All Forum Posts by: Steve Morris

In Portland, am apt broker and have worked with builders on land to units.

First, you'll need to get money.  Const can range from expensive (in good markets) to more expensive (overbuilt or lower rent markets) to ludicrous (hard money.)  Bonus points if the lender can do const finance and then final occupied financing.

To get that, you'll need:

1) Figure zoning out and how many you can or want to build

2) Go to architect and builder and get a sway on layout and costs

3) Most painful, go to the governing entity for permits and pay your soft costs.  In Portland, this is getting close to $25K/unit.

4) Get a timeline from your builder and make sure he can serve as a gen contractor to get all jobs done on schedule,  THe longer it takes the more debt you incur.

5) Start building from site improvements (grading, utilities), then foundations to finish.  Each step means a guy from city coming by.  If your GC is on their good side, so much the better.  Inspectors can f*** you up without too much effort.

6) Start lease up ASAP.  You're going to need to be full before a bank will give you cheaper final financing.

"I am looking to open a self-directed solo 401k. What are the best custodians out there for self-directed solo 401ks? "

I'd start with 1031 QIs and ask them.  Some of them do these, but am sure, if they don't, they know who would.

They can also tell you the tax consequences since unless you are VERY careful when you set them up, to fund the property, it needs to be done almost exclusively out of your 401k and you just can take money out to fix stuff even if you intend on putting it back into the 401k.

"Does IRR assume reinvestment at the IRR rate for another investment or not then?"

IRR only reflects the return on a series of cash flows.

If you're doing a historical, you can supply the numbers and go to a XLS and easy calc.

If you do forward-looking, you estimate the returns and calc a IRR.

You use IRR to compare properties based on how much return to expect. Idea is the higher return is a better choice. However, IRR is only ONE metric when deciding on a property.

Realize that IRR is usually forward looking (you create it to decide if something is a good investment). It is supposed to reflect an "average" rate of return.

For something like a T-bill, if you pay $1000 for it (year 0), get 5%/year for 7 years (years 1-7) and then get your $1000 back (year 8), you're earning 5% as a RR.

However, rental property earns income 2 ways - Operating profits and price appreciation.  The cashflows would be your down pmt (Year 0),  CFBT each year (years 1-x) and then proceeds (year x+1) = Sale price - debt bal - costs of sale.

More confusing, for the same IRR, you may get a diff total cash return depending on when you make your money. Using both examples

• You buy an apartment for $400 in Year 1, in years 2-5 you make $15 net income. In year 6 you make $20 income and year 7 you sell the apartment for $800.
• You buy a T-bill for $400 in year 1. Years 2-6 you collect interest only payments and in year 7 you sell the T-bill for $400 and collect another interest-only payment

                                                  Year                                                                            

                         1           2        3          4         5        6         7         IRR    Sum CF

Apartment $(400.00) $15.00 $15.00 $15.00 $15.00 $20.00 $800.00 14.929% $480.00

T-Bill          $(400.00) $59.72 $59.72 $59.72 $59.72 $59.72 $459.72 14.929% $358.30

"how much money should I spend on landscaping"

I've told people to make landscaping as low maintenance as possible while maintaining curb appeal.

Remember, the more you spend on landscaping installs, the more you spend maintaining it over life.

Unless you're an expert on assessing building mechanics, I wouldn't do it.  The downside is uncovering some major problems.  I'd raise my bid with an inspection contingency.

Well, I broker apartments.  About half of my deals representing sellers I will ask for proof of funds.

Since financing is what takes the longest, I'd like to know that the buyer has 30% down (70% LTV) and can get financing up front.

Hard money is just tough to make a deal work and you're on a knife's edge (i.e. every day it taks to pay back costs a lot, so delays can kill you).  Have you asked if seller would do a carryback?

Looking for language suggestions for a tenant estoppel statement to verify rent, deposit, any verbal agreements not in the lease, etc.

Make sure you get copies of each signed lease with amount and amount of refundable tenant deposits (at closing, you should get a buyer credit since those go with the property).

As far as "unwritten" agreements, I don't think you can do much.  You might (ask an atty on how to word) for something in the PSA signed by seller stating that the supplied books and PSA contain all the tenant in agreements in effect at closing.

Estoppels are usually for commercial properties like retail / office since lenders will ask for those beyond a lease.

"When you are making an offer on an occupied property, can you request the tenant screening information from the seller? (Yes, assuming they actually screened the tenants.) I've never purchased with tenants in place, and don't know the legalities of the request."

I guess you could, but to what purpose?  Outside of fraud by the applicant, once accepted you can't really do much besides get them for defaulting on the current lease.

However, I broker apartments.  One of the contingencies is books.  I do ask for full accounting with tenant apps (including credit scores), signed leases and rent increases.  But you are due these.  In addition, you may have a clause stating as buyer you get to approve any new leases (timing may vary).

First off, get a knowledgable inspector to tell you what you're dealing with and suggested remedies (if needed).

In general, moisture invasion is one of the bigger (i.e. more to fix) and more common items laying waste to property.

WAITING TO FIX MOISTURE INVASION MAKES IT MORE EXPENSIVE>