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Old 02-21-2011, 02:48 PM   #2501
BigBadJonV
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Re: Ask me about real estate investing

Quote:
Originally Posted by Fly Bear View Post
Looks like I would get a 15% COCR on the 90k investment. For that one, the fee covers these:
* Common Area Maintenance
* Exterior (Landscaping)
* Limited Insurance
* Trash Pickup
* Water
Where are you getting the 15% COCR from?

COCR = (NOI - Mortgage payment)/Cash paid

NOI = gross rent x .55
NOI = (1400 x 12) x .55 = $9,240

Mortgage payment on $87,500 (125k - 37.5k) = 567.52/ mo x 12 = $6810.24

$9,240 - 6810.24 = $2429.76

Cash paid = $37,500

$2429.76/$37,500 = 6.5% COCR, it will take 15 years to make the down payment back.

EDIT: the .55 is the average income after expenses for a SFH. See post #101 in this thread for calculations.

Also I assumed 6.75% mortgage fixed at 30 years.
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Old 02-21-2011, 03:59 PM   #2502
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Re: Ask me about real estate investing

I assumed 4.75% mortgage over 30 years off of redfin - bad?

Also, I used the 55% income as noted several times in this thread.
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Old 02-21-2011, 04:13 PM   #2503
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Re: Ask me about real estate investing

Quote:
Originally Posted by Fly Bear View Post
I assumed 4.75% mortgage over 30 years off of redfin - bad?

Also, I used the 55% income as noted several times in this thread.
4.75% is for owner occupied, you'll most likely have to get a business loan at a higher rate.

Even then, either I've been doing this wrong, or you've got a number wrong somewhere.

125k purchase price
37.5 down payment
16800 rent (1400 x 12)
9240 NOI (16800 x .55)
using 4.75% yearly mortgage is $5500

COCR = (NOI - debt services) / up front cash paid (down payment)

COCR = (9240 - 5500) / 37500

COCR = 9.9%
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Old 02-21-2011, 04:35 PM   #2504
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Re: Ask me about real estate investing

15% COCR is on the 90k investment, you just did the math for the 125k one.
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Old 02-21-2011, 05:36 PM   #2505
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Re: Ask me about real estate investing

Hey spex,

I've always been mostly interested in the mobile home side of REI since reading this thread when it first got rolling, with the intention of getting started doing LD's and graduating to MHP's. I did manage to get one MH deal done which I ended up getting a cash buyer for. I've only just been able to get back into REI and it would seem that the SAFE act has changed the climate for wannabe LDers as apposed to when this thread started.

I'd still like to use the mobile home parks in my early stages of REI instead of SFH's/<4 unit properties...do you think thats too risky even if I keep it to <30 lot parks at first?

I know you don't recommend spending a lot of money on expensive seminars to educate yourself but I think MHP's is still quite a niche market and there are only a handful of people who can give you info on getting involved with them from first hand experience and even less than that willing to do it for free....with that being said I know you have respect for Frank Rolfes work, what do think of attending his weekend seminar that runs about $2k and along with that you get all their material as well? Am I being naive in thinking it doesnt seem at all like all the other guru's out there in REI just by their tone and lack of desperation to sell you things?


I know banks aren't really willing to give you a mortgage for MHP's anymore and unless you have a ton of cash you will more than likely need the deal to be owner financed. What kind of things do you think these owners are looking for in someone when considering to finance the deal themselves? Besides the necessary deposit what else comes in to play and how much does your own personal financial situation/credit score/character/experience in MHP's matter when they know you using the income from the property to pay off the debt service?

When taking a look at a park you might be interested in, do you normally need to know before you leave if the owner is willing to finance (not really the best thing to be coming out of your mouth in the first phone call is it) or does the owner normally need to be talked into something like that?

How much negotiating power do you have on the PP in a deal where the owner is financing as apposed to you have the cash/pre approved by the bank and can close much quicker? and in turn are you willing to deviate slightly from your investment criteria in an instance like this?

You say you have a sick sense of enjoyment from being a little more hands on in the MHPs at times....i'm sure you must have a bunch of cool stories from this...care to share?

Without being too specific could you tell us about any creative deals you've had to make to acquire parks, and also how you've turned some parks around?

Can't thank you enough for this thread.
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Old 02-21-2011, 06:39 PM   #2506
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Re: Ask me about real estate investing

Quote:
Originally Posted by Fly Bear View Post
15% COCR is on the 90k investment, you just did the math for the 125k one.
My bad, either way it will take a while to get your money back if you put that much down. The general rule of thumb is to get 2% of the purchase price in rent a month. So if your paying 125k you need 2.5k in rent a month to reach close to what spex's benchmarks are.

