Help Quick!! Need money!! - Posted by Jason (kcmo)

Posted by eric-fl on June 04, 2000 at 22:05:33:

glad you enjoyed it. It’s nice to know someone besides me appreciates my sense of humor, LOL. Also glad it was taken correctly, this is how it was intended. No flames yet!

Help Quick!! Need money!! - Posted by Jason (kcmo)

Posted by Jason (kcmo) on June 02, 2000 at 15:06:37:

Here is the situation; found a nice 4-plex in a higher-end lake community in a fast appreciating area. Seller is owner/broker and knows what he has and does not want to help a bit. He is asking 279k for the side-by-side townhomes. 2/2.5 w/ one car garage and basement. Each is currently rented for $700 a month. This is low rent for the area. Anyhow, at 700 a month per, I figure I should net at least $500 a month after PITI. Comparable 4-plexes in the area sell at about 300k +/-
Here is my problem, seller wont help with carry back or l/o b/c he has it priced to sell as is. I am a newer investor w/ only a couple properties, and I dont think I would qualify for a bank loan of 250k+. I do have excellent credit and about 20k use, but I am wondering, being a relative newbie, should I stick with the lower priced properties (and save my cash), should I look for a more helpfull seller, or is there someone or someplace that would be willing to work these numbers? I am appreciative of anyones’ help or insight.

Re: Help Quick!! Need money!! - Posted by Stew(NE)

Posted by Stew(NE) on June 03, 2000 at 23:38:13:

No Advice. Just wanted to share your pain. I have 1 property and about 15K in the bank and I can’t seem to find that next deal. I have been looking (although parttime, since Jan). I have gotten closer in the last couple of weeks. When I was talking to a lender about my preapproval status, I asked her did she know any realtors that understood creative financing. She did! Of course, he first tried to sell me a foreclosed property for about 65K that needed 30K of work. I sat down and showed him my numbers. He couldn’t argue with them, so I guess I gained his respect. The next deal he showed me had about a 10K profit written on it, but some people who wanted to live in the dump and fix it up won the heart of the person who owned the home with 20 cats (stinking house). And NOW she decides that she wants to give it to someone to fix up and have as there Home. Pretty funny to me. I ran in to another great deal that the numbers worked on but again got outbid. So I figure, I am about due. It’s hard to stand by your numbers and not give in to your emotions. But thats why I now run the numbers after calling the person, before I look at the house or now I don’t even bother looking if it’s way off. It sure is tempting to go for a nice house in a nice area for 2 to 5% below market because you know that it’s going to go up. Hee-Hee. If your Crystal Ball is broken you can use mine. I wrote all this to say hang in there, not losing money on negative cashflow deals is a good thing.

Find better numbers and a motivated seller - Posted by John Behle

Posted by John Behle on June 03, 2000 at 14:55:16:

As has been pointed out, there is no deal there. No cash flow left over. The one that is telling you to pursue it posts a bogus email address, so I would not pay much attention to it.

Piper not only knows, real estate, numbers and cash flow - but he also knows your area. If I were you I’d be scrambling to take him to dinner and get to know him better. What a resource to have in your own back yard.

Umm…unless I’m missing something---- - Posted by Rick

Posted by Rick on June 02, 2000 at 22:59:43:

  1. your $500 net is way out-of-line, even if you were a veteran investor; after adjusting your assumptions, you will face negative cash flow

  2. the price tag seems inflated for the area–I am in Overland Park area

  3. your seller is not flexible

1+2+3 = no deal here (unless I’m missing something)

Hold On There… - Posted by JPiper

Posted by JPiper on June 02, 2000 at 18:47:13:

Jason:

Hate to be a wet blanket, but your deal is no deal.

Starting with the information you provided, I think we can easily assume that $500 cashflow is not going to be realistic. You are going to need some routine maintenance, advertising, perhaps lawn care, snow removal, you?ll experience some vacancy?.and let?s not forget about the set-asides you should have for the ultimate replacement of things like roofs, furnaces and air conditioners. That $500 you?re calculating is a figment of your imagination.

But the real reason I?m responding to this post is that I happen to be located in your area?.that?s what drew me to the post. I was struck by the price of this fourplex?.those are California prices, not Missouri prices. But for the fun of it, I pulled up the MLS system and ran the comps for fourplexes. There are absolutely NO sales of a fourplex anywhere in the Metro area above $300K. In fact, there aren?t many above $250K.

Now having said that, perhaps your deal is not truly a fourplex. Perhaps it?s 2 duplexes. Or perhaps it?s 4 individual townhomes in a complex. Who knows? And therefore I?ll stop short of saying there?s no way. But frankly, to me, it looks like this is the very top of the market?..anywhere in the city. Again, there is no fouplex that has ever sold in the MLS at $300K.

This is no deal. You don?t have to go to the ?lower priced? property necessarily. I mean, at these prices, EVERYTHING is lower priced. Further, it?s clear that this seller is a professional, and is not motivated in any particular respect. Go find a deal.

