All Forum Posts by: Tom Shepard

Another consideration is what kind of peppery you are targeting.  Are you looking for homes with no mortgage?  Absentee owners?  My understanding is you can get lists sorted by that as well.  If you don't find enough in a given area you may have to then expand the search, but knowing your target seems like an important starting point.

@Therese V.

Tenant pays water sewer and electric (no gas). Not 100% sure about trash, the trash bins (does not have a dumpster) have city info on them and the city website says its included in taxes for residents but not sure that includes commercial.  Calling city today to find out.

 Population trend is steady.  Increased 5% since 2000.  There are varied employers with the largest being a small Air Force base (2200) and at least 8 other employers with 300-800 employees.  There is also a community college with 5000 students and growing rapidly (we just started 2yr free tuition in TN).

$600 was based on the market rents I could find from all oine sources, there is also a 12 unit 1/1 building down the street that rents for $600 including utilities that is 100% occupied.  I MAY be able to get a little more than $600, but wanted to run the numbers at something I knew was a safe bet.  No property manager picked out yet.

Looking for advice on offer/max price.

Also looking for what I missed in calculations.

First the hard part:

This property is in rural TN in a town of about 20k population.

Current owner has been renting to local college for basketball players/coaches (both boys and girls teams have used it).  Has been giving below market rent due to this fact ($500/mo), market is easily $600.  HOWEVER, the basketball team is/has moved out and that will leave 8 of 11 units vacant at end of June. With 2 of them stated as "rent ready"  Owner has been self-managing due to ease with rent payments being automatic.

Here are the numbers once stabilized:

Asking Price: $529000 (Last sold May 2006 for $510,000)

Offer price? (Thinking $425,000 perhaps go up to $450?)

Units: 11 connected townhomes (one building, one roof)
(All 1280 SF 3 bed / 2 Bath units -- 2/1 upstairs 1/1 downstairs) on 0.46 acre

Built in 2000, metal roof, brick and vinyl exterior.  Separate meters for water and electric.

Monthly Rent: $600/mo (estimated based on market)

Annual Rent: $ 79200

Vacancy: 10%

Effective Gross Income: $71280

Taxes: $11,126 (actual 2014)

Insurance: $4800 (Slightly more than current owner is paying)

Management: 9% ($7128)

Repairs/Maint/cap ex 15%.: $11880

Marketing/Promotion: $1000

Total Expenses: $35934

NOI: $35346

Debt Payment (P&I): $2227/mo or $26724 annual
(based on $450k purchase 25% down and 20 year am at 5%)

Cap Rate: ~7.9%

Cash on Cash: ~29% (based on 25% down and 20 year at 5% and $7k closing costs)

DSCR: 1.32x

1% Rule: 1.76%

GRM: 6.31 (using AFTER vacancy Gross Rent)

Debt Yield: 10.47% (based on 25% down $450k purchase price)

Wondered what other items I should be asking the seller for in order to evaluate properly?

Also wondering if any bank in their right mind will loan on this property with 8 of 11 units empty?  I may also ask for seller financing, especially since it seems in discussions with his agent that he is more worried about the hassle factor than needing the money.

Appreciate any and all comments and critiques of my numbers!

@Micah Copeland

Hey Micah--

Did you ever get this deal done?  I am curious as I have a potential deal in another area that I am considering and wondered how it turned out for you.  Do tell!

@Jonathan Dye

BP IS a great place to learn, but as the recent blog post said, you've eventually got to get off the "learning treadmill" and take action.  

Take a little time to figure out what niche of REI you want to jump into and then do it.

#askBP podcasts have some great quick learnings.

Good luck to you!  I am a buy and hold investor and live in Nashville but look at deals all over the state.  Would be glad to try to help answer questions and or get together to talk.

@Account Closed

I am in Nashville, but have one buy and hold in Chatt and would love to have a few more there.  Please keep me in the loop if you have some deals you are looking to sell.

Hey guys--- trying to follow along, but don't understand how this fits in with Horizontal Property Regime?

Other question-- if it's only on .17 acre and the OR20 allows up to 20 units per acre, what can you do with it?  From what I can see its a 2br/1ba home?  

A quick glance at padmapper shows no 2/1 SFRs for rent in that area, just condos and apartments for about $900 per month.  

Sorry if I am showing my ignorance here -- just trying to learn.

I have been watching the on-line Auction.com properties for a while. Most of them don't meet the reserve and end up back for another round of auctions. I have not bid on any so I can't speak to their process beyond what I see on-line. One exception was a townhouse in the Nashboro Village area that I would have put the FMV at about $115-120k. It did end up meeting the reserve and has not resurfaced on their site. The winning bid appeared to be about $95k, so not a great deal, considering it was occupied, by the current owner who was forclosed on (and it is specifically your problem to deal with them after you purchase IF they don't move out), and there were no interior pics, no inspection report, and you weren't allowed to see inside before you purchase it. I would have needed a bigger discount to the market value in order to buy that. All that being said, I have considered going to an auction just to observe and see what happens, and I may just do that. Nashville is just tough to find deals right now. You just have to look everywhere and you will uncover a few!

Second Update:

Found out that because the developer still owns more than 10% of the units in this condo development (they own 10/46 and have been using them as rentals for 8 years, selling off one at a time when they want/need to) Fannie won't back ANY loans for this property.  

We are working with a local bank that doesn't use Fannie/Freddie so we will see what they have to say.  Thanks again for everyone's tips and advice so far.