I'm not sure if I have a good deal or not? - Posted by Tim

Posted by Tim on March 08, 2001 at 09:55:12:

Thanks for the info. The $450/mo is truly positive cash flow after all expenses and debt have been paid for the month. I even calculated $100/mo for maintenance costs. As you have stated, hopefully I won’t have to tap into this for repairs because the property is in good shape.

As far as the appreciation goes, my thoughts are that I’m purchasing this property at the top of the cycle. In a couple of years, this property may sell for 90k. I’m not sure how much appreciation will be there. Maybe when the market makes a full cycle the top price will be 105k or 110k. Then, maybe I’ll consider selling and gain some profit out of it. But, I’m going to look at this conservatively and say my only profit from this place will be the $450/mo. Which, to me, is pretty good.

I didn’t realize the banks may frown on the LOC. Thanks for the heads up. I should be getting my loan in another couple of weeks so I will consider taking some of it and dumping it into my savings. It’s worth the $25 in interest per month if the banks will look favorably on that. Thanks for your time!

I’m not sure if I have a good deal or not? - Posted by Tim

Posted by Tim on March 07, 2001 at 16:15:10:

I have an opportunity to purchase an immaculate 3-family home. There is no mortgage on the home and their are five owners (all family members). The house is listed at 100K and even if I offer this price, I will have a monthly positive cash flow of $450. I am just starting to look at this deal and, of course, the RE agent has told me that he doesn’t think they would be interested in taking back a 2nd because there’s too many owners involved. I see his point but I’m not convinced because it’s coming out of his mouth! I have access to a LOC and was thinking about putting down 5% (10% would give me even more of a positive cash flow). Based on all of the posts on this board, I feel that I’m not doing what I’m setting out to do which is to purchase good quality properties and low prices with no money down. Now, I know from what I’ve read that these deals are out there. I personally haven’t seen any of them but I have seen deals like this. The deal wouldn’t be very creative and I would be dipping into my LOC. But, I look at the end result and see $450 going back into my pocket on a monthly basis.

My point is, which way should I look at this deal (or shouldn’t I?) If the owners won’t move on the price and aren’t willing to take back a 2nd, is $450 positive cash flow per month still good? Should I walk away from the deal because I would have to dip into my LOC to make it work. From what I can see, there aren’t alot of multi’s for sale, period, let alone one that’s in good condition.

Any thoughts? Thanks in advance.

Depends on whether you’re in a HOT market - Posted by Frank Chin

Posted by Frank Chin on March 08, 2001 at 05:37:44:

I’m currently a seller in the New York City area-and the market is hot. I’m not sure how hot the market is over where you are. I have all immaculate properties with positive cash flow-so I’m not a motivated seller.

From the sellers standpoint:

1- I ask for a reasonable price, and have advised the realtors I’m not budging. Even so - I got numerous offers.
2- I see no reason to take back a second. With so many offers- I just pick the most credit worthy with cash to put down.
3- I’m in no hurry. Positive cash flow enables me to wait it out.

Lets put it this way. The market was very hot 20 years ago when I started. Had I insisted on doing only no money down deals in my area back then, I wouldn’t have all these properties to sell today.

In a hot market, values go up rapidly and you can refinance out in a few years to do more deals. If the 450.00/month is positive cash flow after interest payments (including the LOC), then its a good deal.

Re: Depends on whether you’re in a HOT market - Posted by Tim

Posted by Tim on March 08, 2001 at 08:26:23:

I live in central CT. I would definitely say that this is a seller’s market up here (at least for now). My hopes are that the spring and summer will bring in more inventory and at least even out the table.

So, your thoughts are that even though I’m not getting a really low price for the property and I’m dipping into my LOC, $450/mo positive cash flow would still define this as a good deal?

Re: Depends on whether you’re in a HOT market - Posted by Frank Chin

Posted by Frank Chin on March 08, 2001 at 09:10:12:

Ideally, try putting 5% ($5,000) down - then use the 450/month cash flow to pay down the LOC.

Keep in mind you’ll probably have to plan on vacancies (5%) and some repairs. If its as immaculate as you say, then you might be able to defer maintenance a bit. I try to do that the first year if I can.

Generally in HOT markets - if you can go in and NOT have NEGATIVE cash flow, its a good deal. Hopefully, the appreciation would more than make up for it.

Just go through the numbers to make sure. Do tenants pay heat, utilities etc. Will taxes go up. Can you raise the rents somewhat.

Also, when they say they won’t budge - there’s usually some minor give - such as offering 93K and see if you get a counteroffer. If the broker gives you a hard time, just tell him your a serious buyer and would welcome a counteroffer.

One more thing - be careful of banks asking for source of funds for down payment. Some frown on LOC. If you can transfer the funds to a savings account for a few months that would be the best - though they like to see twelve months. I’ve been there a few times.