There is an argument for higher end homes having less of an expense ratio, but I'm not versed enough to say if this is true or not.

The main reason for the benchmarks (from what I've gathered) is that people say you should just put the money into a different, more passive investment rather than settling for less cap rate and COCR.
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Old 02-21-2011, 06:42 PM   #2507
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Re: Ask me about real estate investing

Also, Brandy, spex hasn't logged onto the site in over 2 months. If your waiting for an answer you may want to send bwana devil a message, as he seems to be the one who has gotten the most involved in lonnie deals after reading this thread. He may not be spex but he may have an idea.
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Old 02-21-2011, 07:01 PM   #2508
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Re: Ask me about real estate investing

Thanks BBJV,

I figured it was a shot in the dark, i'm sure bwana will stumble upon this sooner or later =)
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Old 02-21-2011, 07:36 PM   #2509
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Re: Ask me about real estate investing

Quote:
Originally Posted by BrandysB View Post
I know you don't recommend spending a lot of money on expensive seminars to educate yourself but I think MHP's is still quite a niche market and there are only a handful of people who can give you info on getting involved with them from first hand experience and even less than that willing to do it for free....with that being said I know you have respect for Frank Rolfes work, what do think of attending his weekend seminar that runs about $2k and along with that you get all their material as well? Am I being naive in thinking it doesnt seem at all like all the other guru's out there in REI just by their tone and lack of desperation to sell you things?
I've read quite a bit of Frank Rolfe and Dave Reynolds work and have been extremely impressed. I also have a friend who has attended their seminar and highly recommended it. From start to finish you are learning practical material on how to better purchase, manage, evaluate and sell mhps.

Maybe order some of their reading material and then if you're still motivated attend the seminar.

Or, if you have some liquid cash you could invest with them. I have heard from other investors that they will sometimes send out invitations to their investors to fly out and join them on a deal evaluation. My plan has been to read as much as I can while investing with them, then fly out and join them on some deals.
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Old 02-21-2011, 10:07 PM   #2510
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Re: Ask me about real estate investing

BBJV - I'm aware of spex's 25% COCR minimum. However, I'm not using this as a primary vehicle of income, rather as diversification away from poker. I have no desire to move from my local area, and am willing to accept 10-15% COCR if this is the case.
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Old 02-21-2011, 10:08 PM   #2511
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Re: Ask me about real estate investing

Also, I believe that passive investments wouldn't get the freeroll on equity after 10 years, as well as the freeroll on appreciation. Seems like a no brainer to me.
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Old 02-21-2011, 10:35 PM   #2512
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Re: Ask me about real estate investing

i live in Mass..were can i find deals that meet the 2% rule near me..

thanks
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Old 02-22-2011, 11:26 AM   #2513
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Re: Ask me about real estate investing

I live in Ft Lauderdale FL and most of the homes here have electric ranges. I live in one of the few areas that has natural gas piping for water heater and oven. I have the option of having an electric range or a gas one, my question is which one will bring the most value to my home?
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Old 02-22-2011, 11:50 AM   #2514
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Re: Ask me about real estate investing

that's probably somewhat determined by the cost of the resources in your area... desirability is for gas, but in some states, that resource is much more expensive than electricity.
eg: in california gas is king, cost is low and cooking is better with it... in Tennessee electricity rules, not because it's a better product but because natural gas is MUCH MORE expensive out there in comparison to NG
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Old 02-22-2011, 12:25 PM   #2515
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Re: Ask me about real estate investing

That makes sense. It seems like in my area it is the former situation where gas is cheaper and cooks better than electricity.
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Old 02-22-2011, 03:00 PM   #2516
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Re: Ask me about real estate investing

Im looking at a commercial building with partial gross leases. I am trying to find a good estimate for "exterior repairs and maintenance" however i cant find a good number to use. is a 4500 sq ft building built in 1991. Theres also 8000 square feet of landscaping/parking lot. What would you guys use for this?

My mortgage broker also recommended that i consider the possibility of tearing it down and rebuilding a 2-3 story retail/office plaze if the anchor tenant leaves. However my concern would be parking. Do you guys have a square feet to parking spaces ratio that you use?
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Old 02-22-2011, 05:37 PM   #2517
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Re: Ask me about real estate investing

Kaj


Budget 5%-10% for capital renovations. Depending on quality of building I would adjust my figure accordingly.


Do you have pictures of said property? Much easier to give you guys an answer if you provide picture of property with it.


That's a lot of land. Show us some pictures.
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Old 02-22-2011, 05:48 PM   #2518
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Re: Ask me about real estate investing

Brandy referenced it earlier, but has anyone heard anything about the potential exemption from the SAFE act mobile home sellers were in court for?

