Seller's mindests (by NE [PA]) Aug 10, 2017 12:22 PM|
Seller's mindests (by NE [PA]) Aug 10, 2017 12:26 PM
Seller's mindests (by NE [PA]) Aug 10, 2017 12:34 PM
Seller's mindests (by Ken [NY]) Aug 10, 2017 12:35 PM
Seller's mindests (by NE [PA]) Aug 10, 2017 12:37 PM
Seller's mindests (by Richard [MI]) Aug 10, 2017 12:46 PM
Seller's mindests (by WMH [NC]) Aug 10, 2017 1:53 PM
Seller's mindests (by allin [VA]) Aug 10, 2017 2:00 PM
Seller's mindests (by Colin [CO]) Aug 10, 2017 2:10 PM
Seller's mindests (by NE [PA]) Aug 10, 2017 2:17 PM
Seller's mindests (by Deanna [TX]) Aug 10, 2017 2:19 PM
Seller's mindests (by NE [PA]) Aug 10, 2017 2:23 PM
Seller's mindests (by S i d [MO]) Aug 10, 2017 2:28 PM
Seller's mindests (by NE [PA]) Aug 10, 2017 2:34 PM
Seller's mindests (by Sisco [MO]) Aug 10, 2017 2:40 PM
Seller's mindests (by Vee [OH]) Aug 10, 2017 2:55 PM
Seller's mindests (by Susan [OH]) Aug 10, 2017 3:00 PM
Seller's mindests (by Nicole [PA]) Aug 10, 2017 3:01 PM
Seller's mindests (by DanNBos [MA]) Aug 10, 2017 3:48 PM
Seller's mindests (by S i d [MO]) Aug 10, 2017 5:42 PM
Seller's mindests (by Robin [WI]) Aug 10, 2017 6:43 PM
Seller's mindests (by DanNBos [MA]) Aug 10, 2017 7:34 PM
Seller's mindests (by Beth [WI]) Aug 10, 2017 9:16 PM
Seller's mindests (by don [PA]) Aug 10, 2017 9:20 PM
Seller's mindests (by NE [PA]) Aug 11, 2017 3:29 AM
Seller's mindests (by WMH [NC]) Aug 11, 2017 3:46 AM
Seller's mindests (by S i d [MO]) Aug 11, 2017 5:48 AM
Seller's mindests (by Blue [IL]) Aug 11, 2017 7:54 AM
Seller's mindests (by Nicole [PA]) Aug 11, 2017 11:05 AM
Seller's mindests (by Chris [CT]) Aug 11, 2017 12:32 PM
Seller's mindests (by NE [PA]) Posted on: Aug 10, 2017 12:22 PM
I'm not sure if this post is meant to be a question or a rant or a little bit of both.
I had a very interesting evening yesterday with the seller of an eight unit. He's the one that owns the campground that I made the post about. This isn't about the campground though, this is about the eight unit that he is looking at selling.
During discussion about the property, I had shown him how I analyze the properties. He wanted me to put together an offer based on the numbers that he gave me for The operations of the property.
I don't like making the first offer, but I thought I would humor him and make him an offer on how I buy properties based on cash flow and his numbers.
The absolute minimum that I want to make per unit on an apartment is $185 after expenses per month which include vacancy and maintenance. Good, bad or indifferent, that's my path to analyzing the property. It might not be yours, and that's not really what I'm talking about here.
What I was talking about was the fact that when I showed him the numbers and how I analyzed it, he couldn't understand why I wanted to make money each month on the property. He said he didn't buy it as a business, he bought it as an investment. And I said to him well I have to make money off of a property every month, because I'm not gonna do this for free.
The man appears to be very well off, but could not come to terms with the fact that I need monthly cash flow. I think that he bought properties and didn't care if they made money while he owns them and just wanted to sell them for a profit someday. Is that a strategy for some people? To me it seems like it would be more trouble than it's worth to hopefully sell it someday for a profit that's not even guaranteed to be there. That's why I need monthly cash flow before purchasing.
I'm not sure if he is trying to convince me to buy this at a higher price and not have monthly cash flow and hopefully sell his apartments to a "newbie"? ;)
I don't think that is the case though, because he seemed genuine when he acted confused about the way I presented my offer to him. I had everything broken down in writing with numbers and amortization schedules and showed him what I value his property at based on the way that I buy things. Granted, I have no idea what he's asking for the property.
