All Forum Posts by: Stephen R.

@Ned Carey Ok, thanks. I'm actually looking to wholesale the property so I'm trying to figure out how the taxes factor in. At this point I guess there are 3 options:

1. Get the property under contract, assuming the full payoff, and then contact the owner and attempt to negotiate the payoff price, wholesaling it based on the now reduced amount with any negotiated reduction coming back to me? 

2. Get the property under contract and attempt to wholesale it, factoring in a reduced payment and let the end buyer negotiate? I ask because we're talking about $80k in taxes and if the lien holder will likely settle for a percentage then that considerably changes my numbers.  

3.. Get the property under contract and attempt to wholesale it, assuming the full payoff to be paid by the end buyer at closing, because negotiation is not possible.

Also, you said "make sure the deal goes through before any redemption period ends." What happens if it doesn't? The redemption period ends in about 10 days. 

@Arissa Pedroza Thanks Arissa. My thought is they would negotiate because they don't want the hassle of foreclosing and, if I understand it correctly, they buy the lien certificate for a percentage of the total, so either way they're making a profit. I suppose they can continue making 12% or they can settle for a reduced amount (which is more than they paid) and get their cash out now. Right? 

I'm looking at a property that has outstanding taxes due. They have been sold by the county treasurer. I do have the name of the certificate owner. I'm looking for advice on negotiating the price. Is that even possible or do I contact the purchaser and ask what they want to remove the lien?

And am I correct in understanding that I cannot negotiate prior to taking title? 

Note: There are Illinois properties with future redemption dates

I have two properties in Monee Illinois I'm trying to calculate MAO's for. Since I'm out of state I'm looking for someone local to give me an idea of what they're spending per square foot for rehab. They are both > 4,000 sf, newer construction (2004 to 2006 range). I am unable to access the interior because the properties are believed to be occupied.

1 acre vacant land. Parker Rd, Bethlehem NY (Albany, New York) Parcel # 122.00-3-8.1

Charity owned. Assessed at $30,800. All offers will be considered. 

@Kenneth Mooney I did account for all things mentioned. 

I estimated 8% capex, (although it was built in 1900 I figured that was safe and standard as I was doing much of the deferred maintenance during the initial rehab.) 

I used $375/mo insurance (based on a quote with $2k deductible from my current provider which could decrease by $64/mo with a $5k deductible) 

Taxes of $712 (confirmed through assessors office) 

Maintenance/Repairs of 5% (maybe too conservative, but considering the rehab)

Management of 10% (even though I intended, at least initially, to self manage) 

Vacancy of 8% (The average for the area according to Sterling's is 6.5% but I figured with a C class property it was best to err on the side of caution)

I also used $341 for water/sewer which, as it stands now, is paid by the owner not the tenants. That seems ridiculously high for a property with one tenant. (I'm assuming some type of leak) I had planned for separate metering as part of my rehab costs. 

All in all, $200 a door was my target as well but I was trying to analyze it based on what it is, rather than what I'd like it to be. 

@Kenneth Mooney The NOI was automatically figured using the BP BRRRR calculator. And based on the same calculator the total monthly cash flow was only $690 or $172.50 per door.

I did use comps for ARV, however there were no quads sold within the last year inside of 2 miles so instead I took a few triplexes and calculated ARV based on the cost per sf.

@Kenneth Mooney So help me to understand this. The NOI came out to be $27,695 and the COC ROI was Inf% when fully rehabbed and rented. So if I understand the formula correctly I would take the NOI and divide it by the cap rate? That would put me at $395k which is what I figured the ARV to be.

Then I went back and recalculated the numbers with the 25% occupancy as it stands. That gave me of NOI of -$5,839 and a purchase cap rate of -2.76% which would put me at $211,557. Am I doing that right? So then my offers were, generally, where they should be? (Ok, maybe I beat him up on the cash offer a little but, as they say "cash is fast and speed is expensive.") Or would I use the pro forma cap rate of -1.48%? Which would put me at $394,527. I couldn't imagine someone paying $394k for this place.

