Real Estate Investor · Cincinnati, OH · Member since 2008 · 172 posts · 37 votes
Please give me your thoughts on this REO deal located in Cincinnati. This is my first property under contract and I am set to close in 2 weeks.
Purchase price: $9,100 Cash
Est. Rehab Costs: $5,900
Est. 1 Month Holding Costs during rehab: $500
Total Annual Rents (3 units): $18,000
Last Year's Water: $4,200
Heat: Paid by Tenants
Taxes: $2,900
Insurance: $1000
Mainanence: $1,000
5% Vacany Loss: -$900
5% Rent Collection Loss: -$900
I am using all cash for this offer but am calculated a ROI around 40 percent. I know the water bill is extremely high, I am wondering what caused that too. This house just forclosed a few weeks ago and is located near walnut hills high school.
Is there anything I missed that anyone can point out?
Real Estate Investor · Member since 2008 · 340 posts · 34 votes
17y
The water bill is the seller's responsibility and the REO lender will pay for the outstanding balance. However, in some counties water is not lienable and will not show up on a title search. Now, you are saying no big deal, right? I will just give the water company a HUD and they will just bill me starting on the date that I bought the property.
Wrong! Some water companies will not turn on water until the entire balance has been paid and will not care one bit if the seller did or did not pay off the existing balance. It is possible for a buyer to get stuck with a 3+ thousand dollar water bill after the close.
To solve this problem, what we do is have our attorney get the most current water bill for the property and have it added to the seller's side of the settlement statement prior to close.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Last years water expense is over 23% of the gross rents. That is obsurd. It is more costly than the taxes, which is usually the highest expense you have. There must be something wrong with that figure.
Aside from that, the numbers are excellent and you have found yourself a smoking deal, assuming you can get renters for these units at $500 monthly.
The only main item you did not mention in the expenses is management. Will you be doing it yourself?
Your current total expenses listed are 60% which is very high. But even if it is the case, you still have some nice returns. COC=46% (excellent).
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
John,
Here is how I see this deal with more normal expenses:
Gross rents: $1,500 per month
Operating Expenses: $750 per month
NOI: $750 per month
Cost of money (in lieu of mortgage): ($15,500, 30 yr, 7%): $103 per month
Cash flow: $650 per month or $217 per unit per month
I would consider that an exceptional deal. You will need to sort out the water problem. You could have a leak. Additionally, if you are allowing tenants to have washers/dryers in the units, they may be doing all their friends and relatives laundry. I don't allow washers or dryers in rentals if I pay the water.
Real Estate Investor · Cincinnati, OH · Member since 2008 · 172 posts · 37 votes
17y
Well, All three units have baths tubs but no shower heads. I'm assuming people are taking baths, but that can't account for that high of a water bill. I'm assuming there is a leak somewhere and I'm going to try to call Cincinnati Water Works up to solve the problem.
Real Estate Investor · OH · Member since 2008 · 4k+ posts · 1k+ votes
17y
If a water leak is the problem, that means that the leak is AFTER the meter. In other words, YOU will be responsible for fixing it. Been there, done that, got the bill!
Real Estate Investor · Cincinnati, OH · Member since 2008 · 172 posts · 37 votes
17y
Yea, HSBC Bank was asking $10,000. The property sold for $150,000 4 years ago, got forclosed, and I put in my offer one week after it was on the market and snatched it up.
I'm converting one of the two empty rooms (one's a living room and the other's a dining room) into a bedroom for a total of three bedrooms on that unit.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Even if it was cut in half, divided over two yeras rather than one, it is still too high for that few units, but at least closer.
You may want to look at having each unit individually metered so the water bill is the tenant's responsibility, and reduces your costs over time, but it is quite expensive initially.
Real Estate Investor · Cincinnati, OH · Member since 2008 · 172 posts · 37 votes
17y
I have just called in to the water company and the representative told me something different this time. They told me the amount for the last quarter of 2007, which was $250. Last time they gave me an estimated reading for the whole year for $4,200 because they couldn't access the meter.
