All Forum Posts by: John K.

Hi everybody,

I have been on a short vacation, but was able to close the deal right before that. It was pretty rushed, we signed the contract just 1 day before the closing date (which I had in the beginning of the month, for the pro rated rent purpose).

Just to give you more info about this deal, if you are still interested.

I have reviewed the underlying loan of the seller and here are the details:
15 year (no balloon), ARM (adjusted annually, 2.5% above the commerce bank index, min. 6% and max 36%).

I agreed in fact to adjust my interest rate (on the seller's financing) in the same way as the sellers will have on hers. This way, I will always be able to cover seller's payment with my payment. It's not the best, but the whole deal seems to give me quite high safety margin.

I have bought the whole property for only $55K with $12K down, the loan payments start around $500 and I am covering now the utilities (will have to be separated for each units next year).
I will invest another $10K for repairs in next few months.
The great part though is that with just 4 unit rented, the gross scheduled income is $2100 per month and with the last unit rented will be probably $2700.

So the returns sound almost incredible. I can post here some IRR or cash-on-cash results if you want to see.

Thanks guys for the answers.

I know rentometer, and it's simple to use (without the need of filling too many details), but it will show the average rent only for a certain zipcode, so if I need to do average for a whole city or even state, it is not useful.

Craigslist won't be the way to go either, since I would have to search rents for each city and then make some averages for a state etc.

I might try the section 8 statistics, if they have some average data there, it could be useful. If they are in average 25% above the market, and if this is in general all around US, then it will be fine.

Otherwise I might just wait till the next year, to see the Census 2010 data.

I will post the exact terms later, if you guys are interested. However I am waiting for the seller to finally sign the contract today (the thanksgiving last week slowed the process down), and therefore I don't want to talk here about all the details.

Anyway, I should have quite high margin of safety, even if the interest rates would double in 3 years. If there would be hyperinflation, then I am screwed, but I think I wouldn't be the only one. ;o)

And Bryan, I did contact her bank and asked about the cap. Here is the funny answer from them:
"Her cap on the interest rate is 36%, but do not worry, the interest rates in last 40 years didn't get over 12%."

I was laughing, when the bank was so assuring me about not getting over 12%, but still having made her cap on 36%. :D

Bryan, the rate is adjusting at the same rate as the seller's underlying loan rate is. That's why she wanted ARM, so she would be sure that my payments will cover hers in the future. In a case it wouldn't, I am not sure if she would keep paying off her loan, and I would be in a risk that her bank would try to take the property.
Therefore I didn't even try having any cap on the interest rate.

Jon, it is 5-unit multi family property. In the bank they told me that I have to wait at least 2 years to get enough of operation and income data - to be able to refinance. But I will be trying it maybe even sooner. It is true that even though paying 1 or 2 years 2 % extra won't ruin my investment, paying this 2% extra for next 20 years (if I would refinance) - will make it quite substantially worse though.

Hi,

even though I really didn't want to, in the end I had to accept a condition of the seller to have adjustable rate on the seller's financing. There is a 4 year balloon, so I just hope that the interest rates won't skyrocket now.

Do you have experience with having seller's financing with ARM? Is it so unusual?

And one curious questions, do you think that the inflation will run high and therefore the interest rates will skyrocket in the next couple of years? Just wondering what people here expect.

Hi,

I am glad that I can help you with this one! I have bought a property in Vegas more than a year ago, and unfortunately I burnt myself on the first property management company I hired.
Even though they seemed to be great, with their average vacancy and "professional" packages etc, I had nothing than problems with them, and then even didn't get my property rented (or even weren't able to get a single person to go to see it!). This bad property management company was Nicklin Property management. I have written a huge blog post about my experience, and you can quite easily find it through google.

After that, I have fired them and searched for another property management company. I have been comparing two and in the end I chose RPM Las Vegas. They have found me a tenant within a month (they have pretty good internet marketing package) and haven't had problems with them in the whole year. So I guess I can recommend them.

If somebody else has some other experiences with them, let me know. I would be interested to know as well!

I agree that J Scott's blog post is really great especially for people starting with real estate analysis.
You can check out his personal blog as well - he is putting there details of his reahab deals, and always he has there some tables to show you how he calculated the returns and which numbers he used. It is nice to see the calculations on real examples. I like that he is using IRR a lot.

Anyway, for the free spreadsheet - one was placed for download by Joshua in this thread: http://www.biggerpockets.com/forums/88/topics/25519-free-property-analysis-worksheet

Hope that helps.

I know that you are buying an owner-occupied, but I thought I could just point out that in case, somebody would be buying investment property, which is currently rented out - it is better to close in the beginning of the month.
The reason is the prorated rent (so you will get almost full month rent, but your first mortgage payment will be probably on the 1st of next month).

I agree with Curtis about the property management. Usually it is simply worth paying the 10% of gross income to the manager and having it worry free, especially when your property isn't in your local area. Finding tenants, showing them the property, writing leases, getting rents, taking care of repairs, possible evictions etc. - that is quite a lot of work to do.

In fact sometimes you can simply find much better returns in another states (especially if you live in California for example), and if you have a good property manager, there is nothing to be worried about investing further away.
The other thing though is to find the "good" property manager. I had some bad experiences with some of them, so be sure to choose your manager carefully - checking references from both tenants and investors, pricing etc etc. There is a lot written about this topic.

Hi Bryan,

thanks for the answer. In the end my attorney recommended me to mention it both in the addendum, so we have added:

The rents and utility bills will be pro-rated.

Maybe it wasn't necessary, but better be safe than sorry.