Are we still boned?
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Old 02-22-2011, 08:01 PM   #2519
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Re: Ask me about real estate investing

This is going to end up being very long:

Seems like this thread has really come to a halt lately. Over the past few days I have been reading through this thread. I've actually just hit post #1000 and every so often one of my questions will be answered.

I've come up with a bunch of questions that I've been holding onto, but it's getting fairly long and I'd like to put them out there while I continue reading. I've also been casually looking around on craigslist just to see what is out there and I think I might have found a decent opportunity.

I've always been interested in REI. I used to read the CREOnline website trying to read everything I could. I bought the Carlton Sheets program several years ago on a recommendation. It has been sitting in the box ever since I read/listened through it one time. I think it was 2005 or so. I got in touch with a guy on CREOnline who I actually spoke with over the phone. He helped me structure a lease option deal on a property about 10 miles away. The house was a SFH, but it was fixed to be a double unit with a beauty shop connected to it. I don't even know all of the details, but I think the lady wanted $70k and I think I offered something like $48k. It had just gone on the market so she turned me down immediately. I don't think she understand the whole deal, which I didn't either, but it was progress.

I then looked at another property that was a complete ****-hole. The basement was dirt, the upstairs bedrooms only had like a 7' ceiling. I felt claustrophobic. The property was something like $19k, but it would have been a huge investment to get it liveable, especially with those low ceilings.

After that I just got out of touch with REI because I wasn't really ready for it.

So here are my questions and these questions came to me randomly. Please excuse my ignorance:

1. Where do you get your forms - leases, contracts, if you want to write a note? etc.?

2. How do you buy/close a property without an agent? Where do you file the paperwork?

3. Do you ever check with the local police dept. for any issues such as crime rates or things like what the neighborhood is like, good/bad parts of town - this is specific to areas that you aren't familiar with.

4. When you see a picture of a property, do you ever say, "Wow, that property is a piece of crap!" For example, you see a narrow shot of a property, the property is really narrow, brick, weeds everywhere, looks like a ********, not really sure the area around it, probably would only be rented by a drug dealer, etc.? What do you do with those types of properties?

5. How do you find comparables to figure out fair market values if you're not working with agents?

6. Do you ever fear having drug dealers as tenants, or really shady people? People who you know aren't clean, but you can never seem to catch them on anything? What would you do to screen them out?

7. What is your opinion on investing in rural areas that are small, depressed, more sellers than buyers, not a ton of people coming into the area? I wouldn't say completely depressed, but just stagnant and not a lot of growth.

8. How do you set up financing for your first deal if you aren't sure exactly what your first property will be? Let's say you find a property and want to make a deal. Do you just get prequalified first?

9. Is there an inflection point between making a down payment and getting a mortgage and just paying full price?

10. I was reading information on the Cap Rate and came across this equation:

Capital Cost = NOI/Cap Rate

If you want a Cap Rate of 10%, and you can estimate your NOI, then that gives you an idea of the maximum price you can pay for a property? Does anybody use that? Is that a good way to screen for properties?

That is all the questions I have right now.

So here is a property I was just looking at. I'd say it is about 3hrs from me so I am not familiar with the area and don't exactly know all of the details.

It's a duplex, 2bd/1bth each, separate electric meters, both rent for $525/month each for a total of $1050/month ($12,600/yr).

Seller is asking $45,000. Property was recently rehabbed, new roof, new furnaces, vinyl siding, fridges. It also has a back yard.

I'm not familiar with mortgage rates, so I'm just using 30yr 5% and 20% down.

I'm also not really sure on how to do all of these calculations as I start getting confused.

Purchase Price = $45,000
Down Payment = $9,000
Mortgage = $36,000
Mortgage Payment = $193
Rent = $1050
Expenses = $473
Rent Minus Exp = $577
Positive CF = $384 (577-193)
Positive CF/yr = $4,608
Cap Rate (?) = 51.2% (4608/9000)

So yeah, I'm not really sure if I'm missing something? What am I forgetting?

Thanks for all of your help and sorry for making this so long.

Last edited by ItalianFX; 02-22-2011 at 08:18 PM.
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Old 02-23-2011, 05:25 AM   #2520
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Re: Ask me about real estate investing

In your example I think what you worked out is your Cash on Cash Return.

Your cap rate is NOI (not including debt service)/PP

577*12/45000= 15% cap rate

I'm still fairly new like yourself so i could be wrong, i'll let the more experienced guys verify that.

I'm still not sure where closing costs come in to play, and your example is also assuming you don't need to spend a dime on rehab when taking over which I imagine is rarely the case. I believe some people add in an opportunity cost for the 9k DP as well
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Old 02-24-2011, 02:27 PM   #2521
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Re: Ask me about real estate investing

Yes, sorry, COCR. I thought that is what it was, but I referenced back in the thread to make sure I was staying with a common format and I saw someone call that the Cap Rate. That's why I put the (?) next to it.

