All Forum Posts by: Richard Haiber

Not sure but I believe dc rent control states that the higest allowable rent increase on a unit in a building is to set this new rent (on this vacant unit) to the same rate as any comparable unit in the building. 

And that theres still even a cap on that stating you cant raise the rent more than 30% higher than whatever it was the previous tenant was paying. And I suppose the way the dc govt will know previous rent levels is because all units are registered with RAD and theyll monitor what you do.

I think thats how dc deals with the renting out of a unit that was vacant. Not sure if they handle a longer term vacant unit any different, as in your example of being vacant for 1yr.

it also appears that after the lender foreclosed on it they posted it on foreclosure.com

then after 6 months on the website and multiple price reductions they removed it

ever since that date nothing was done with the property and its been sitting

Bullet point summary:

-saw vacant house

-researched records...found it to be vacant since a foreclosure in 2009

-owner of record = veterans affairs office

-when i called the va office they said they dont have anything on it

-their affiliate (vrm) also said they dont have record of it

-employee at va office said it may be a mistake in the record and that the lender = owner today

if the lender was the owner and foreclosed in 2010....why is it still sitting vacant and rotting away for past 6-7yrs? wouldnt they have auctioned it years ago?

Looking for some advice here guys and gals!

Ive come across a property thats clearly been sitting vacant for a long time. When I got to the door I read the paperwork and saw the usual fines/notices the county puts on most vacant property.

The neighborhood is great. It's a community that was built in the 80s and the homes have great size yards. Everyones yards are neatly manicured and the houses are very well maintained. So it popped out like a sore thumb and felt unusual to find this in such a neighborhood. 

Now that Ive painted a basic picture of the house I want to move on to my real question about the ownership status of it. The fines are written to the Veterans Affairs Office and the online county records also indicate that theyre the owners. A friendly neighbor passed by and told me that the previous owner passed away in 2009 and the family let it foreclose. Court records also indicate the foreclosure did in fact occur.

But when I call the VA offices theyre saying that they have no current record of it (and that unless I can legally present the previous owners social security number, they cant look into it any further).

And when I call VRM Mortgage Services (the guys who take care of their foreclosures), they also claim to not have it on their records.

Almost feels like both parties (the VA office and the servicer) each think the other owns it? The VA employee told me she thinks the property is unintentionally/accidentally in their name and that it should be in the lenders name. S she thinks the solution could be to obtain a quit claim deed from VA office and then it'd be up to me to deal with the lender?

I know this is kind of vague and if you have any questions for me so you can help out then let me know and I'll get whatever info needed. Maybe some of you have crossed this scenario before!

Thanks in advance for your time and attempts to help me identify ownership of this property.

it means youre looking at a property that needs work

for example: it currently has a value of say $500,000

but say you put $50,000 into it in repair costs

then say after your repairs the property is worth $600,000

your ARV would be the $600,000 figure

a.k.a. it's the value the property has after you repair it.

Hence why the rate of return was low. Nice properties in nice areas = lower returns no matter which way you slice it.

If you want big returns youll hafta spice it up with some additional risk. Ive yet to find a great condition property in a great area that didnt need any work that provided a big initial return.

Need to consider a hold period, market rents, capital expenditures, oper expenses, market vacancy, reversion value, your desired irr, what type and how much finan. you plan to obtain, how it affects your level of risk, etc. a lot of questions to answer.

And then how each of those variable might change throughout your ownership on an annual basis in order to come up with your expected CF stream.

If you evaluate those items and the returns on invst are satisfactory you have a deal.

You buy investment RE for one reason: the expected flow of future benefits and you're willing to pay a certain amount of money to receive said future benefits. Depending on what your goals are as an investor, that'll determine how much present value you place in the future amounts.

The benefits usually come in 3 forms (operating CFs, sale proceeds CFs, and tax benefits). Using a sensitivity analysis you can do your best to determine what your expected returns could be for a particular property.

Maybe the big time investors developing, purchasing or refinancing the Class A properties that cost $100M+ (which will be hit first and hardest IMO) have a better understanding of future changes in their markets than us? Or maybe they don't and they just have more risk tolerance and/or can live with smaller returns on their capital.

When doing analyses I assign three scenarios to the stream of benefits. Each stream involves a best case, worst case and most likely set of assumptions for the operating cf/sale proceeds. From there you can formulate an expected IRR and some measurements of risk. If the project presents too much risk and not enough return to sufficiently compensate you, then the deal's a no go.

That's in a nutshell the basics of how I analyze a property. Yeah, the amount of deals that pass the smell test have been reduced because of higher prices (but that doesn't mean a "bubble" is occurring, or if it is, when it's going to "pop"). What's seemed to become the case is there are deals with an IRR I can live with but when you look at the sensitivity analysis, the amount of risk has been higher than before (because they usually involve more intensive value add to achieve what I want).

It just might mean that the days are slowing/over of buying stabilized properties for cheap and relying on minimal management/guaranteed large mkt rent growth to give you your big return.

Then again it depends on your investment goals, the property type, the class, the location, your intended hold period, your level of debt, and what actually occurs in future mkt conditions, etc. Saying you 100% refuse to invest in things today in general makes no sense. So it's really an impossible thing to answer or predict and if you could you'd be a billionaire.

 Frank, since my last post I read "What Every RE Investor Needs To Know About CF".

Read thru it, took notes and after re-reading my posts it's funny how much more complicated I was making NPV, IRR and discounting CFs. I learned a lot in a relatively few number of pages. Enough to where my property evaluation perspective has changed and it has me recognizing how one-dimensional (and deceptive!) it is evaluating a property strictly on cap rates or COC returns. Viewing properties as a stream of CFs over an entire holding period and the timing of these CFs is what gives you a sign of the health of an investment.

My next task is to work on the skill (art?) of being able to forecast based on the property type and market conditions. That seems to be the most important aspect of anything regarding DCF while it's also the most tricky. My future property evaluations should include a conservative DCF, moderate DCF and aggressive DCF. If at that point I can look at the lower end estimates of the property's future potential and still like the investment then it's an investment at least worth looking into.

Thanks for your responses on here and I also appreciate the knowledge I took from your book.

Scott, thanks for your response. Posters that are willing to help out and share things they've learned are what make this website worth visiting!

 Frank,

Ive still been workign wih and getting efficient with DCF since my last post.

A question I'm asking myself now regards the discount rate. We factor in an appropriate amount of risk into what we use for our discount factor. Now when I'm looking at a property (whether I'm assuming 5yr, 10yr, etc holding periods), doesnt the perceived risk increase each year that passes? Isn't the income stream of a property much more "guaranteed" in yr1 than it will be in yr10? So shouldnt I be adjusting my discount factor each year? Or do you use an identical discount factor for all years on the same property?