All Forum Posts by: Darrell Shepherd

Paying a 10-15% premium to value usually doesn't make sense, but I don't see any interest in your numbers.  132 x 700 is $92,500, which I'm guessing is your purchase minus down payment with a typo somewhere along the way.  SO without interest the deal is fairly attractive.  You'd pay way more than that cost premium in interest over 11 years.  

Your advantage in the finance structure disappears if you sell it.  In fact it works very much against you in the first several years if you want to pay it off early.  Make sure you understand how the math works in this sucker.   

Your interest expense is in the premium over the actual market value of the condo.  That works out very well when you break it down if you keep it for term.  Lets just say its a 10% premium over actual value, so your effective interest rate over the 11 years is less than 1% (I wont go into the real math, but for simplicity sake lets call it 10/11 = .91%).  Thats a great rate!  BUT, if you sell it after one year then your effective interest rate was 10%, over twice what current rates are...that's not so great a rate.

If you like the place and want to own it for a while, this deal is way better than renting. You'll have a paid off condo in 11 years that should be worth $100k or so. That $250/mo will reduce your capital expenses for roofs and exterior paint and such. Like any other government HOA's usually manages the money poorly, but it does go into the property.

Only snag I see is you can't rent it if you want to upgrade your living situation 3- 5 years from now.  Perfectly fine to break even on something like this if its reducing debt by $700/mo and I'm guessing a 2 bed in Marietta will rent for about what your total cost is.   Just know you wont be able to sell it for what you owe this guy for 3-4 years with these terms, it needs to be a long term play.

Hey Matt, 

I'm looking to buy some flips in Cleveland.  Some of the ones we discussed you working on a while back are selling off.  Let me know what you're doing with James and crew, maybe there's opportunity to do some stuff together.

Will you go to the East Side?  Got one in Shaker that needs some work.  Call me, lets chat.  404-886-9318.

Got any play in that price?  You're just a shade under 80% as presented.  Hard to cheat that much on the numbers and still eat.

The POF letters are a result of this boom in wholesaling. Basically they are asking for POF because so many "wholesalers" put houses under contract they can't buy and then shop them and if they cant sell them they just walk. It started with the banks and has kinda trickled down to be an industry standard. I had a few wholesalers ask me for POF's before I could even look at a property. Pretty comical, but its because of all the people not only putting houses under contract they can't buy, but doing it at prices they cant sell at, so they can't perform.

Not sure, that post was from 12 months ago. Could've changed their guidelines since it rolled out. They were working on a consumer product, but the problem with that is the licensing is different in all 50 states. Because of that I'd think they'd be more likely to only lend to LLC's than to not lend to LLC's, but that's just a guess.

Lima One's product is better then LH's in my opinion so I usually send people there if they are looking for that sort of thing.  

Hey Zach, 

Can you shoot me over the list of homes?  Are they being sold in bulk at a discount to value?   Is it all or nothing or will you sell partials?  Who is currently managing them and do you have rent rolls?

^^true if all you need is 65-75% of the cash needed for the project.  Haven't done one yet where I didn't have to step in to get the project done right, though.  Put additional money into all but 1 too.

Doesn't matter much to me, I make more doing them myself, but it's pretty naive to say it costs less to borrow than to JV. Kinda like saying you make more on a rehab by not buying insurance. Fine if you can afford the loss, I actually do that on the little ones, but it's not very smart if you can't afford to cover things if they go south.

Lots of stuff missing in this.  Big one to be doing without good cash reserves, but the numbers look pretty good.  

First off, what are your taxes on this thing?  That's always a concern up north.  I barely factor them in in Atlanta and have a house in Cleveland that I paid $105k for and found out when I refi'd it the taxes were $8k/yr.  I was like "huh?"  The taxes were as much as a mortgage would be on that much money, crazy.

So you've really got two things to look at here.  First is how much equity to you create by doing that much work.  Basically, what can you buy it for, how much does it cost to fix, what can you sell it for?

Then, you have a cash flow model that says OK how much will I have in this thing and how much will it kick off in income?  That's when you need to compare income to expenses and money cost and figure out the cap rate, etc.   

In between the two you've gotta figure out what your costs are to get from one to the other, they are two very different analyses.  The roof is not a future expense, it needs to be in your rehab.  You're just asking for trouble letting that one slide.  

10 1 beds you should be able to do for $10k-15k each assuming they're fairly small and you can get some bulk pricing and such.  Then the roof and violations.  $250k is probably right in that market, but thats a guess, I've never tried to fix anything in Mass, I just know that it costs more than the markets I'm in.

$100k in income on a $600k investment works all day long, your long term prospects are great.  Just gotta make sure you can get it full and have the cash to get there.  You'll lose some tenants when you start construction.  People don't like change, even if its better for them.  Just gotta factor in some extra lost rent when planning cash.  Also, my experience with 1 bedrooms is the tenants suck, you want to screen them well.

Good luck, sounds like a winner to me.

What are the numbers on it? I'd consider doing a JV and bringing the cash if it made sense. Not going to be able to wholesale it, btw. There's going to be wording in the short sale that prevents the seller from getting money and you from doing a substitution of buyer and probably a transfer within 60 days or so. That varies by bank, but is pretty standard.