15% cap rate is still pretty good, yeah?

The property looked in fairly good condition just from looking at pictures. My thoughts are that if if it's already being rented, then probably no reason to go in there and renovate. I'm going to let the deal pass because I'm still trying to learn a few things, but I'm getting interested more and more.

Last night I pulled my Carleton Sheets set out and found out that I have a bunch of contracts, like rental leases, purchasing agreements, contracts, whatever else is in there, which is from the program and from getting some information from another landlord in the area. I also had an application for an REI club that I never mailed in. I forgot about all of that stuff.

I'm going to go through the program again to relearn all of the creative financing techniques and just to learn as much as I can.

Also, one more thing. I've been seeing it a few times. The common expenses that people are using is 45% (.45). I see people taking their yearly rental incomes and multiplying them by 45% and using that to figure out their NOI. Isn't that really taking expenses of 55%?

In a simple example, if I have $10,000 in rents and I estimate 45% expenses, that means I have $4,500 in expenses, which means I am profiting $5,500. Some people are just calculating 45% and then taking $4,500 and subtracting the mortgage from that, which is coming out to a lesser number.

Am I wrong and stupid?

BTW, just read up to somewhere around 1500-1600 itt, still a long ways to go. And still hoping someone can answer some of my questions from a couple posts ago.
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Old 02-24-2011, 03:42 PM   #2522
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Re: Ask me about real estate investing

Yeah 15% cap is good if you don't have to put too much as a down payment or rehabbing, then your COCR just goes to hell.

In my experience REI clubs are pretty chill and you can just go and fill in an application form on the night, which is not even an application form...they just gathering your info not approving you for anything...that being said I havent been to many meetings.

The people that are working out their NOI like you said are doing it wrong, you must take your yearly income * .45 then take that figure and subtract is from your yearly income to get NOI (just like you did afterwards).

I'm not that experienced with REI first hand, just done a decent amount of studying by myself, but i'll try and answer any questions I can from your previous post.

1: I'm sure there's ton of templates of all kinds of contracts online, or you could post on creonline and most of the time people are kind enough to send you a copy of theirs, either way it is always recommended to have it looked over by your lawyer to make adjustments for your area.

3: If its your personal preference to stay out of really bad neighbourhoods then its probably worthwhile to do some background checks on the area, for a lot of investors its purely a numbers game and if the deal is good its good (they might want to bump up their COCR or Cape Rate to take on a project in a really bad area if there is no real shortage of other deals around)

4: Kind've the same answer to 3 but if its your preference to stay clear of major rehab regardless of how good the deal is then don't give it a second thought, but once again for a lot of investors its purely a numbers game and the returns are often a lot better on these projects as they can be bought for next to nothing as nobody else will touch them

5: You don't necessarily have to be working with agents to go into local agent offices and ask them what houses they have with a similar description goes for...you could do a bit of shopping around on redfin or other real estate websites...just driving around the area and perhaps look for any properties that are FSBO with the same description and chat to the owner...theres prob plenty of other ways I don't know about too.

6: I can't imagine someone this bad making it through any decent investors screening process.. work/character and past landlord references, along with credit checks and criminal history should weed out 95% of them already

7: Probably best left alone till you are much more experienced and even then the deal would need to be much muuuuch better than your standard investing criteria

8: I don't know too much about this but I would def talk to a few banks and make sure you are eligible for a loan, at around what price range and what kind of DP they would need from you before I even begin shopping around, otherwise you dealing with hard money lenders and private money with higher interest rates and shorter loan periods which will def cut into your cashflow.

10: If you have figured out the properties true NOI based on 45% expenses and you know what returns you'd need to invest, then yes you can figure out what you would be able to pay ....annual NOI/cap rate = PP eg, you know the NOI is 50k and you need 10% cap rate to invest then 50000/.1 = 500k

You worked out the COCR in your previous post.

Don't take any of my answers as gospel, just one student to another
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Old 02-24-2011, 04:51 PM   #2523
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Re: Ask me about real estate investing

I'm am bidding on a student rental house at University of Michigan and want to know how you would structure to protect your assets. Is their insurance that can defray some of your liability? Or would you set up an LLC to hold the title and of course use a business account?
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Old 02-24-2011, 07:58 PM   #2524
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Re: Ask me about real estate investing

out of curiosity, where about?
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Old 02-24-2011, 08:04 PM   #2525
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Re: Ask me about real estate investing

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out of curiosity, where about?
Woodlawn Ave (in Burns Park area), bit off a walk to campus, but pretty prime for the Big House/State & Packard area, lived out there one year when I was in school and didn't think it was too bad.
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