't seen a county record show the appraised value, it's usually the tax assessed value which may not be indicative of market value.  You could call to verify.  Also, sometimes properties can get a reduced tax basis for things such as "farm use" so check what the taxable value means for your county as well and why this particular property's taxable value is so low.

Hope that helps!

Thanks for the response my man! I actually gave a ring to the county tax assessors about the appraised value. The lady mentioned its the county appraisal and that the fair market value is most of the time close more or less to that appraised value. So I may just use that as my basis for my offer, as the ARV is about $130k which is $10k more.. so i def need to come into this deal below $100k.... thoughts?

Checking the county records, this is the Summary information for the parcel for 2018

Does this mean the FMV is $119k?

I averaged out all the comps and it came out to just around the area of $120k which i assume is the FMV not the ARV.. but income from the property wouldn't apply to this at all?? And if BRRRR is what we are going for, what price point would we need to come in at? and how would i determine the ARV? based on this..

Originally posted by @Chase Louderback:

@Raden Mantuano

4 units and less should be valued based on similar comps. 5 units and higher will be the income approach.  

Could you ask the seller how they arrived at that asking price?  This can give you a better idea how they are valuing the property and you could also use the needed repairs ($30k+) as grounds to negotiate the price lower.

 I'm sure she was basing it out of just throwing out a number, because I asked if she was flexible at all and she just said, "Send me an offer." i told her i can't do that until i get a good idea on what the rehab will be..

So the seller has been cooperative with me in regards to that. She scheduled the estimates for tomorrow on my behalf w/o a PA being signed yet. She's being pretty honest about the whole thing I believe. She will also be providing me financials.. but because we are doing Hard Money on this to execute the BRRRR strategy, knowing the ARV would be pretty important right? even if we negotiated with the seller down to a price that we all agree on, we wouldn't be able to obtain the financing with out knowing the ARV or not being able to obtain this deal at a significant discount..

Originally posted by @Tchaka Owen:

@Raden Mantuano - according to your attachment, the building is 1570sf, is that correct? If so, each unit is under 400sf (tiny). Not sure how it will cost $30k to renovate the gutted unit. IMO, you should be able to update the old one and renovate the gutted one together for less than $30k. Have you searched the addresses of the comps? You might get lucky and find one or two from past listings with pics. If not, then you might want to show the seller the $30k cost to renovate and negotiate downwards from $150k.  

 Thanks for the response.. heres a couple images of the gutted unit.. pipe burst occurred on the unit above and messed up the kitchen.. seller didn't know this happened as its been vacant.. also, mostly all the comps were off market and pics aren't showing anything.. hope this helps.. 

Hey thanks in Advanced for anyone that can help us out here..

So we are talking directly to a seller who is open to selling her 4plex in Ohio at a price of $150k.. Section 8 approved.

2 units are occupied

1 unit is vacant but rent ready (However, out dated) 

1 unit needs a total rent ready gutted rehab (Images provided) 

Current Cap Rate based on NOI given ($21k) and some change with a purchase price asking is around 14%

Brings the FMV at around what she is asking at $150k..

However, based on the given that a 4plex is still considered a "residential property", the income approach doesn't matter? I'm assuming the value will be based on comps. Since I have access to title I'm able to do the same comp research a realtor would. I'm seeing comparable sales, but having a hard time determining ARV, the highest comparable i see is a $162k for a 4 plex... but cant tell what condition of the property was only thing I see, is that it was a tad bit bigger in sq ft and a bit newer.. in this case how would I determine what I'm suppose to offer? we have a scheduled contractor walk through tomorrow and that will help give us the estimate on what needs to be done, from just the pics, we are looking at maybe $30k + on this..

Because seller only wants cash, We are considering entering this deal using the BRRRR strategy, using a Hard money lender. So based on that, i'm assuming we need to enter the deal at 70% below the ARV (Which im having a hard time determining.)

Note: Based on title this 4plex is considered "Commercial" screenshot provided. This is where im confused as to what the heck this property would appraise for or how it'd appraise for so we can make our offer that makes sense.. thanks again guys.. 

Originally posted by @Greg Dickerson:

Raden,

Three unit buildings are residential so the will appraise on comps and replacement cost. The income is not really a factor. You could get an appraisal for a few hundred dollars to be sure.

Conventional is always a better way to go than hard money of you can qualify.

 Appreciate the response Greg. I figured that would be the best choice, however.. can't it limit growth of portfolio if our funds continue to get exhuasted with the down payments vs. refinancing out to pay off the hard money lenders.. 

Hey guys! Thanks in advanced for any assistance on this. 

Here's the scenario: 

Seller Asking: $89k (Based on NOI/ Cap Rate, it seemed to be the FMV)

Units: 3 Unit Mix: Three 2 Bedroom / 1 Bath Units. Current Rents: One unit $485 and Two units $550. Market Rents: $652/Unit

Current Annual NOI: $11,886

Actual CAP: 13.36%

Pro Forma CAP: 15.70% (5% Vacancy & Taxes, Insurance, Water,Electric, Gas and 10% Prop Management included assumed) Accepted offer details:

Purchase Price Accepted: $85,000 (Was hoping to come in lower, but we are acquiring off a wholesaler)

EMD: $5,000.00

Rehab Cost: Light to No Rehab Needed ($5k-$10k if needed for Capital improvements)

ARV: $115k - $186k

NOTE: There was actually NO COMPS within a mile radius, so I had to extend out 10 miles and a year back of comps and found only two triplexes that recently sold at and in between those two prices (ARV) mentioned above. This is where I am having trouble, on when the time comes for cash out refi.

Upside Potential and Plan When Acquired:

- Rent Raise $600 + (Will force value and appraise much higher for income based appraisal)

- Continued Section 8 Opportunity (Predictable Cashflow)

- Capital Improvements (Exterior Paint, New doors, Windows.)

- Decrease expenses by water being included in tenants lease.

- With the higher appraisal due to improvements made, we plan to cash out refi after the 6-12 month seasoning, to pay off the first and land better terms to keep long term.

Here's my Question: 

Because there wasn't many comps, if not any at all,  would the appraisal be based on the income the property is making at this point? and or will the few comps I was able to get by extending the radius be used? 

My partner and I are trying to determine if hard money or conventional financing would work better in this situation. We have the down payment and requirements for it, but our obvious goal is to leverage as much as we can.. it seems like going conventional would make our cash on cash much better than a hard money unless im doing the math completely wrong, all though its temporary, the forced appreciation may not be guaranteed? 

Thanks again guys.. hopefully this was enough info to get some good advice on this deal 

Update: 

We’ve extended the note and improved the terms to principal + 2.5% financed on a 15 year note. 

Originally posted by @Peter Tverdov:

Originally posted by @Raden Mantuano:

Originally posted by @Peter Tverdov:

Run away. You are going to lose your shirt. 

Buy when you actually have money of your own and can get a regular loan and see a decent cash flow. 

 Why do that if I can leverage? Specially for a seller financed deal, where someone without the best or no credit can become suscessfuk at RE investing too

 Because when things go wrong, you will have no cash. There is being leveraged and then there is being over leveraged. 

Do I really need to explain how someone paying 8% interest on a mortgage for 9 years with no money of their own and cash flowing $100 a month IF EVERYTHING GOES WELL....I need to explain how that can backfire? 

You do that deal and IMO someone will be buying that property at auction in the future. 

 Makes total sense, so right now am negotiating the interest terms as we speak, and as far as reserves I do have that.. probably not enough for a new roof but with my job I can start putting more reserves away..