There is also an owed balance of $2,500. Can anyone tell me who is supposed to clear this debt before I take title?
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
17y
Depends on your contract and it may depend on the state you are investing in.
I would stipulate in your purchase contract that the bill must be paid by seller prior to close, or get a credit back in escrow. Either way, make sure the seller pays.
Real Estate Investor · Member since 2008 · 340 posts · 34 votes
17y
The water bill is the seller's responsibility and the REO lender will pay for the outstanding balance. However, in some counties water is not lienable and will not show up on a title search. Now, you are saying no big deal, right? I will just give the water company a HUD and they will just bill me starting on the date that I bought the property.
Wrong! Some water companies will not turn on water until the entire balance has been paid and will not care one bit if the seller did or did not pay off the existing balance. It is possible for a buyer to get stuck with a 3+ thousand dollar water bill after the close.
To solve this problem, what we do is have our attorney get the most current water bill for the property and have it added to the seller's side of the settlement statement prior to close.
Real Estate Investor · Member since 2008 · 340 posts · 34 votes
17y
Originally posted by Rich Weese:
Matthew has the perfect answer. I've done the same thing here in TX closings.
Thanks. I speak from experience when I entered a new market, was unaware of the water biller's process and was stuck with a $800 water bill...Fool me once shame on you, fool me twice, shame on me!
Real Estate Investor · Cincinnati, OH · Member since 2008 · 172 posts · 37 votes
17y
Thank you. I will ask my agent to resolve the water bill matter with the bank. Tom C, I did a rough estimate when i initially went though the house. I will post a more accurate breakdown of the rehab costs one I close on the 25 of this month.
Real Estate Investor · OH · Member since 2008 · 1k+ posts · 86 votes
17y
Matthew,
Do not say this is always the case. In my town, an outstanding water, sewer and trash bill is on the persons name that it was taken out in, not on the property. Same thing when a tenant fails to pay their bill and moves out, I am not stuck with it. Its on them, not me. Electric and gas same situtation.
The closing attorney handles the payment of the water bills outstanding on the HUD on the seller's side. You must push to get a copy before the closing and object if it's not there.
I just spent 4 days tracing a tub leak from a tub with shower and it was dripping down into the foyer ceiling below. The tenant had changed the shower nozzle to a high powered broad spray zone head and the water seeped through a pinhole in the tub caulking. What a mess.
Here the outstanding water bill is against the tenant but it used to be against the landlord. You need to know why that bill is so high. I know someone who just bought a beachhouse and his bill was $600 from a running toilet apparently.
Someone's been washing cars in the yard or taking in friend's laundry me thinks.
Contractor · Philadelphia, PA · Member since 2008 · 183 posts · 17 votes
17y
Guys as landlords paying for utilities, you can save a lot of money over a year by installing low flow toilets and florescent light bulbs in your properties. A typical old style toilet uses 3-5 gallons of water vs 1.8 gallons per flush.
I was reading about the huge savings multi unit people are realizing from just these simple changes.
Real Estate Investor · Cincinnati, OH · Member since 2008 · 172 posts · 37 votes
17y
Originally posted by Diane Menke:
Guys as landlords paying for utilities, you can save a lot of money over a year by installing low flow toilets and florescent light bulbs in your properties. A typical old style toilet uses 3-5 gallons of water vs 1.8 gallons per flush.
I was reading about the huge savings multi unit people are realizing from just these simple changes.
Diane
Well I wasn't planning on replacing the 3 toilets in the house. How much do low flow toilets cost? I want to know if it would make financial sense to replace them.
Honestly would any of you toss this deal away for a $2500 water bill? I wouldn't. It's a smokin' deal and while you should definitely try to get the bank to pay the back water bill, don't let it stop you if they don't. This is not a dealbreaker regardless with those numbers.
Real Estate Investor · Cincinnati, OH · Member since 2008 · 172 posts · 37 votes
17y
Oh no, I'm definately going through with this deal. The bank's a little bit late on closing as of now. I was just saying that I wasn't planning on replacing the toilets because I didn't know how much money it would save pver the long run compared to how much money I would have to pay upfront.