Thanks @Rick Santasiere, @Account Closed

Yesterday I submitted the offers, yes offers, to the seller's agent, she responded to me this morning and less than two hours later said the seller had summarily dismissed them. It seems Ed E. wins the prize on this one, the owner obviously has more ego than brains. (Incidentally, I discovered the seller filed for divorce last week and thought that would have motivated him a little to offload one more headache. But apparently not.) Even without a mortgage, the taxes, insurance and sewer costs alone make the property cash flow negative. As I told the agent- I can't make it worth any more than it is, and I certainly won't pay more than it's worth. 

I was listening to a podcast the other day and Brandon told a story of a property he picked up that the seller had originally asked $80K for. His initial offered of $60k was rejected. The seller later lowered the price to $60K, he subsequently offered $40K and it was accepted. Frankly, I see this scenario going the same way. 

I know I spent more than a reasonable amount of time on this one but in the beginning the analysis and the action themselves have value, even if the offer is not accepted. So overall I feel pretty good. I have bid on properties before on Hubzu and Auction.com but this was the first time I drew up an actual purchase agreement, a POF letter and submitted an EMD check all on my own. Frankly, after considering Rick's comments I was a little nervous I offered too much and part of me was more afraid he would say yes!

For those that are interested- the original asking price was $489k. After 4 months the seller lowered the price to $399k. I estimated the ARV at $395k based on comps. There were no 4 families in the area but newly renovated 3 families sell for approximately $85-87/sf. That would bring it to about $420k but remember that includes close to $100k in repairs, a current 75% vacancy which will become 100% vacancy in 45 days. Of course the rehab estimate may have been a little high but we're talking 4900 sf of paint and floors, 4 kitchens, 4 baths, a built up roof, upgraded electrical, plumbing, furnace and a 117 year old building. I was also looking to individually meter the water. I then used the 70% of ARV minus rehab and came up with the my offers.

The first offer was cash with no contingencies at $186,547. (All offers with $1,000 binder.) The second was a traditional finance at $203,296 with an inspection and finance contingency, and the third was an attempt at creativity inspired by Greg S. I offered $211,828 with 5% down and asked for seller financing at 0% for the duration of the rehab (a time defined as not more than 9 months) with a cash balloon payment at the end. My plan was to refinance following the after repair appraisal. The part of this I was unsure of was that I offered a promissory note rather than a title transfer upon agreement. I did not expect the rehab and re-occupancy to take longer than a few months and wanted to avoid any issues with seasoning and the added closing costs. 

The BRRR calculator put my purchase cap rate at 13.07%, the pro forma at 7.01% and the monthly cash flow at $690. Although, as I mentioned in my initial post, that did not account for the current vacancy rate. So the offer rejection aside, and knowing full well this is a question I should have asked yesterday, how did I do? Did I dodge a bullet or did I overshoot?

I'm looking at picking up a 4 family, 12 BR, 4 BA as a first purchase. It seems the current owner, who inherited the property and seems to know less about valuation than this aspiring investor, has been operating at a net loss. It seems the family member he inherited it from didn't operate it much better. (read: slumlord) I tried searching the forums for posts using the keyword NOL and haven't come up with much. 

The property is rated C and is only 25% occupied. The other units look like gut jobs (hence the reason they are unoccupied) and will probably rent for $1300-$1400/mo when completed. (The occupied unit is currently at $1300) I have to be careful because despite the rehab the neighborhood won't allow much more. I'm estimating $100k in rehab. The seller actually has 5 properties in similar states of distress and I've love to wrap them together into one blanket mortgage, exceeding my goal for the year. (Too ambitious for a first deal?) 

It has been on the market for over 4 months, is owned free and clear, and based on my analysis I'm coming up with a offer price of about 45% of the original asking. (And even that may be generous) He has received no offers to date. The seller obviously has wild fantasies of the property's true value but, at the same time, wants out from under it. (read: opportunity) Using the BP calculators has been difficult because I'm trying estimate operating income differently before, during and after rehab. 

So I guess the question is- how do I calculate an accurate offer price for a property that is cash flow negative? 

Part of me thinks I'd be doing him a favor offering $3 and a slightly melted Snickers bar... 

If I may ask a question for clarification- having no inspection contingency does not mean that you can't walk away from the deal if you find a major surprise during the walk through, it only means that you forfeit your deposit if you do so, correct? "As is" just means the seller (bank) will not negotiate any repairs or change in price? (take it or leave it)