Financing Deal [Skywalker is off the Pot :) ] - Posted by Skywalker

Posted by Ed Garcia on February 06, 2001 at 19:42:26:

I’m proud of you Skywalker?.

I come form the school of do something even if it’s wrong.

The concept behind such a statement is, even if you make mistakes, you will learn form those mistakes, allowing you to benefit as you continue on. If on the other hand you are afraid of jumping out there, because you’re afraid to make a mistake, then you are doomed, because mistakes are part of the learning process.

You don’t limit your mistakes by not making them, as much as you would if you learn how to evaluate your losses.

Now lets talk about your deal.

Skywalker, you expenses of $2,400 is too low. Rather than me going over the expenses and still not be accurate, I’ll just tell you that a lender that would make a loan on this type of property will hit it for at least 25% expenses and vacancy, which would be $3,600.
Using this generic formula that would give you an NOI (net operating income) of $10,800. Chances are in analyzing this deal; I would do it with GRM (gross rent multiplier). Not knowing the market in your area, I’m going to use instead a Cap Rate formula. Normally when using this formula, A reasonable Cap for such an old building assuming that its in a respectable market would be12%. At a 12 Cap rate, and as I said before, I’m not sure what cap rates are being enjoyed in the area, that would value the building at approximately $90,000.

Skywalker, I’m just playing with numbers and could be way out of line because I don’t know your market.

With your credit score Skywalker, more than likely you could finance this deal with 10% down + closing cost.

Skywalker, here is a little list of questions I suggest for a new investor who is looking at a property, and needs to know what questions to ask in the beginning.

Questions to ask for commercial

(1) Describe The surrounding area?
This question is to see if the subject property is conforming to the area.

(2) How old is the property?
(4) What’s the vacancy factor in the area?
(5) What is the gross income of the subject property?
(6) Why is the front building vacant and for how long ?

(7) What is the NOI?
(8) What are market rents in the area?
(9) Are there any other Office suites or buildings in the area for sale?
(10) If so at what Price?
(11) What are the going Cap rates in the area on this type of property?
(12) Have any other properties of this type in the area recently sold?
(13) If so at what price?
(14) How much does the seller owe on the property?
(15) If there is a loan, is it assumable?
(16) Will the seller carry a second?
(17) We already know that there’s differed maintenance, what’s it going to cost to
fix up?
(19) How’s your credit?

Ed Garcia

Financing Deal [Skywalker is off the Pot :slight_smile: ] - Posted by Skywalker

Posted by Skywalker on February 06, 2001 at 15:03:43:

2 Unit Duplex.
3 BDRMS up
2 BDRMS down
House was built in 1910 but has been completely updated including new vinyl siding…
House in a nice surrounding area.

Asking Price is $84,900. I should be able to get down to at least $80,000.
Unit is currently rented and tenants will stay.
Rents are in line w/ market rents in the area
Monthly Rental Revenue = $1200
Annual Gross Income = $14,400
Annual Operating Ex = approx. $2400

No assumable financing on the unit currently.
Owner will not carry a second.
My FICO score is 720 (Transunion)
I live in Michigan.