I do know however, that my offer is less than what he paid for the property 15 years ago. The major issue with this apartment complex is the fact that all of the units are on an average of $150 below market. They are in a D town, I own four units in this town already. I could raise them up to market, but I'm not guaranteed To get the extra 150 per unit. I'm also afraid that if I bought it at a higher price based on projected rents, that I might not get those and it would not be a good deal.
I read somewhere along time ago that you need to fall in love with the deal and not the property. I always fall back to that when I get to the stage of negotiations with a seller. I am planning on moving on regarding this property, at this time.
However, what I can't let go of is trying to put my mind into the mind of the seller. To begin to completely understand this person's perspective can help me break it down and get to a point where I can buy this property so it's profitable. Any ideas? --50.32.xxx.xx
Seller's mindests (by NE [PA]) Posted on: Aug 10, 2017 12:26 PM
*Should read "seller's mindsets". --50.32.xxx.xx
Seller's mindests (by NE [PA]) Posted on: Aug 10, 2017 12:34 PM
Another thing regarding this property is that I feel the sellers did themselves a great disservice by keeping the rents so low.
They are proud of the fact that no one has moved in 5 years.
I think it's hurting their value. --50.32.xxx.xx
Seller's mindests (by Ken [NY]) Posted on: Aug 10, 2017 12:35 PM
Some people buy and sell property for reasons other than profit,not you and me but some do.Clearly he is not motivated to sell to you at this time so move on and forget about him.If a seller won't tell me what they want for the property I won't even bother to go see the place.I want to hear the story on the phone of why they need to sell to help me figure out if it is worth my time. --24.25.xxx.xxx
Seller's mindests (by NE [PA]) Posted on: Aug 10, 2017 12:37 PM
Ken, I went to look at his SFH across the street from this that he called me about and during discussion there he told me he owns this apartment building as well. --50.32.xxx.xx
Seller's mindests (by Richard [MI]) Posted on: Aug 10, 2017 12:46 PM
He's looking for a sucker. Remember he said to run-up "why do you think I'm unloading the apartments and keeping the campsites".
Buy the campsites! I
Stick to your formula. He probably had more money than brains and is now looking for someone else like that. --66.188.xx.xxx
Seller's mindests (by WMH [NC]) Posted on: Aug 10, 2017 1:53 PM
Buy for someday appreciation?? No cah flow? Ridiculous. --174.255.xxx.xxx
Seller's mindests (by allin [VA]) Posted on: Aug 10, 2017 2:00 PM
There are a lot of ways to look at numbers for these deals. I would not completely ignore price appreciation. Its just like ignoring maintenance cost. I would figure the purchase price of the property using your formula and current rents. The "he is bleow market rent by $150" followed by "I'am not sure I could get the extra $150" needs to be resolved. Either he is not below market rent or the place is not worth the higher rent due to condition etc.
In the end he either accepts it or not. --174.226.x.xxx
Seller's mindests (by Colin [CO]) Posted on: Aug 10, 2017 2:10 PM
The other thing is that you don't know his full financial picture, he could be running it at a loss for tax purposes! --73.169.x.xx
Seller's mindests (by NE [PA]) Posted on: Aug 10, 2017 2:17 PM
Colin, that's a really good point and I though about using that approach during the conversation. Use the loss on this to offset the campground income. --50.32.xxx.xx
Seller's mindests (by Deanna [TX]) Posted on: Aug 10, 2017 2:19 PM
It's not my way of thinking, but the closest that I can imagine is---
What was going on 15 years ago? You had Y2K, you had the dot-com crash, you had all sorts of things going on that made things very unpredictable. But real estate is always a solid place to park your money.
So suppose you had $100k in 2002 dollars, and were looking for a safe place where you could put it, and get to it later. Here's an apartment complex for sale. Why not buy it, and hope that it kind of carries itself like magic? But the important thing is, when you're old and wanting to retire and maybe have some health costs to consider, you can sell it and finance your retirement that way. Hopefully, 15 or 20 or 30 years from now, that $100k can sell for $500k. Or a million. Or whatever.
But what ended up happening in reality? Interest rates have been pretty much flat since, what, 2004? Wages are stagnant. Cost of living goes up. $100k in 2002 dollars has the purchasing power of $130k-$170k in 2017 dollars. And it sounds like the neighborhood hasn't increased in value as expected, either.
So now, we have $100k in 2002 dollars that's locked up into an apartment complex. Suppose you're trying to buy it for $75k. $75k in 2017 dollars has the purchasing power of $45-50k in 2002 dollars. So it's not just a loss of $25k ($100-$75), but it's the difference between $170k and $50k.
