Need Advice: Looking at this 2% rule 3 unit prop as my 2nd Deal
Jordan AlexanderPro Member
Rental Property Investor · Muskogee, OK · Member since 2019 · 18 posts · 8 votesNeed Advice: Looking at this 2% rule 3 unit prop as my 2nd Deal
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Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
6yHi Jordan, let me take a stab at this one. Expected rents 1600-1700 but empty now. Instead of central air and heat, consider window AC units. Some might act as both heater and AC I am not sure. You will need to solve the heating of the unit but these units are small so that should be easy. Sounds like your on pier and beam and if the floors are livable as you have describe, i would not do any thing to the floors. I would put modest appliances in possibly used from a used appliance store or craigslist.
Your one bedrooms units only would need one window unit and the 3 bedroom one maybe two.
However, you need to make sure what the heck you are getting yourself into. If this is your first property, I fear you might be getting in over your head. Here is why! You are taking on a property that is extremely aged and will constantly need your attention. On top of that and maybe more important is the type of tenants you can expect to get. Quality tenants that pay on time, follow your rules, and can take care of the property may be hard to find.
2% properties sound great, impossible to find here in Austin. I even wondered how in the hell one could find such a property. Then I started looking up north like Chicago, Philly, Detroit, Columbus and realized no sheet there are those type of properties. In Oklahoma, your able to still find those are great but it take a special kind of owner to love those properties. I used to think cash flow and numbers are paramount, but as I have aged now 64 I find that I am willing to sacrifice a little cash flow (not a lot) for the ease and comfort of managing my portfolio. Good Luck and Cheers.
6 Replies
- Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes6y
Hi Jordan, let me take a stab at this one. Expected rents 1600-1700 but empty now. Instead of central air and heat, consider window AC units. Some might act as both heater and AC I am not sure. You will need to solve the heating of the unit but these units are small so that should be easy. Sounds like your on pier and beam and if the floors are livable as you have describe, i would not do any thing to the floors. I would put modest appliances in possibly used from a used appliance store or craigslist.
Your one bedrooms units only would need one window unit and the 3 bedroom one maybe two.
However, you need to make sure what the heck you are getting yourself into. If this is your first property, I fear you might be getting in over your head. Here is why! You are taking on a property that is extremely aged and will constantly need your attention. On top of that and maybe more important is the type of tenants you can expect to get. Quality tenants that pay on time, follow your rules, and can take care of the property may be hard to find.
2% properties sound great, impossible to find here in Austin. I even wondered how in the hell one could find such a property. Then I started looking up north like Chicago, Philly, Detroit, Columbus and realized no sheet there are those type of properties. In Oklahoma, your able to still find those are great but it take a special kind of owner to love those properties. I used to think cash flow and numbers are paramount, but as I have aged now 64 I find that I am willing to sacrifice a little cash flow (not a lot) for the ease and comfort of managing my portfolio. Good Luck and Cheers.
- 6yJoe HammelBusiness MemberReal Estate Agent · Metro Detroit, MI · Member since 2018 · 612 posts · 666 votes
Hi Jordan,
Its a little tough, typically something in the 2% rule (that's in decent shape) the Location reflects it. Are you very familiar and confident it's a C neighborhood? Just the first thought that pops in to my mind. I check everything with realtor.com, "crime map". Good Luck!
FIRE Realty Team - Keller Williams5379 Reviews - Rental Property Investor · Austin, TX · Member since 2018 · 128 posts · 84 votes6y
Alright @Jordan Alexander, so what I'm reading here is a good amount of potential value add depending on IF your market supports it. What market are you in and how well do you know it? Figure out what your comps are. Look for Like properties in that area and get a understanding of what they are renting for, the condition of the property, and if the renters average median income can support a rent increase. If you're noticing yours is under priced you may have room to up the rates but like I said IF the market supports it and it'll be easier to do if you add value. Did you say the units dont have stoves??!! Add some basic appliances!
Also if you do take over the property after the current tenants lease is up do these light value add jobs, forget the HVAC, and either increase the rent by a good amount but tell them this includes utilities or have an extra fee for utilities. Utilities kill cashflow! In commercial MF we call this RUBS(ratio utility billing system).
Again make sure your market and median income can support it. I would suggest speaking with people in your market about whats common and whats not. Go to local meetups and get involved. If you don't have a local mentor find someone doing what you want to do that you really like and become their best friend and biggest supporter. If you have any questions feel free to reach out to any of us. I'd be happy to even go over numbers with you if you'd like.
Keep grinding!
- Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes6y
Originally posted by @Jordan Alexander:
Class C neighborhood, 3 units on the property, one duplex 1 bed 1 bath apt (both are already rented currently), & one 3 bed 1 bath house. Gross rent is expected at $1600-1700 with a purchase price of $70,000 (1st time I've seen anything of 2% rule). All units are cleaned well and some updates have been made to paint, flooring, bathroom fixtures, and 4 new windows.
Here are the negatives: No central heating or air, built in 1946, the duplex is metered together & costs approximately $150 per month, there are small waves in the flooring in 1 of the bedrooms, no stove or other appliances yet added.
My thoughts: Some of the numbers seem too good to be true but at the same time I can't help but see big rehab numbers if I need to get HVAC and ducts installed (this makes me the most nervous). I'm currently without a huge cash position.
Please comment and provide anything I should be thinking about to analyze this deal better and/or if this is just too good of a deal and I need to jump all in. Thanks!
You've answered your own question by saying- "I"m currently without a huge cash position." Analysis of a deal has to go beyond the current cash flow. It should include an evaluation of the capital expenses for the building and you're ability to handle those expenses. If you can't handle the expenses either through cash or leveraging then you have to pass on the deal.
- 6yDeborah BurianPro MemberRental Property Investor · Oklahoma City, OK · Member since 2013 · 1k+ posts · 412 votes
@Jordan Alexander, we have owned and managed properties very like what you are talking about in Oklahoma City. The devil is in the details and the details are many, from utilities to lawn care to managing parking and tenant conflicts. Feel free to PM me and we can talk specifics.
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