All Forum Posts by: Roger Pokorny

@Daniel Highsmith

The one time expenses related to the acquisition (legal, appliances, fixtures, etc) should not be included in your operation expenses. Operating expenses are the ongoing expenses required to keep the place running (taxes, insurance, maint, CapEx, property management). Calculate what each of these will be on an annual basis and set aside 1/12 each month to cover the expense when it occurs.

Expenses such as accounting are overhead expenses covered by the property management fee. The best way to do this is to calculate a percentage of gross income (10% is common) and remove all the overhead expenses. 

Subtract financing expenses (principle and interest) from net operating income to get cash flow. 

Cap rate is calculated by taking the annual net operating divided by purchase price. 

Cash on cash return is the annual cash flow divided by total cash you invested in the acquisition (usually includes downpayment, closing costs, rehab, appliances, ect.)

I plugged you example into my spreadsheet, along with some assumptions on taxes, downpayment, CapEx, ect. and get a 4.7% cap rate and and Cash on cash of -.95%. Even at $120,000 the current rents do not justify the purchase of this property.

I hope this helps. If you want a copy of my spreadsheet PM me and I will be happy to share. 

@Darrin Eaton

Welcome to BP! I look forward to meeting you in our REI club.

@David Dachtera

It is a foreclosure auction. I'm not sure which lien holder foreclosed. I am assuming it is the first but will investigate. I wasn't sure if the other liens would drop off or if they had to be paid. 

I am looking at bidding on a house that is on an online auction. The bank did a title search which revealed several liens on the property totaling $146,000. The title search states that all liens have to be paid to get clear title. If the house sells for less than $146,000 will I have to pay off the liens to get clear title or will the bank have to make up the difference?

@Civic Xyooj, @Kevin Martinez

Thanks for your comments,  I am not familiar with the short sale process and didn't know if this was even a possibility with this offer.

@Wayne Brooks I was reluctant to even make an offer on this house because of the reasons you stated.  After my realtor and I talked about it we decided to make the offer as we didn't think we had anything to lose.  I was very concerned about insulting the sellers with such a low offer.  Once I learned more about the sellers situation, I threw this situation out to the BP world to see if there was something I didn't think of.  After the comments I have received, it appears that I had the right idea all along.  I will take the information from this offer and posting and move forward more educated than I was before.

I know I have a lot to learn and the learning process will continue for me.  Thanks.

I am working on a lead and need some advice from the more experienced investors out there in the BP world.

Here's some background with numbers:

List price: $119,000

Specs:  2BD, 2BA, 1192 sq/ft

ARV: $125,000

Estimated repairs:  $28,000

MAO: $67,000

Offered:  $58,000

After making the offer, the listing agent informed me that the owners are an elderly couple who sold the property on contract to an individual who removed a wall between two bedrooms, turning a 3/2 into a 2/2 house.  Something happened and the house is now back with the elderly couple.  They are in assisted living.  I was told they owe about $90,000 on a mortgage.  They are in the process of trying to complete some of the repairs (replace the roof, etc.).  They offered a $5,000 repair allowance, which I waived and offered to pay all closing costs.

I would like to help this couple out and take this house off their hands, so they don't have to worry about a mortgage or any repairs.  With a $90,000 mortgage, I am trying to figure out how to pull this deal off.  There is no way the numbers will justify a $90,000 purchase price.  Are there any ideas on how to put this deal together?  I thought about negotiating with the bank to see if they will accept less than what is owed on the loan, but I am not sure how to begin that process. 

I am looking for any ideas from the more experienced investors on how to negotiate this deal and help this couple out. 

I believe your analysis is accurate.  I don't invest in Las Vegas but evaluated a similar property listed for $119,000 in Bloomington, IN.  With a 25% down payment and $1,200 rent, I would have to purchase the property for $80,000 to get over $150 cash flow.

You are trying to purchase this property with little to no money down and pay PMI. I don't see this property cash flowing under this situation. All your expenses look correct.

Look forward to meeting everyone. Sorry I missed last month's meeting. I really wanted to attend. 

I am planning on being there. 

@Tony Cookundefined

When I evaluate a property I am looking for a cap rate of 8% and CoC of 10%. I am also looking for a minimum of $100/unit cash flow for multi-family and $150/unit for SFH. I know those are lower than some other people but in Indiana that is as good as I can get.