FAQ's - Bank Owned “Value Add” Properties Acquired at Steep Discounts
1. What did you pay for the bank owned properties you recently purchased? 1) $200,000 for "Mingo" Ave. (purchased and took title as Tenants-in-Common); and 2) $219,000 for "Darwin" St. (purchased and took title as California LLC). Mingo was capitalized with $225k to include a $25k rehab budget (for a new full bathroom / master suite; new kitchen; re-finish wood floors, new carpet / tile / paint and landscaping). Darwin was in better shape than Mingo. We capitalized additional funds for Darwin's new tile floor in kitchen, new carpet / paint, new appliances, new front and back landscaping, new decking and new rock fireplace surround. After 6 weeks of renovation, Darwin is now rented with 4% cash flow from rental income being distributed to the Equity Partners quarterly.
2. What range of purchase price are you looking in for bank owned properties? $180-220k. Value for the properties referenced above were in the low $700k at the peak of the market (2005 - 2006). Mingo had a loan of $585k and Darwin had $440k plus an equity line of credit. The banks took a big loss on their books.
3. What’s the minimum investment? $100,000. Or, you can be the sole investor (own 100% of a single family residence yourself) in the low to mid $200k range.
4. Will you refinance following the all cash purchases? In some cases, yes. We are refinancing Mingo as soon as the rehab is complete and the tenant moves in. We will not exceed 50% loan-to-value from the re-fi in order to keep the debt service expense down and obtain more favorable rates / terms.
5. What are your fees, i.e., % of return, flat, fixed, other? Mark Epstein & Associates ("MEA") earns the Buyer's broker commission of 2-3%, paid by the Seller, which is standard. Compensation for organizing Co-Investors with appropriate documentation (co-ownership. LLC, TIC agreements, as appropriate) asset management, issuing quarterly reports, co-coordinating the re-finance, implementing the asset level business plan and preparing for sale is zero until Equity Partners get their original investment money back plus a minimum preferred return. After that MEA shares in the profits 50 / 50. Based on conservative projections that equates to about 23%/year to Equity Partners including cash flow distributions during the holding period. MEA brokers the sale on the back end for a discounted fee while offering the Buyer's broker full commission.
6. I’m interested to use my pension funds like you have for some of these deals. How do I get my money out of these IRA’s again? First, find out if your fund administrator / custodian allows you to self direct investments into real estate. If they do, go to their web site to obtain the forms to "direct" your custodian / fund administrator to send the funds where you want. I've been through the process several times for Equity Partners and myself and can help facilitate this for you. If your administrator does not allow you to “self direct” then you'll need to transfer the funds to an administrator that does. You can transfer your entire funds to the other administrator or just the amount of funds you want to self direct into the investment property. I use Pensco Trust Co. as my administrator (www.PenscoTrust.com). They have "Investment Kits" on their web site and all the forms you need to direct the funds to an escrow or fund your share of an LLC, etc. If you wish, tell me the name of your administrator and I can easily find out for you whether or not they allow their clients to self direct. Again, if not, it's not difficult to transfer to one that does.
7. Is there an active rental market? Rental market is strong in Seaside due to entry level Monterey County location and proximity to diverse employment base. Close to the bay, nice city lights and bay / ocean views from the area and cool ocean breeze. 2 and 3 bedroom homes in the area typically rent from $1400 to $1800/mo. There is no shortage of tenants for these houses. We just entered a one year lease agreement on Darwin for $1,700 per month.