All Forum Posts by: Sandy S.

@Aaron Aho: I've been thinking about doing this as well, but have only looked into it briefly. The information I found online only referenced purchasing an online course and sitting an exam. I don't recall seeing anything about needing a broker. 

I agree about your reasoning for wanting MLS access. As a recent example, I was interested in a multi-unit property that needed extensive rehab. The buyers agent that I contacted was really unhelpful when I requested assistance in assessing its ARV. I was hoping that the MLS would make such estimations easier and more accurate.

@David Dachtera: one more pro that having a license would give someone: the ability to view properties listed on the MLS, or perhaps even from a private seller with a lockbox, without having to involve another RE agent.

@Chris Puckett: Perhaps you could confirm if a broker is truly needed? Would he/she be needed even if one was getting the license strictly for MLS access, and never to represent someone as a buyer/seller?

@Matt Koerner: That makes a lot of sense - thanks for your comment.

@Isiah Ferguson: I was just watching BP's path to purchase webinars, and there is a section on Understanding Expenses. Give that a gander to better understand why income minus mortgage does not equal cash flow, as @Greg Leach noted.

Happy Sunday BP folks!

Just wanted to see if anyone had any thoughts/feedback on my last comment.

Many thanks in advance!

@Clint W.: Thanks very much for your informative explanation of the 50% rule. I also just listened to the #AskBP podcast 088 to get a better understanding of it. Additionally, based on your comments I've adjusted my NOI calculation, and I greatly appreciate your opinion on the property overall.

So based on the feedback/comments, here are my new numbers:

Asking Price: $325,000

Lowest Minimum Offer: $230,000 (using this as a floor, since the property was purchased by seller over 10 years ago for this price ) 

Estimated Gross Rent: $31,200

Operating Expenses (15%): $4,680 

Vacancy (10%): $3,120

Repairs/Maintenance (5%): $1,560

Property Management (11%): $3,432

Mortgage (P&I): $12,000 (20% down, conventional financing at ~4.3%)

Taxes & Insurance: $9,000 (from seller)

NOI: $16,396  

Cap Rate: 7.13%

Cash Flow (annual): -$3,345

CapEx (10%): $3,120

Return on cash: -7.27%

Income per door (annual): -$836

So a couple of questions:

- The above analysis puts me in the red, so this is not a good deal, and can't really be salvaged, right?

- One of the podcasts specified that CapEx is not part of NOI, so I included it in the cash flow calculation. Is that correct?

- Comp properties from the area (where I have the listing price and the amount for which it actually sold) also generate negative cash flow and return on cash using the same formulation as above. Does this mean that I need to look in other neighborhoods (e.g. not A/B), or perhaps a different town(s) altogether? 

Many thanks in advance!

Thanks for your response @Michael Klenk. The property went under contract after ~90 days from initial listing. It recently became active again (other buyer backed out), and has been available for about 2 weeks. There was no drop in price between the initial listing and now.

One question regarding your "starting point" statement: Given that I'd be making an offer significantly under asking, should I make the offer even lower, knowing that they might come back with a counter, and we can negotiate from there? Or should I just make my best offer from the start, knowing that if they come back with a higher counter offer the numbers probably just wouldn't work for me and I'd have to walk away?

Thanks again!

Hi @Mohit Madaan, Yes, thanks for pointing that out. I remember reading that too, and thinking that there's no way the numbers would work out if I expected 50% of my rents to go to expenses. I think that the 50% rule is just a rule of thumb, and, when possible, using more accurate expense numbers is preferred. As I mentioned, I got my expense numbers from data provided by the seller for the last three years. It is lower than even 15%, so perhaps I should just use 15% to play it safe, I'm not sure. 

Thanks for the welcome @Dan Kelley! It's good to know I'm not the only hesitant one on here ;) 

The utilities (water/electric) are individually metered for each unit. The expenses include the average actual costs from the past three years for: plumber, electrician, HVAC, pest control, and yard maintenance. I'm not sure if the water for the yard and sewage was included in that or not. I guess if I'm going to use the seller's provided actual costs, I should add an additional buffer percentage. Which ends up leading me back to perhaps 15% again (I can't see how it would really cost 50%). What do you think?

From a previous webinar I listened to, I had noted the following:

Repairs/Maint: 5%

CapEx: 10% (budget ~5-15%; new property: 5%, older property w/ lots of repairs: 15%)

Property Management Fees: 11%

I'll go back and adjust my spreadsheet to factor in these amounts, but again, that would mean my offer price would have to be even lower. Have you made an offer significantly under the asking price?

Thank again for your everyone's time/thoughts!

Hi BP!

I found a 4-plex in my area that I'm thinking about putting an offer on. However, this would be my first property, and being a noob, I'm in a bit of an analysis paralysis state. I wanted to post my numbers here in hopes of some feedback. If this is the wrong forum for this question, please let me know (and my apologies in advance).

Everything below is on an annual basis.

Estimated Gross Rent: $31,200 - raising rents across the board by ~50/unit. My realtor says I could realistically go higher here too, but I'd prefer to be conservative.

Operating Expenses: $3,774 - I got this number by averaging the expenses provided by the seller for the last three years. (My initial number was 15% of gross rent)

Vacancy (10%): $3,120

Mortgage (P&I): $12,000 (20% down, conventional financing at ~4.3%)

Taxes & Insurance: $9,000 - this number is from the seller (my mortgage broker had estimated $7,500)

NOI: $24,306

Asking Price: $325,000

Considering Offering: $250,000

Cap Rate: 9.72%

Cash Flow (annual): $3,323

Return on cash: 6.65% 

Income per door (annual): $831

In addition to any feedback/thoughts you might have on this property/analysis, I have a couple specific questions:

- The BP podcasts that I've listened to talk about wanting a return on cash > stock market returns, so say ~12%. Is that what you look for too? Or is this 6.5% a "good enough" deal, given that don't want to put the money (down payment) in the stock market? This is an A/B neighborhood property and I'd like to keep it for a while, if not forever.

- Does anyone factor in one time expenses (e.g. closing costs, potential upgrades/repairs the property might need) into their analysis?

- I'll be managing this property for at least the first year, perhaps two. After that, I'd like to turn it over to a property manager. I haven't accounted for that expense in my analysis, partly because it would make my offer even lower relative to their asking price, and I feel odd/unsure of making a "lowball" offer

- If I do make the offer above (~75% of the asking price), would the seller be offended? Or would my realtor think I'm wasting their time? 

Thank you very much for your time any insight you may have!

Hello BiggerPockets!

I am a newcomer to BiggerPockets, but have had exposure to other real estate investing seminars.  I have approximately $50K available with which I'd like to purchase a multi family complex (up to 4 units), where I would live in one unit and rent the others. My primary focus is on getting a nice deal with some monthly cashflow. I can relocate anywhere in the US, although I was particularly interested in FL (no state income tax) and NC (I've read that there are good deals available currently).  Is that too vague?  I really am able to move anywhere, so my primary focus is getting a good deal, rather than a specific location.

I've searched and seen some other related posts, but would appreciate any up to date advice or contacts.  Ideally I would like to close on a property by the end of Jan at the latest. Wholesaling is a relatively new concept to me, but I would definitely be interested in any opportunities if they make good financial sense.

Many thanks for reading, and I've seen the friendliness of this community, so thanks in advance for the welcomes and advice!

Regards,

Sandy