JPiper

Re: Hold On There… - Posted by Jason (kcmo)

Posted by Jason (kcmo) on June 03, 2000 at 24:42:56:

I am not sure where you ran the comps, but 4-plexes in lees summit (raintree lake) run easily 75k+ per unit. I cant imagine overland park being cheaper! I checked the comparable listing on MLS and 80% are listed at over 75k per unit. My numbers may be a bit off here, but my assumption was that a 250k note at worst w/ 8%/30yr w/ taxes and insurance would be maybe 2-2.2k per month. with all units rented (as they currently are) gross income is $2800 (with room for rent hike). I thought I was being more than generous allowing $300 per month for expenses. I guess I dont really see the bad in this deal. please simplify the reasoning for this not being as great as I thought. dont worry about my pride, I am learning. Just be straight and clear with your answers. Thanks again

YOU!!! Hold on there. - Posted by Rahgieb

Posted by Rahgieb on June 02, 2000 at 19:32:28:

The numbers that Jason posted are good numbers. I also like you, ran comps sir. I have access to the MLS from my realtor® broker friend and there have indeed without a doubt been recent comps for well over $300,000.00!!!

From what I see here Jason you have a deal worth going after, however like Mr Piper had stated, the guy sounds like a professional and his lack of motivation may be him sensing your greenness to the investing world. Stand your ground Jason, try to get in light here but by no means don’t do this deal with out sellers help. If he needs to sell he will help if not ,like Mr Piper said “Go find a deal”

Rahgieb

Re: Hold On There… - Posted by JPiper

Posted by JPiper on June 03, 2000 at 02:29:58:

Jason:

I ran the comps on Heartland MLS. I have run them again, in several different ways.

There is a comp that sold 1/04/99 on a fourplex in Raintree Lake. Address is 3886 SW Harbor. Listing price was $249K. Sales price was $214K. These units were 2Br, 1full bath, 2 half bath. That?s it Jason, the only fourplex that comes up in the MLS in Raintree Lake. By the way, at the time these were rented for $600 per month.

Now I made the supposition that perhaps you?re looking at townhouses, perhaps there?s a group of four townhouses that you?re looking at that you or the seller is ?calling? a fourplex. So I pulled the comps for townhouses. There is ONE sale of a townhouse in April of this year?..at $75K. 3 BR. 2.5 Baths?.in Raintree Lake.

The TOP sale of a fourplex in the Lee?s Summit area of the MLS system is one that took place in April. 209 Pecan Tree Ave in Lone Jack. Rent per unit was $625. The sale price was $250K. The place was about 2 years old.

The TOP sale of a fourplex in the Metro area was a sale that took place north of the river. $269,700. The gross rent per month was $2810.

So when you say that the comps show fourplexes at $75K per unit?..the facts don?t support you. I find NO fourplex anywhere in the metro area that has ever sold at that type of price.

I did find one duplex that has just gone under contract?..a pending sale?in the Lee?s Summit area. It was listed for $160K. We don?t know the sales price yet?.it hasn?t closed. Units are 3BR/2BA.

The bottom line here is that I am unable to produce information that agrees with you by searching the MLS system. Now of course the MLS only works based on agent input. I have searched the multifamily section of the MLS. If the agent somehow managed to get a multifamily property into the residential section of the MLS then I might have missed it.

But any way you slice it, this deal you?re looking at is at a minimum at the top of the market. That alone, with absolutely NO terms, would be enough for me to walk.

Now?.I?ll tell you one way I look at units. I take the gross rent?.and give it a haircut of 40% (depending on the age of the building). That 40% is intended to include things like taxes, insurance, vacancy, maintenance, advertising, AND set-asides for future replacement of major building components like roofs, furnaces, and airconditioning. But let?s bend over backwards and give your deal the benefit of the doubt. Let?s say that this factor for you and only you is 30%. That number then based on your gross rent of $2800 per month is $840?.leaving you net operating income of $1960. Now keep in mind that using 30% in my mind for vacancy and expenses is a sucker move?.but this is going to show you just how bad your deal is.

I?d say if you?re lucky your principle and interest payment for a $250K mortgage is $2000. Keep in mind you?re using 10% down on a non-owner occupant loan. I used a rate of 9%. Chances are to get what looks like 90% financing is going to cost you more than 9%?.probably closer to 10%. But let?s give you the benefit of the doubt again.

So bottom line is that you have 0 cashflow giving you the most liberal of analysis. Why would you put $20K into a property to get zip? The idea here is to MAKE YOUR PROFIT GOING INTO THE DEAL. There is NO PROFIT in this deal whatsoever. You?re NOT buying undermarket, and you have NO cashflow.

Go find a deal Jason. This isn?t one.

JPiper

Not a valid email - Posted by John Behle

Posted by John Behle on June 03, 2000 at 14:52:51:

Your supposed domain and email provider says the address is available to rent for $9.95/yr.

From the egyptmail.net site:

"raghed127@egyptmail.net is available"

Baloney… - Posted by JPiper

Posted by JPiper on June 03, 2000 at 02:36:27:

The highest sale of a fourplex in the Metro area is $269,700. This is derived from Heartland MLS, in the multiunit section.

