All Forum Posts by: Paul Pedro

I do my building evaluations backwards to you (or maybe you do them backwards to me :) ).  I don't work the numbers based on the price and then try to figure out the cash flow. I start with cash flow and then figure out the price. The seller's asking price is irrelevant.

Decide what kind of cash flow you want from your building. Say $200 per month per unit, for example. If the NOI is $108k, then on a 16 unit building, you want to take 200x16x12= 38,400 a year. Now the NOI, aka debt coverage, you're working with is like $70000, or $5800 a month. That determines how much debt the building can support, and therefore determines your offer price

If your loan terms are say 5%, on 30 years (adjust for more realistic numbers) then your building can support 1.08 million in debt without hitting your cash flow and other numbers. with a 20% down payment, your max offer is 1.35 million (provided you're using the arbitrary numbers in my example). Don't offer to buy a building unless you already know your cashflow. And have a cash flow threshold that you establish before worrying about the asking price.

Nathan, I've also considered the balloon option on the seller finance. Most likely that's what will make the seller happier about taking the offer, but I wasn't going to offer that right off the bat, though I'd make it part of the counter offer afterwards

Thank you guys for the responses. Will, thank you especially for some specific offer clauses and tips I need to include. To update as far as the numbers go, my mistake, its a 10 unit building (I was thinking of another one) for that price, each unit is 2 bedroom renting for just over 1300 each on average. The numbers seem to work at the given figures, and I'm low-balling regardless. The thing is, I really want to get good at writing offers, not based on the asking price, but based on the debt I can afford to go into and still cash flow. Also, as Will said, the main contingency will be based on being furnished with the
documents and numbers that can support my due diligence. I'm prepared to see a lot of offers rejected, but I'm also prepared to make a lot of offers.

Hi, I'm looking at an investment property, an eight unit apartment building to be exact, that is priced at $950k. Based on my cash flow analysis off the income expense statements I've received, I'm evaluating this building at between 1.1 and 1.3 million, so there's a nice piece of equity from the start. Also, based on what I want to offer, the building will positive cash flow with a decent buffer and profit.

The building is being sold through an agent. I dont have a problem with this but I can't use his form to send in the offer I want to make, unless I add it as an amendment, which shouldn't really be that much of a problem. I want to give the seller these options:

A. 950k (full price) with seller financing at 5.5% 30 year note
B. 890k with 690k cash at closing and seller carry 200k 5.5% 30 year
C. 840k cash at closing

Whether the seller will accept or not doesnt matter, I want to make this offer, but I've never seen an example of how this is done. Anyone who has any experience in this, I would greatly appreciate any help or advice. Thanks

I myself am beginning real estate investing and that very book is the tool i'm working with more than any other. The reason for the exercise, from what I gather, is not just to get you comfortable with calling up sellers, but more to weed out unmotivated sellers. You're not flaking out on sellers, you're cutting off unmotivated sellers quickly, saving you and them time. The strategies in the book are not designed to work with the seller who insists that youre preapproved and have a large deposit and good credit. There are other buyers out there that those sellers would prefer working with. Remember, youre goal is to acquire the property with nothing down and creative financing. And negotiation is how it happens.

I'm determined to use the ideas in that book to get my first deal. I'd love to speak to someone who is already doing this kind of investing. Maybe i should get in touch with the authors myself.