All Forum Posts by: Rhonda Wilson

Is this a fix and flip or buy and hold?

@Eric Schwake Congrats on getting started! If it's been on the market for 400 days, I would suggest offering a lot less than the 90% of asking price that you are considering. When you make a low-ball offer, you might worry about making the seller mad by offering too little and insulting them. After 400 days, I have to believe that the seller would be nuts to be insulted by any offer. Even if you offered $50k or $60k, the seller is most likely going to counter, not just refuse to negotiate. 

Do you mind me asking what the area is? In my area, you can't rent anything for under about $800. The problem with rent in the $500 range is that apartments still cost the same to maintain and renovate. I agree with people saying that you really need to cash flow at least $100 a door in order to build up any reasonable reserve and handle costly turnovers. I still think that the deal has potential, but as I said in a previous post, the most important number is realistic market rent. If that is $600+, this could be a great deal, if it is $500-, I wouldn't buy it. All of the other numbers are small potatoes.

I few years ago we bought a property with $500 average rent. We are at >$900 average rent on it today. It doesn't take a rocket scientist to understand why the previous owner was losing money. The first couple of years of owning it we made very little, it is cash-flowing really well now. 

The first few steps of the eviction process are relatively easy and inexpensive. I advise that you start the process now. Pay close attention to the laws for FL because any misstep means starting over. I agree that offering them cash is a good idea, but that doesn't mean that you shouldn't be posting notices for eviction at the same time. The legal postings help drive home the point that you are serious and ready to exert your rights to the fullest extent of the law.

I also want to say that I wouldn't advise going into this unless you both are committed to it. DH and I did a deal a couple of years ago and during the first year the cash flow was negative in a big way. We spent considerable savings renovating units. If one spouse is doing it and the other is not interested, that is the time when someone says "This was a terrible idea! You said we were going to make money on this." The property is doing well now, but it took about 12 months to turn it around. You both need to be ready for it and willing to weather it.

Perhaps you should pick out a few BP podcasts to watch on Youtube together. Many of the successful investors are couples who work on the business together. Look at #288.

@Tony Mai Have you tried credit unions? I am getting a 7 yr fixed / 30 yr amort from a local credit union. I found it through commercial mortgage broker who charges 1 point. Unfortunately, that broker only does loans above $1M. A 25-year would net another $200, so that's not bad. I agree that 3 points is excessive! 

I actually like the numbers that I'm seeing. The cash flow is quite low at current rent, but that has something to do with the 20-year amortization. You would get another $300 cash flow with a 30-year. I'm not saying you should, just normalizing it. I would look carefully at rents in the area and try to refine that estimate. If you are confident about getting rent to $550+ per month, cash flow will be good. Mismanaged properties with rent set too low are something that I look for! It's one of the easiest ways to get value added in short-order. 

When I see a cap rate that high, I tend to be suspicious that it wasn't calculated correctly. For instance, I've seen people use gross income instead of net operating income in the numerator. It might be a good deal but be careful. Without professionals involved in the deal like a commercial realtor, you need to do a lot more than the usual due diligence. 

At first glance, it looks like it could be a deal. I like a gross rent multiplier (GRM) of 8 or less. That means that a $100k unit should gross about $1000 / month. From a cash flow perspective, it looks like it could be a good income property. I'm a little unclear on the details of the transaction. Are you buying it for $105k and assuming the loan? Or, will you be paying more than that to cover transaction costs?