Give me ONE SALE OVER $300K. Give me the MLS number. But if you REALLY believe these comps…email me…I’ve got a duplex I’ll sell you for $70K. I’ll sell you an additional duplex for $70K right across the street if you need 4 units. And if you’d really like to expand, I’ll sell you one more for $70K right behind…giving you a total of 6 units at the bargain price of $210K.

Looking forward to your reply.

JPiper

Show me the money!!! - Posted by SCook85

Posted by SCook85 on June 02, 2000 at 23:59:05:

Would you care to demonstrate how anyone in this world is to make money on this deal. You said “the numbers are good” and “you have a deal worth going after”, please show me how.

Re: No, Piper is right… - Posted by eric-fl

Posted by eric-fl on June 02, 2000 at 21:41:01:

If I may put not too fine a point on it, this deal sucks. Allow me to illustrate why. We’ll assume all numbers are accurate and due diligence has been performed:

279,000 = FMV

1400/2800 /mo income. The poster states this is “side by side townhomes” To me, a townhome is a two-story condo type unit. So I’m not sure if this is a true four-plex or a souped up duplex. We’ll work it from both angles.

Seller won’t carry or negotiate.

Now, going with the basic “1% rule” for the debt service, let’s assume the mortgage payment on this property will be around 2,790 dollars a month. If it’s a duplex, we have a huge negative cash flow. If it’s a fourplex, we’re just about breaking even, before ANY vacancies or maintenance.

Also, at the $1400/mo figure, our cap rate is 3%. At $2800/mo, it’s 7%. This is assuming 35% of annual income loss to vacancies and maintenance, a very conservative figure. For an inexperienced investor, on a property with unknowns, it’s closer to 40-50%, depending on property age.

On top of all this, the seller has indicated a total lack of motivation, right up front. (We should actually thank him for this, so we can not waste any more of our time.)

No matter how I look at it, this deal stinks. Unless there is something I am missing, I think it’s time to move on.

Re: Hold On There… - Posted by Jason (kcmo)

Posted by Jason (kcmo) on June 03, 2000 at 08:04:32:

Thanks for the blunt advice. I may have been disillusioned b/c I wanted to add to my rental portfolio. I have been making ‘laugh’ offers for the last 4 months and havent been able to get anything under contract, not even a l/o! I dont seem to have the luck of finding motivated sellers in my area (I would like to centralize in LS). Being young and relatively new to REI, I can sometimes get a little excited to move. Since you live in the area, do know of or have any apprenticeship positions available!! :wink: thanks for pointing me towards the light ~

See the forrest for the trees Mr Piper - Posted by Rahgieb

Posted by Rahgieb on June 03, 2000 at 11:32:00:

Mr Piper,

Thanks for your offer sir, but I deal mainly in SFH’s. I do not do duplex and triplex and fourplex properties. I simply was trying to help the gentleman with his concerns and just checked the comps like you did. Why don’t you contact the guy who posted the original question! He is into fourplexes etc. and I would have to believe that he indeed may be interested. You are really giving these away at your price and I think you guys ought to get together. He sounded like he had the means to get cash and you have the kind of properties that he is looking for. (Can you say DEAL?) Give him a call! Let us all know how you guys do.

Rahgieb

Could you Explain This Formula Better - Posted by Brenda K

Posted by Brenda K on June 06, 2000 at 24:58:20:

I have noticed that some of you on this site seem to have a formula for figuring out if a property is a good deal or not. I am very new to this and can’t quite seem to figure out how you calculate this. Could you explain this for me.

Sometimes the unbeaten path is the way to go!!! - Posted by Rahgieb

Posted by Rahgieb on June 03, 2000 at 11:36:33:

Just because this is how you see it doesn’t mean that it’s the way to go. What makes you think that someone else doesn’t have a way to make something work where you are to blind to see.

Eric, you are really missing the bus here, and need to really look at the numbers! This is why you are posting such nonsense!!!

Bottom line: “DO YOUR HOMEWORK!”

Re: Hold On There… - Posted by JPiper

Posted by JPiper on June 03, 2000 at 11:53:28:

Here’s a little advice Jason…you can have hundreds (maybe more) of mentors here on the newsgroup for free. I would suggest actively reading the information here, to include the commercial newsgroup.

I’m not into the “mentoring for a fee” business. And I have no apprentices, nor do I know of anything of the type. However, why don’t you email me your phone number…maybe we can talk on the phone sometime next week.

JPiper

Re: Hold On There… - Posted by David Alexander

Posted by David Alexander on June 03, 2000 at 11:23:53:

Run Ads, Talk to RE Agents, Call on Ads, Use signs, etc, etc. Learn to Market. You Need to find Motivated Sellers, that’s the first step to finding good deals.

David Alexander

Re: See the forrest for the trees Mr Piper - Posted by Redline

Posted by Redline on June 06, 2000 at 21:33:19:

Ragheap - you’re an idiot and you’re an imposter. Quit wasting everyone’s time.

RL