Part of being an Intelligent Investor is understanding the investments at the Intrinsic Level
A Lesson in Due Diligence
The Intention of this email is to educate some of the newer investors in our midst, not to slam someone's attempt at doing business. It is very easy to get caught up in a deal at face value. Then get sold thru hype and salesmanship and make a mistake. Here are a few things that has happened to Mike Thompson and myself lately. We thought these were worth sharing.
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This is a recent thing I observed
I got this email about some Wholesale Properties
The Best Deal on a DUPLEX in Fort Myers. A couple blocks from Lee
Memorial, this location can't be beat!
2429 Canal St, Fort Myers, FL 33901, duplex, 3bed/1bath with a den
and a 1bed/1bath
About 5k in repair needed. This is an assignment of contract, Comps
for this property range from 153k -190k
Your price only $102,000, pics and more at
http://www.buyahousefromray.com/2429canal This struck me as an a opportunity. I was excited! My research shows mulit-family properties are the most stable and tend to survive down times better than SFR. Its a good day when you get to buy some Cash Flow!
County Info Here:
http://www.leepa.org/Scripts/PropertyQuery.asp?FolioID=10173641&AppraisalDetail=True&TaxYear=0#Appraisal I was going to tie this up, until I physically checked out this deal.
What did I find
County records show it is classified as a duplex.The improvement type is Single Family. It was built as a SFR and a Mother-in-law suit added after the fact. Its does appear that the City is OK with the Mother-In-Law suite being there. Its not a true Duplex. It is still Multi-Family though. From other deals I have done. Sometimes a lender will require to have a few comps that are similar to this not duplexes. FYI
This Property has a pitched roof. That should have shingles on it. The property has 90 LB Rolled Roofing ( this is meant to be used for Tile roofs not as a stand alone roof surface). I could not tell if it was hot mopped down or if the cold cement was used. If it was hot mopped? it may be to code? This type of a roof has a very short self life. Its the preferred roof of people who hack together the rehab. I bought a house with 5 layers of rolled roofing on it at one time. One on top of the other. Its caused the floors to be uneven. From the weight.
Looking in the Window at Ungrounded Outlets
Package AC Unit Looks Very Rough. These are very inefficient. That means higher utility bills. Expect more tenant turn over
Electric Company has pulled Both Meters. Meter Can Lids were still there. Always Check that. They get stolen so people can turn on their power.
Properties that sit vacant for a while tend to have drainage problems when re-occupied. Plan on snaking the main drains.
City Of Ft Myers has an orange sticker on the house instructing tenants to move out. this is a very serious issue as I am dealing with the City Of Ft Myers right now. They are on a crusade for some reason. Plan on having to have an engineering report. The Issue was for Plumbing and Electric. With the City of Ft Myers this is something to factor in.
To check Properties in the City of Ft Myers here is what you do, send a fax requesting if there any open code issues to Pat Parker, 239 332 6721, City Of Ft Myers, she faxed me the code issues within a few hours.
Here is the sellers motivation to sell. 1 $0.00 To RICHIE ADAM K CITY OF FORT MYERS 6/4/2007 Lien O L PT8,9 BLK D PINEHURST ADDN 2007000176781
2 $0.00 To RICHIE ADAM K CITY OF FORT MYERS 3/13/2007 Order O L 9, PT 8 BLK D PINEHURST ADD TO BLK D 2007000082462
Jalousie Windows, these are very inefficient which will cause your tenants to have higher electric bills causing tenant turnover.
I did not check about the water meter. There is probably only one.
I am sure there are many more issues but I left looking further was a waste of time.
I also did not look into the comp range as the deal was way-out of the ball park.
850. Rent for the House MAX
525. Rent for the Studio MAX
1375 Total
the rent market is in the tubes as we speak. The shape this property is in, would not lend to those rents. If they did agree to pay that. They would move out quickly and tenants remorse would be quick. The type of tenants who will live in a substandard property cost you more money than they make you.
Lets break This Down
Your price only $102,000,
Rehab work 5,000.
10,000 to 20,000 would be a better number for the rehab.
5,000 if you did the all work yourself.
When you factor in the engineering report for the unsafe building notice and mechanicals being replaced. This could get expensive.
This a very out of shape property that need serious updating to be a cash flowing investment.
70,000 would be a better number. why do all this work to break even?
Plus you will have money out of Pocket for an assignment Fee and Rehab plus Down Payment.
Factor in Holding Costs while you get it ready to rent.
That's money with no return for while it sits vacant..
Did this person even look at this house.?
Please email with thoughts and/or observations.
The point here is. Without thinking the deal thru. You can go from a Cash Flowing Rental witha minor rehab to this
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Here is Something Mike Thompson shared with me today
Jeff
A builder in Cape Coral approached me to look at some opportunities in another state that actually sounds very interesting. He gave me his floor plan and prices, decided I wanted to do a little due diligence on my own. I called and spoke to 2 investors up there locally and also one realtor. Both had valuable info. Land prices the builder was quoting me from Cape Coral were slightly above or pretty darn close to fair market value. However, what I found out on the building side, is that I can get the same home built up there by a local builder for about $30,000 less. It's nice to know that with a little extra effort now, you can save yourself tens of thousands of dollars in the long run.
MT
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You get what you inspect!...... not what you expect!
Good Luck and Good Hunting!
SWFL REIA
1524 Jackson Str
Ft Myers Fl 33901
800 605 2910 X120
239 334 2300 Fax
http://www.swflreia.com/Southwest Florida Real Estate Investment Association
is dedicated to providing networking and,
educational training for individuals who are interested in real estate investing
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