I NOW HAVE A CLEAR UNDERSTANDING OF HOW TO EVALUATE A PROPERTY’S CASH FLOW
Working with my coach at Prosper Inc helped me get a clear understanding of how to evaluate a property’s cash flow. I remember him saying, ‘Trust your Numbers!’
I found a commercial/residential building with four apartments and two commercial spaces. In the beginning, I thought I was getting a great deal because I was dealing directly with very motivated seller (no brokers involved, means another 5-6% discount), plus the seller accepted my offer of $280K for a property listed for $350K. I remember being very excited and ecstatic about owning a building in a town that is undergoing revitalization, but my excitement was short -lived.
Todd walked me through a systematic analysis based on current market structure and condition of the property. We went through the income and operating expenses, maintenance, vacancy rates and minimum profits for each apartment. At the end of the coaching call, it was clear it was not an ideal situation for investment because of the vacancies and scope of repairs involved.
A few weeks past, we continued to negotiate. From $280K to $255K to $220K…down to $210K. It was beginning to make sense with these numbers, however, the building need extensive work. I don’t want to carry the mortgage while I am renovating, as there won’t be rental income coming in from the commercial spaces and two other units.
I proposed a lease-purchase to the seller, where I will pay him $1,000 rent per month for the next six months. I get to fully renovate, the seller continues to pay for the mortgage, all the utilities, taxes and insurance while he keeps the rental income from the two apartments. At the end of 6 months, the seller credits me back for total rent monies at settlement. I reduced my out of pocket expense tremendously. Creative financing allowed me to purchase this building and helped end the seller’s misery. This turned out to be a really GREAT deal!!!
I am very grateful for the knowledge and confidence I gained in the short time that I have been in coaching. Having a coach to guide me took the emotion and fear associated with investing. Now, I am more relaxed and looking forward to buying another property. It is money well invested!!! Coaching works!
Carmina M.
Malvern, PA
