NEED BIG HELP ON 1ST PRUCHASE!!!! MAYDAY, MAYDAY!! - Posted by Chris M (Conn.)

Posted by JPiper on January 22, 2000 at 16:01:19:

If it comes down to a choice between making unrealistic offers and doing nothing…well I guess I would agree…you might as well try.

Hopefully however that’s not the choice. Hopefully the choice is to have enough knowledge to have a clue as to what might work. THEN make your offer.

If the choice is whether to make a realistic offer or an unrealistic offer…I’ll take realistic. Having a positive attitude doesn’t make an offer any more realistic.

If you think 0 down 5% offers to banks for their REO is realistic…have at it. Make a 100 offers of that type and my guess is you’ll be out of this business due to frustration and disappointment. And that my friend, is failure.



Posted by Chris M (Conn.) on January 20, 2000 at 20:08:52:

OK. Here is what I have.

3 family house just came on the market Friday, 1/14 and offered for 89,900. Bank owned, “will consider all offers”. Assessed value is $110,040 (I could see the automatic $20,100 in equity). All units are 2bd/1ba and 1st flr: $650 / 2nd and 3rd flr: $700 ea, one gas furnace which I would include ht/hw. Gross inc. of $23,300 (vacancy of 5% added in). With expenses figured in of apprx. $10,600, I have $12,700 net op income before debt service.

I was thinking of going to that bank who took it back and offering $72,000 no money down, at a rate of 5% for 20 years. Payment and int. and taxes ($384.42) would be $5,702.04, leaving out the cost of insurance, which should not be too extreme. Take that away from net op and you get almost $7,000. Even if the insurance is $1,000/year, I’m looking to NET $6,000. Of course doing the title search and inspection, what else would that leave to do?

Please let me know ASAP. I feel I need to act quick, 2 houses within 100 yards of it sold in the last 2 weeks.

Excited but concerned,
Chris M.

Re: NEED BIG HELP ON 1ST PRUCHASE!!! MAYDAY, MAYDAY!! - Posted by jim rayner

Posted by jim rayner on January 21, 2000 at 01:02:34:


Asking Price $89,900.00
asking mult. 3.85
purchase mult 3.08
rent monthly $2,050.00
total units 3.00
avg unit monthly rent $683.33
vacancy 5.00%
adjusted annual gross 23,370.00
expense allowance % 40.00%
expenses 9,348.00
net operating income 14,022.00
cap rate 15.60%
estimated value 140,220.00
maximum STD LTV amount 112,176.00
maximum hardmoney LTV amount 91,143.00

financing options

STD financing
PURCHASE 72,000.00
DOWN 7,200.00
P&I 8.625% 30/30 498.26
annual debt service 5,979.07
debt coverage margin 2.35
gross profit 8,042.93
return on investment 111.71%
return on asset 5.74%

avg cost /unit 24000
purchased at per dollar value 0.51

Chris this looks like it could be a great deal however if the reo market is like mine the bank will probably never go for the 5% deal. Also you have not stated anything about the condition of the property which would be important in determining the price offered. Also are these the actual current rents or what you believe to be the current fair market rents.

No Way - Posted by JPiper

Posted by JPiper on January 20, 2000 at 22:22:21:

I doubt that a bank today is going to accept a nothing down offer at 5% interest. What do they need you for?

Start over at square one. You need to figure out what this property is worth. I can almost assure you it isn’t worth the assessed value. Get some comps. Figure out if there is any repairs to do. Is the building occupied? Then repost your situation.

But unless you’re into wasting your time, forget about the 0 down 5% stuff…the bank just wants rid of this thing.


Go With it - Posted by PBoone

Posted by PBoone on January 20, 2000 at 22:16:09:

Sounds good, let us know the outcome

Re: NEED BIG HELP ON 1ST PRUCHASE!!! MAYDAY, MAYDAY!! - Posted by Chris M (Conn.)

Posted by Chris M (Conn.) on January 21, 2000 at 19:28:06:

Thanks for the numbers, Jim. Considering it is a 1st purchase, I appreciate your encouragement by taking the time to give me the overall big picture. Rent rates in the area come out to $700/month. Once I check out the property, I’ll determine what my offer will be. Thanks for your help, Jim.

I’ve read this site for about 8 months and I’ve finally received the time, energy, and incentive to get the job done. By the way, the property just came on the market 1/14.

Chris M.

P.S. - I thought about what one particular response that I received that really attempted to shoot my idea down, but I’m glad there are people like you to keep the lamp lit. Thanks. I’ll keep you posted.

Re: Go With it - Posted by JPiper

Posted by JPiper on January 20, 2000 at 22:25:47:

Sounds good huh? Have you had much success with this type of offer with banks?


Wouldn’t hurt to try… - Posted by Julie

Posted by Julie on January 22, 2000 at 13:57:51:

…and if at first you don’t succeed, recalculate the situation and try again. Don’t get discouraged, though. It’s the people that say “That won’t ever work” that really fail.


Re: Go With it - Posted by pboone

Posted by pboone on January 21, 2000 at 11:24:59:

The banks we deal with in the single or small multi- family market usually want to get rid of the non-performing loan and do not want the house in thier portfolio. With that in mind cash is the only word they want to hear.
Referencing this particular activity I am supposing the guy did his homework (probably not all considering assessed value was brought into the equation) but I am amused at the possibility of someone making this kind of offer just to see if it goes through. Sometimes a childs eyes with its nieve vision may see clearer than an adults experience.