But he probably hasn't got that deep into the analysis, just more of a gut instinct as to "I put my money somewhere safe" and "This guy doesn't want to even give me my original investment back, and is spouting off all this math stuff to explain why he shouldn't." --96.46.xxx.xx
Seller's mindests (by NE [PA]) Posted on: Aug 10, 2017 2:23 PM
Deanna, that's probably pretty close. I bought my first rental in this town and it hasn't went up peanuts since then.
He paid 115k for this property. I offered exactly what you thought, 75k. Guess my numbers were good!! :)
Anyway, he very well me be operating under the basic premise of "double my money".
Which isn't going to happen.
If he would sign new leases with his tenants for a year at market rents, I would pay way more for it, because it would be worth more. I doubt he'll do that because he knows half or more will move.
Seller's mindests (by S i d [MO]) Posted on: Aug 10, 2017 2:28 PM
NE, you say you want $185. Does that amount include you doing management for free, or do you include a management expense in that figure paid either to yourself or a PM? --173.19.xx.xxx
Seller's mindests (by NE [PA]) Posted on: Aug 10, 2017 2:34 PM
Sid, That $185 is what I want after expenses including a 15% allowance for vacancy and maintenance off the top.
I take a draw as needed from the business. I don't nickel and dime myself every time I run out to handle something, nor do I keep track of my hours. (Unless it's a flip project with a partner)
I also don't necessarily give myself a raise everytime I add a rental to my portfolio either, I like to leave it in the business and keep the machine oiled as much as I can.
Seller's mindests (by Sisco [MO]) Posted on: Aug 10, 2017 2:40 PM
Keep in touch with him. He will get more motivated as time goes on. He will find something else that he wants, will be faced with cap ex on this place, get sick, want to move......... My guess about his mindset is that he doesn't understand accounting and doesn't know and care to know how to value income properties.
Seller's mindests (by Vee [OH]) Posted on: Aug 10, 2017 2:55 PM
He did not understand the business and does not understand a poor investment choice either, some folks have to get the life raft to sink before they realize the boat is gone under. --76.188.xxx.xx
Seller's mindests (by Susan [OH]) Posted on: Aug 10, 2017 3:00 PM
You mean you want $185 PER UNIT net profit? After PITI,utilitis, along with 15% for vacancies and maintenance?
How much will each unit rent for @ market rent? That town must be a gold mine if it will support that kind of profit!
How many units are in the building?
Seller's mindests (by Nicole [PA]) Posted on: Aug 10, 2017 3:01 PM
I used to buy some for appreciation but I always broke even. I bought some for cash flow. Depended on the area.
when I was in my 20s, appreciation was a big part of the picture as I intended to buy and hold. I didn't need a lot of cash flow at the time.
in my 60s, appreciation isn't something I'm going to wait around for so I've bought recently strictly on major cash flow. --72.95.xx.x
Seller's mindests (by DanNBos [MA]) Posted on: Aug 10, 2017 3:48 PM
I know this area well. The owner may have forgotten or did not know that appreciation is rare in these parts.
The only reason I'd buy is for tax loss and cash flow.
Hold your ground and move on if he can't see the light. --98.216.xx.x
Seller's mindests (by S i d [MO]) Posted on: Aug 10, 2017 5:42 PM
I allow 45% for all expenses. Includes taxes, insurance, vacancy, maintenance, management, utilities, mowing (if applicable) and CapEx reserves. The subtract any debt service. I still want $150/month after all that's paid out and/or set aside.
