Could somebody check this deal out for me? - Posted by Tim (CT)

Real Estate Investing Retail
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Posted by Ronald * Starr(in no CA) on January 30, 2002 at 15:11:40:

Tim–(CT)---------

Opps, sorry. I meant to type “40” and hit the wrong button. Yes, giving the investor 40% makes sense.

I agree with your approach of giving the investor part of the cash flow for a while if that is necessary.

The 4-6 months is pretty much what you say, a careful estimate. I have found that fixing properties takes much more time than I usually estimate. Once you start, you find lots of little things. You have to go to the stores to buy materials. It is amazing how long it can take to get things fixed up. Once I spent about 6 hours because a wall furnace was not working. Taking off the thermocouple and taking it to the store to test. OK. Back to remove the valve and reinstall the thermocouple. To the store, valve tests bad. Buy another one. Install the new one. Does not seem like it should take so long, but it sure did.

Good InvestingRon Starr**

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Could somebody check this deal out for me? - Posted by Tim (CT)

Posted by Tim (CT) on January 29, 2002 at 15:55:51:

O.K here it goes

I’m looking at a 3-family multi-unit. My intent is to rehab the property and then, try and re-finance it to get my money out. I will be using a partner to purchase the property and I would be the one to finance the rehab portion of the project. Both my partner and I would be on the deed as co-owners but the mortgage would be under their name so they can get the tax benefits. I’m just looking to get into a property that will give me a good positive cash flow with little or no money (net) out of my pocket. Here are the details:

Purchase Price = 77,500
Investor D.P. 5% = 3875
Total Financed = 73625

Closing Costs (3.5%) = 2712
Total buying costs = 6587

P.I.T.I. = 861
Expenses = 250
Total = 1111
I currently have two tenents and getting 1350 total for rents so my holding costs are covered.

Rehab Costs = 13500
Total out-of-pocket 20087

Into the property for = 93712

After rehab value = 120000
Re-finance at 80% of value = 96000

Re-finance close costs (guess) = 2000
Total re-financed = 98000

Cash after close (98000-93712) 4287 (2634 would go to investor to give them a 40% return - I would keep the rest (1652))

After rehab and refinance, with all three units rented at $750/unit, it will give me a positive cash flow on this property of about 850/mo.

So, basically I would get into the property with a positive $1652 as well as getting about 850/mo positive cash flow.

Concerns:
#1). Is trying to re-finance at 80% of ARV feasable. My credit score is about 720 and (hopefully) I can get an investor with a decent score as well. Also, what kind of interest rate could I expect? I would be hoping for about 8.25.

#2). Is a 40% return on an investors upfront cash decent for them. I anticipate the whole deal from close of the original purchase to the re-finance to take about 3 months (rehab time).

#3). Have I missed anything or have the wrong assumption on anything.

I, obviously, haven’t found a partner yet, but I want to go to them with correct numbers. I need to go through my list of possible people (friends and relatives)

Thanks in advance for any comments. Also, if you need any more information, let me know.

Tim (CT)

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Re: Could somebody check this deal out for me? - Posted by Rob B

Posted by Rob B on January 29, 2002 at 22:43:11:

Hi, sounds like good cash flow. I am a little concerned of you finding a lender that will take 5% as a down payment on an investment property - most want 20 to 30%. Also, I’m not sure how your tax system works, but here in Canada, if you are a partner, you would both go on the mortgage and you would split all gains or losses for your tax return. Also, you would probably want the tax deduction of the mortgage interest to go againt you income that you made on the deal. Also, you show that you added your refinance costs to the refinanced amount of 20%. Most lenders will only refi on 20%, they will tell you that you need to pay the closing costs. Just a few thoughts. Hope this helps.

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Re: Could somebody check this deal out for me? - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on January 29, 2002 at 22:18:28:

Tim–(CT)------------

I think 3 months in and out for your investor is probably too short a time. I can only see this if you do the work yourself and you do it full time plus.

The refinancing will probably take at least 6 weeks. You may have a problem with refinancing so soon after buying. However, if you have pictures and documentation of the repair costs, probably you do have to worry about the “seasoning” requirements.

I suggest that you tell your investor that it will probably take about 6-8 months to get the money and 10% return back out.

I assume you have estimated your expenses accurately. I always try to estimate high and then add 15% extra on at the end of the calculation.

