All Forum Posts by: Terri Shields

https://www.biggerpockets.com/forums/52/topics/27420-special-clauses-to-put-in-lease

@Scott Skinger I appreciate the information!  The OM is over 49 pages long and contains return calculations; however,  what I did not take into account was a disposition plan...GREAT advice.  In addition, the links to the underwriting tools will prove most valuable going forward.  I will study up.  Thanks again, much appreciated.

Terri Shields

Good evening BP!

I am underwriting an Indianapolis Class C community property

Two buildings, totaling 30 units (studios and 1 BDRM/1BA)

Initially I began negotiating by providing the seller a letter explaining my underwriting adjustments to include an adjustment of expenses to 55% of rental income which (based on the cited 8.42% CAP Rate) brought me to an offering price of $813K. I didn't expect the seller to take this offer seriously, however the broker called me and provided me actual P&L #s for the first quarter which "basically" aligned with the ProForma both income and expenses. He has three LOIs already, two of which are around $1M (the third lower) but if I were to guess, the potential buyers are from out of state and the seller seems to be emotionally attached and would rather sell to a local (of which I am). I believe this gives me an edge.

Based on my conversation with the broker and my research, I revisited and lowered the adjusted value for expenses to 50% (vs. 55%) which brought me to an offering price of $913K. I have not yet initiated an LOI. I wanted to get an idea of thoughts from the BiggerPockets community before moving forward.Based on the above numbers, is $913 reasonable? Or a better question might be what am I overlooking?

                                   ProForma        Adjusted

Gross Rent                170,000

Physical Vacancy      (3,401) 2%     (10,500) 6%

Other Income            2,400

Expenses                (65,894) 38%   (85,020) 50%

NOI 103,145 76,920

CAP Rate 8.42%

Listing Price          1,225,000

Assuming CAP rate is correct, my offer would be $76,920/8.42% = $913K

Thank you Mike.  We are super excited and hands on.  Love your ideas!

My daughter and I (new investors in Indianapolis) are under contract for our first house! We have experienced some twists that have caused us to consider flipping the property instead of  holding it to rent. Can anyone offer advice? Situation: Contracted for $95K, 1150 sq ft, 3 bedrooms, 2 baths, built-ins, bay window, 2 car garage, front covered porch, very cute. Comps show average value $139K. Area house values range from $90-$150K in that area according to realtor. On the walkthrough, the home looked great other than some rotting siding, a couple broken windows, stained carpet and old water stains on kitchen ceiling. The inspection brought to light many more expenses than we had anticipated: chimney collecting water and needs replaced, roof needs replaced, even decking is wet and needs replaced, insulation is wet and needs replaced, and drywall will need replaced. Evidence of termites, completely blocked ductwork, broken windows, wood rot, landscape grade running toward the house (on slab) and many miscellaneous items. Have not had estimates on repairs yet. We have enough cash funds for 20% down and $10Kor $15K towards repairs...not enough to cover all items.  Instead of renting the house, we are considering borrowing money to repair and flip. Seller has outstanding $78K mortgage and is willing to come down in price instead of making repairs himself. Seller agent is talking to bank to see if they will take less (like a short sale except not going through the whole foreclosure process). Our next step is to get estimates on repair costs and then run the numbers to see if it all works out. Any advise as we proceed?