What do you think

This is my first post on this site. Found it about a week ago and have been reading it non stop. Its full of good contributions, thanks! For the founder I bet you love the adsense income. Now thats a nice passive investment!

Anyway, a little bit about me before I ask a few questions. I am 28 years old and currently live in Germany. I just moved here from Georgia about a year ago as I am military. Currently I have a house in Georgia that I tried to sell but ended up renting out before I moved. It completely does not meet MikeOh 50% rule :)

A few weeks ago a friend called and he passively said he was looking to buy some rentals in Georgia and wanted a partner. I had not looked at the mls listings since I originally bought my house in 2003. All I can say is, wow. These things are really on sale. I've been constantly looking at various listings and see lots of deals that would appear to meet the rules touted on this board.

One I was considering:

Listed: 52k
Year: 2002
Estimated Rent: 850 - I found only one rental listed in this smaller town and it was actually the same exact design.
Construction: Aluminum/Vinyl

I just got off the phone with the agent and she says the owner is an older individual whom has had the property on the market for 6 months. Supposedly it is in perfect shape. From the conversation I believe he originally bought the property to flip it but has had issues. Now just waiting on her to send me many photographs as I cant easily look. If I like what I see have a friend check it out.

The numbers to me seem to work. I have been pre-qualified from USAA for a 5.3% investment loan. If I picked up the property for 45k + 3k closing and had a 38k loan the mortgage should be about 211.02. Other numbers I estimated:

Maint: 15% - 127.50
Mang: 9% - 76.50 (thats what the local PM seem to charge)
Vacancy: 15% - $127.50
Tax: 10.59% - 90.00 (Guessed...)
Insurance: 4.71 - 40 (Guessed Again!!!)

That comes up to about $461.50 a month in expenses or about 54.29% of the rent.
$850 (rent) - $461.50 (OE) - $211.02 (DS) = 177.48 Cash Flow

What do you guys think about a deal like this? Also, what do you think about the aluminum construction. I have never heard of that before. From the pictures I would think the house is completely normal. At least it does not look like a trailer lol

Thank You

Edited: 06/26/2010 at 09:41AM

Uwe S.

Real Estate Investor · Chemnitz, Saxonia

1,241 posts
12 awards
69 influence

Sep 12 '09, 03:25 AM

Welcome David,

I think, if you in the right position, then take a Duplex or Triplex. There are many amazing houses for sale.
Advantages against the singles are:
- you have more income
- leaves a tenant you have the other tenants for income and pay the mortgage
- possible vacancy on single houses is 100% and then you have no income
- better cashflow for you
- and most important, you become more for your money

Wich area in Georgia? Let us know please.

-Uwe

Edited: 06/26/2010 at 09:41AM

Jeffrey K.

Real Estate Investor · Milwaukee, Wisconsin

1,313 posts
12 awards
56 influence

Sep 12 '09, 09:35 AM

When you use the 50 percent rule use the whole investment (dp also). Good luck.

Edited: 06/26/2010 at 09:41AM

Curt Davis

Wholesaler · Memphis, Tennessee

Pro

1,161 posts
7 awards
54 influence

Sep 12 '09, 11:45 AM

Uwe,

Buying commercial is not as easy as you think. Considering David is new to investing and this could be his first investment, it sounds like a good first safe deal.

Edited: 06/26/2010 at 09:41AM

Curt Davis, buyMemphisnow.com
E-Mail: crtdavis@gmail.com
Telephone: 901-881-0552
Website: http://www.buymemphisnow.com
Full Service Real Estate Investing in Memphis TN

Peter Giardini

Real Estate Investor · Baltimore, Maryland

Donor

565 posts
11 awards
57 influence

Sep 12 '09, 01:57 PM

This looks like a good bread and butter deal.

Some questiions...

What is the vacancy rate in this area? Are you sure that it can be rented for $850. A few calls to property managers will give you a feel for vacancies and time to lease.

Do you have the necessary reserves to cover things like AC or a roof when they fail... as they always will.

What is your back up plan for when you realize that the property manager isn't working out?

Have you gotten clear with your investor friend regarding how the partnership will work?

Good luck and keep us posted.
I

Edited: 06/26/2010 at 09:41AM

David Wolf

3 posts
50 influence

Sep 12 '09, 07:10 PM

I was considering a multi unit but in the Atlanta area the deals really seem to be in SFR. Plus I thought it might be easier to find PM for a SFR than a multi.

I am not certain what you mean by using the downpayment also. The 50% seems to be completely based upon how much property will rent out for, your expenses, and your mortgage. Anything left seems to be actual profit on your out of pocket expenses. If you put spent 20k downpayment/fixing/renting a property and after the numbers play out, make $100 a month you really are only making a little over 5% on your money. :cry:

I have yet to call property managers and attempt to find vacancy rates. What I have done is look at available rentals from various sources and take a look at what some of the demographics sites say. This specific area apparently has a 5.5% vacancy rate according to bestplaces. Its a good idea to call them and get an idea of vacancy rates and time to lease.

Well, the original idea was to partner up with him and purchase a few properties. We have discussed it some but I really seem more interested than he actually does. When someone does not respond to emails for a few days because they are 'chasing girls around' it is a bad sign. I'm not certain what he could bring to the table aside from living in the local area. If something does go drastically wrong I do have friends in the are that would help out.

So yea, I am probably just going to go on my own. :roll:

EDIT: Aluminum Construction? Anyone know much about it?

Edited: 06/26/2010 at 09:41AM by David Wolf

Uwe S.

Real Estate Investor · Chemnitz, Saxonia

1,241 posts
12 awards
69 influence

Sep 12 '09, 11:11 PM

Curt - A Duplex or Triplex is not commercial, this is residental, higher then 5 units thats commercial.

Here is one example from me of amazing propertys http://www.a-l-a-g.com/realestate/Madrona.pdf. A Duplex for only $35k: I donÂ´t know what to say. You?

Call the broker, buy it, make updates (if needed) and rent it out, finished.
Max $17k saved against the SFH and you have better status.

-Uwe

Edited: 06/26/2010 at 09:41AM by Uwe S.