All Forum Posts by: Mark S.

Thanks Shane Woods I guess it will heavily depend on rehab costs. I believe this property is eligible to have the repair costs rolled into the loan, however, I'd be required to then put 25% down. The 20% down I mentioned would be on a 30 year fixed conventional loan. There are other lenders that would do only 15% down, but on an ARM and only over 20 years. This would put the upcoming interest rate environment against me and raise my monthly payments. The downside is it's going to be very difficult for me to even come up with the 20% down. I'll likely have to back out some Roth contributions, coupled with bank accounts, just to get the cash I need. Not an ideal move, but these numbers look really good. Am I wrong that even if I buy at ask, I'd be getting about $48,000 instant equity? I know equity doesn't pay bills and put food on the table, but damn! As for the other owners, I'm not interested in their properties, but more so how they affect the surrounding neighborhood. I basically want to get a sense of whether or not they care about the area. I'm also curious to see if they know anything about the previous owner/tenants/etc. who knows? They may have some insight as to why the property went into foreclosure in the first place.

Fourplex foreclosure. Asking $194,900. Taxable Value (PVA website): $243,000. 5,000 square feet. Built in 1999.

Purchase Price (conservatively): $194,900.
Down Payment @ 20%: $38,980
Financed Amount: $155,920 @ 6% (conservatively) over 30 years
P&I Payment: $935/month

EXPENSES
Taxes ($2,753/yr): $229/month
Insurance (estimated, need to get quote still at $2k/yr): $166/month
Repairs/Maintenance: $200/month
Lawn/Groundskeeping: $100/month
Vacancy Loss at 10% (conservative, $3,360/yr): $280/month
Advertising: $16/month
Miscellaneous at $2k/yr: $166/month
Tenants to pay utilities, minus trash (absorbed in miscellaneous)

INCOME
Rents @ $700/month per unit: $2,800/month (Conservative)
Rents @ $750/month per unit: $3,000/month (Likely)

RULES / RATIOS at $2,800 / month.
50% Rule: $2,800/month = $1,400 to expenses, $935 debt service, $465 cashflow = $116/month per door. Pass.
2% Rule: Says property should sell for $140,000. Fail.
38.97% Cash-on-Cash Returns
13.55% Cap Rate

RULES / RATIOS at $3,000 / month.
50% Rule: $3,000/month = $1,500 to expenses, $935 debt service, $565 cashflow = $141/month per door. Pass.
2% Rule: Says property should sell for $150,000. Fail.
45.75% Cash-on-Cash Returns
14.90% Cap Rate

QUESTIONS:
1.) Is this a seemingly "good deal?"

2.) Same owners has two other quads on this street. Would it make any sense to contact them? If so, what is my approach? I essentially would want to see other owners' approach to managing property / neighborhood / get a feel.

3.) I'm not sure yet what maintenance might be needed. Assuming property does not require any immediate work, what is a fair offering price?

4.) Any advice if this should turn into a bidding war?

Thanks in advance, everyone!

I passed on a 4-plex that was a foreclosure recently for many reasons. Among those reasons, it was virtually impossible to find anything out about the property in terms of previous rents, repairs, etc., as it was a foreclosure.

It seems like these properties could potentially be great deals, but there are a lot of unanswered questions and that makes it difficult to pull the trigger.

I guess my question is how to approach evaluating a foreclosure differently than you might for a property where you can actually contact the owner or seller's agent for answers to common questions.

Thanks.

Went to check out the units today. Overall, they're in decent shape. There were several little issues, though, which would cost some money to fix up front before making them livable. One of the things that sort of freaked me out was that the copper was stolen out of one of the units. I had suspicions about the neighborhood already, and this helped to confirm.

The neighbors weren't exactly inviting either - loud car stereos with vulgar music blaring, kids screaming everywhere, people driving by yelling stuff out the window, etc. Not a good sign.

We re-ran some of the numbers and with our conservative estimates, the numbers weren't as appealing. Please disregard the figures posted previously; there was an error in the spreadsheet that I fixed and those numbers are NOT accurate.