But, it sounds good to me. The only other worry is that you have a vacancy problem. The income being over $2200 and the value being only about $120K, seems strange to me. That seems like a very high income given the property value. I think anything with monthly rents of 1.2% of market value is good. This is something like 1.8% (I didn’t run the numbers). Sounds tremendous to me. Do a few deals like this and sit back with your feet up on the footstool.

Good InvestingRon Starr***

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Re: Could somebody check this deal out for me? - Posted by John Fl.

Posted by John Fl. on January 29, 2002 at 18:37:24:

Tim, You are paying to much for the property, if

Market value is $120,000
Repairs $13,500
you are buying for $77,500.00

You should not purchase for more than $70,000.00
Also consider your NOI Net Operating Income must make sense, consider in it taxes, insurance, maintenace, electricity outside the property runs on you, evictions
marketing to fill up your units and management to collect rents.
Good luck - remember you make money when you buy right
not when you sale or rent

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Re: Could somebody check this deal out for me? - Posted by Al-So Cal

Posted by Al-So Cal on January 29, 2002 at 16:54:32:

Tim-you make my head spin with all those figures. I just look at purchase price vrs sales price and all
the money you`ll eat up in between.
The important thing how much do you net after all this
work?

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Re: Could somebody check this deal out for me? - Posted by Tim (CT)

Posted by Tim (CT) on January 30, 2002 at 07:24:48:

Thanks for the reply. My intent for the ongoing income is this: Because my investor would carry the mortgage, I would have all tenants make their rent payments to them. They would then deposit the rent money into their account and then cut a check back to me (let’s call this property management fee). This check would be 100% of the rent. I would take care of any expenses as well as dealing with non-rent paying tenants.

You have a good point about refinanced closing costs. I’m not sure (yet) how that will play. I’m refinancing my own home now and they’re allowing me to roll my closing costs into the mortgage. I’m not sure if this works the same way with investment properties.

Thanks again.

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Re: Could somebody check this deal out for me? - Posted by Tim (CT)

Posted by Tim (CT) on January 30, 2002 at 07:33:52:

Ron, thanks for the reply. You mention that I should tell my investor that it will take 6-8 months to get their money out. Do you really think it will take that long or are you suggesting I tell the investor that to cover myself. If they can get their money sooner, then great. Is that the idea?

Also, why only a 10% return. I can’t imagine an investor putting up 6,500 or 7,000 and only getting 650 or 700 back in 6 months. It doesn’t seem like it would be a large enough return for the time covered. Maybe I misunderstood.

As far as the rehab expenses go, my 13,500 rehab cost is what I have to put into it. It will not cover all repairs. There are some repairs that will have to wait for further cash flow. But, I think the 13,500 will be enough to get the property to a good rental state as well as a good appraisal state. I just need to get the appraisal to 120k to get my investor a good return on their dollars. If I can’t get it that high, then my thought was to get both of our money back at refinance time and use the monthly positive cash flow to give the investor their profit. I’m not really concerned with my profit at time of refinancing because my profit will come every month for years to come.

Thanks again.

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Re: Could somebody check this deal out for me? - Posted by Tim (CT)

Posted by Tim (CT) on January 29, 2002 at 19:34:20:

Thanks for the reply. Can I ask how you came up with the 70k? I don’t mean to ask questions of your opinion because, I certainly do value it. But, if I can get into a property, basically, no money down and I can get 10,500 the first year, wouldn’t that suffice as a good investment? I would think it’s a good return on my investment. Even if I was only getting 600/mo., I would think it’s a good return.

Now, I will agree that if I was going to buy it, fix it and then immediately sell it, then it wouldn’t be a good deal - at all!! But, because I can get good passive income (even though it’s over a longer period) wouldn’t that be considered a good deal? Maybe I’m missing something.

Again, I do appreciate your comments/criticism.

Thanks,
Tim (CT)

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Re: Could somebody check this deal out for me? - Posted by Tim (CT)

Posted by Tim (CT) on January 29, 2002 at 17:33:41:

What I net will be an ever-increasing number because I’m looking to hold/rent this property out. If I’m doing 850/mo positive cash flow that’s 10,200 per year multiplied by however long I have the property for. The whole intent of this deal is to get into it with as little if any money out of my pocket and then use the monthly case flow to increase my profit.