This is why I begin my search using the 2% rule or better. Numbers like that are only possible with great cash flow. --173.19.xx.xxx
Seller's mindests (by Robin [WI]) Posted on: Aug 10, 2017 6:43 PM
I was having a conversation along these lines with DH last night. In my experience at local RE meetings, conventions, etc. I don't meet a lot of people with a business background. I DO meet a lot of good, honest, hardworking people with a desire for financial freedom. (I'm a former biology teacher, myself.) So I can totally see his point. He bought it as an investment, probably not realizing that with real estate you can invest for growth or for income or for growth-and-income, just as you can with stocks. Like you, my properties are mostly "income" investments without a lot of potential for appreciation. But he's looking at his apartment building as a "growth" investment. Until time and experience convince him that it hasn't grown, I'd spend my time looking for a more realistic/motivated buyer. --204.210.xxx.xxx
Seller's mindests (by DanNBos [MA]) Posted on: Aug 10, 2017 7:34 PM
Have him carry at 0 % --98.216.xx.x
Seller's mindests (by Beth [WI]) Posted on: Aug 10, 2017 9:16 PM
I bought my first multi in April, 2000. Nasdaq crashed in March, 2000. Soon after I bought my apartment building, it was worth 40% more. I believe investors were taking money out of the stock market and investing into rentals. My apartment building did not continue to rise in value. That was a time period where many people paid way too much tor rentals
( especially considering the high vacancy rates and rent concessions given at that time). --24.177.xxx.xx
Seller's mindests (by don [PA]) Posted on: Aug 10, 2017 9:20 PM
Good areas with good appreciation do not provide high cash flow, if any. They do not need to, because people will buy them for the appreciation. Run down areas with little appreciation general have good cash flow. Why? People would not be bothered owning them if they did not provide good cash flow. That is why the rents in rundown areas are not as low as you would think proportionate to the value of the property as compared to more expensive areas. You have to step back and understand efficient market theory. Money demands a return based on risk or the owners will not invest. The total return, appreciation and flow, have to be (just) enough to justify the investment. To say "there must always be cash flow" is to misunderstand. --73.141.xxx.xxx
Seller's mindests (by NE [PA]) Posted on: Aug 11, 2017 3:29 AM
Don Pa, When I say "there must always be cashflow", for rentals, that means specifically for me. Maybe not the next guy. --50.32.xxx.xx
Seller's mindests (by WMH [NC]) Posted on: Aug 11, 2017 3:46 AM
Well, this next guy feels the same way. There must always be cash flow.
When we started buying here, in 2003, appreciation had been running 20% per year for several years. What could go wrong? Even if you had to put some of your own money in the mix to keep it going, you were investing in a sure thing, right?
Except then 2007 - 2008 - 2009 hit...etc. --74.110.xxx.xx
Seller's mindests (by S i d [MO]) Posted on: Aug 11, 2017 5:48 AM
This topic has drifted a bit, but I think it's pretty cool where the tangent is heading. I chose excellent cash flow over appreciation for several reasons:
1) Cheap properties with high cash flow are more easily used for a no debt investment strategy. I've managed to get 6 free and clear houses in 3 years, which only works if you start with a pile of $$$ or when you're looking at places that are $20Ks or lower.
2) I prefer buy and hold. Appreciation only counts when you SELL, and I do NOT intend to sell unless Pmh's dad cashes me out for $10 million. Still haven't heard a response to my offer... (wink) I want my kids to inherit these houses on a stepped up basis, if for no other reason than to break the old rule of nothing being sure except death and taxes. The death part, yes. The taxes?...maybe that loop hole will still be around when I'm not.
3) Appreciation is here today, gone tomorrow. Cash each month is cash in the bank or cash I can use for whatever. I'm not saying people haven't made a pile on appreciation; they certainly have! My guess is that most high net-worth REIs have made their fortune from excellent appreciation rather than monthly cash flow. I also guess that the majority of REIs who have gone broke did so by counting on appreciation but getting caught with not enough cash flow when times were tough. Then there's the rest of us REIs who are not extremely wealthy but are content replacing day job income and slowly acquiring a comfortable level of wealth.
A famous REI whose name I forget once said that "Equity creates wealth; cash flow protects wealth." Sounds reasonable.
Others have different goals and strategies and that's great. As for me...that's why I do what I do.
Seller's mindests (by Blue [IL]) Posted on: Aug 11, 2017 7:54 AM
If he is well off as you say, then yes I think he bought for write off and doesn't care they loose money.
There was a lawyer in our LL group that owned several 4 families in the same area, none that would cash flow anyway I could see. I asked a mutual (LL) friend about it, he said the lawyer needed the paper loss. --75.132.xxx.xx
Seller's mindests (by Nicole [PA]) Posted on: Aug 11, 2017 11:05 AM
first property I ever owned was purchased for $47,000 in 1979. Sales price last year was $313,000. Sadly, I was not the seller.
I've got one that I've owned for over 30 years. Paid 8,000 for it. I could list & sell it tomorrow for about $110,000 ... closer to $120,000 if I sold it traditionally. --72.95.xx.x
Seller's mindests (by Chris [CT]) Posted on: Aug 11, 2017 12:32 PM
Very wealthy or high income people typically buy property to park money in, as long as it breaks even or only operates at a small loss they are happy.
The Chinese are on a buying spree around here, all cash. --24.45.xxx.xx