The two biggest challenges for me are:

1.) The neighborhood doesn't seem like it will allow me to attract quality tenants.

2.) There appears to be some repairs needed to bring the units to livable condition.

It would honestly be a stretch for me to come up with the down payment alone, never mind the extra repair funds needed. All the while, these units would not be rented for a few months and I'd have to continue to service the debt.

There must be SOME value, though, as there are at least two other investors that already bid on the property. It just sucks being late to the party with minimal information since it's a foreclosure.

I have two options:

1.) Don't make an offer, let this one go, and continue to save more cash.

2.) Make an offer with an inspection contingency and back out if the costs are too high.

I'm leaning towards #1. Anyone else have any thoughts?

Hey, Jerry, were they not offering a fixed rate or did you want an ARM for some reason?

Hey Chris,

I just have my primary residence. No other homes. It just seems most banks are not interested in giving out fixed rate mortgages to investors right now. The down payment will be a struggle for me, so I guess I'd consider an ARM, but only on a 85% LTV, not 75% or 80%. I'd really rather put down the extra 5% or 10% and get a fixed rate, though. We'll likely never see rates this low again.

Yikes! So, it sounds like the FHA option for me is out.

So far, the best I'm finding is 80-85% LTV from local lenders; the downside is they will only do an ARM, not a fixed loan. There are non-local lenders (some of the HomePath people I talked about) that are doing 75% LTV (even worse!), however, I need to find out if they'll do a fixed loan or if they're also on an ARM. if they'll do a fixed, it may be worth the extra $ down.

@Jerry W.
Thanks for the list of questions. I have answers to a couple now; I'll still need to do some more research for the rest:

Property Tax Costs: $2,871 when the property was appraised at about $300,000 in 2012.
Utilities appear to be metered separately. The building is currently vacant, so I guess I get to decide, if I buy it, what I pay and what I don’t.

I’m planning to have the tenants be responsible for all their utilities. I may just pay trash for them for convenience.

Lawn Care: I’ll make sure to get quotes.There is parking in the back on concrete where the small decks are for each unit, so no lawn there.The front yard is relatively small, so I can’t imagine it’d be more than $75 to mow.

Plumbing, roof, heater/ac system: Need to find this out with realtor.

It’s about 14 years old.

Condition of apartments: Supposed to be going to see it with realtor tomorrow.

Demand for rentals in that area: High. There are quads all around this one. There are also duplexes and other rentals nearby. Rental demand will be high, but competition may be also.
I need to keep this in mind.

Rents/Vacancy Rates/Foreclosure Reason: Will get more into this with realtor. Based on what I currently know, I believe I could get $500 - $600/month per unit on these. I understand that's a wide range, especially when you multiply by 4. Even at only $500/month per unit, with 85% LTV (there's one lender near me that I believe will do this), 6.5% interest rate for 20 years, I calculated a 9.91% cap rate with 17.33% cash-on-cash returns. This includes 10% vacancy, $1,500 insurance, $2,400 repairs/maintenance, $200 advertising, $1,200 lawncare, $1,000 miscellaneous.

Records of rents/costs/tax records: Since it’s a foreclosure, I doubt I’ll be able to get these.

I hope to have many more answers shortly.

Hey @Brandon Turner
I haven't specifically asked about FHA on a non owner-occupied rental property, however, I heard they relatively recently made some changes to where the mortgage insurance on FHA loans remains for the life of the loan (not just until the equity is built up) - this is something I definitely want to stay away from, if possible.

I'm not familiar with the 203k remodel loan. Is that something that's tacked onto another loan, or is that a loan type available within itself (like the HomePath Renovation loan with all-in-one)?

As a sidenote, I love the Podcasts and you crack me up each week when I listen. You guys have great senses of humor, yet you keep the show on track and informative. Great job!

@Andrew Greaves
Welcome to BP! I've sent you a colleague request; we're in the same geographic area with similar interests in real estate investing. This site is awesome! I've spent hours at a time on here trying to learn from others. I hope to be able to give back some day when I, too, have more experience.