Real Estate Agent 路 New York City, NY 路 Member since 2017 路 150 posts 路 26 votes
The property is located in upstate New York , it is 2 attached properties with one deed . Total of 4 units. "1's rent is 1000 for a one bedroom with the lease with section 8 across the hall has a month-to-month lease for 900 a month one bedroom the other one is 850 a month one bedroom just moved in month-to-month lease and the one downstairs has a month-to-month lease or rent is 750 " according to current owner for a total of 3500/Month = total of 42k/year . I would be buying with all units rented as currently set up . The expenses are as follows, conservative estimates .
$10k /year taxes or $833/month
2500/year insurance or $209 month
10% vacancy or $350 a month
10% repairs/maintenance or $350 a month
10% cap ex or $350 a month
10% property management or $350 a month (the property is an hour and a half to two hours away do you think it would be better to do it on my own instead of hire someone)
Debt service at $700 with a 20% down payment on 160k . I get a cash flow of $358/month. Is this deal worth doing? Also there is a empty garage that is attached to the property that has potential to become another unit. Also what do diligences should I do. Tenants pay all their own utilities
Rental Property Investor 路 TX 路 Member since 2019 路 303 posts 路 364 votes
7y
@Faysal Alam If you've looked at the P&L and the RR and given us all the accurate numbers, and you've viewed the property and feel it is in a good neighborhood and in good condition, I would say this is an awesome deal. That said, whenever I see an awesome deal, it makes me 10x more cautious. Is it in a flood zone? Are their liens? HOA? Eminent domain? (That kind of thing...)
Make an offer to tie it up. Submit your pre-approval letter with your offer. Put no more than $1,000 down, drag out the inspection time to 45+ days, make sure to add every contingency you can, and then start your due diligence investigation.
Rental Property Investor 路 Merritt Island, FL 路 Member since 2015 路 253 posts 路 178 votes
7y
@Faysal Alam I may have missed it but are you estimating taxes based on the current valuation or the sale price? Careful as that could be a bigger number than you expect, even for a cheap property.
Just an update . So my numbers were a bit off . I actually have to put down 25% of 160k which is 40k plus closing costs . So the current rent roll is 3500/month . 4 units rents are (1000,900,850,750) =$3500
Expenses are such.
P&I $700 (could be lower, estimate)
Taxes were $10173 last year = $848/month
Insurance quote $271
10% maintenance/repairs = $350
10% cap ex = $350
10% vacancy = $350
10% property management= $350
Water $1600/year or $133/month
Garbage = still not sure .
So now after all this I get a cash flow of $148/month not accounting for garbage . Is this still a good deal ?
Sometimes, it is ok to pull the trigger.
Yes, you want to be cautious, of course. That said, you don't want to over analyse the deal and get super paralysed 馃
When you do your DD, make sure that you use Business Days that are based on the Seller's performance on a particular hurdle, say the days start to count when you receive a document and is paused upon request of further material information. This can help you really help make sure you've done a holistic DD.
The deal might not start off as a home run; however, Real Estate Investing is a fascinating game and you can finish strong even though the start might seem rather standard.
Real Estate Agent 路 Chicago, IL 路 Member since 2017 路 2k+ posts 路 2k+ votes
7y
I think you are making a mistake with cap/ex/maint/repairs $700 a month is way to large for a 4 unit. The "10% rule" is for small properties for example a $80k single family or a $150k duplex where cap/ex will be a larger percent of the lower gross rents. With $3500 in gross rents I would run analysis using a flat number such as $300 a month for cap/ex/maint/repairs. This will cover things like roof cost averaged over X years, furnace averaged over X years.
It is good to start with one, rather than none. Getting started is important but do not loose your money. Small deposit that is to be refunded. Do NOT sign any contract ready and prepared by any Real Estate Broker, it has some terms that rushes you too fast and prevents time for negotiating proper P & L terms and conditions. Do not make anyone as your Buyer's Broker.
Only Biuyer's Attorney has the duty to protect the interest of the Buyer, and is accountable!
It seems you have tried to learn everything.
Just make the contract !
Hire good attorney who does ONLY real estate.
Put ALL the contingencies to get out of the contract, at many different stages, and, at time periods.
Keep 45 to 60 days just for inspection and then to get proper estimate from contractors to fix with time frames.
Then try additional 60 days to get financing and to Close on the property. NOT LESS TIME THAN THIS.
Total time, anywhere from 120 to 150 days for Due Diligence, Inspection, Appraisal, Mortgage etc.
Good, complete inspection, in your presence, by a most detailed building inspector is worth your money.
Be present, ask questions, learn the problems.
Do not let seller influence the inspection. Same for Appraiser, be present and try to learn.
Be prepared to back out, do not fall in love with the location or the property, - if the building inspection report shows more items to be fixed
- roof, basement, structure, old electrical wiring, plumbing.
Overlook cosmetic items as they may be too many, but they would distract you from main more important problem items. But do consider them while RE-Negotiating the Price, as per additional Repairs Costs discovered by your various inspections.
Purpose of good attorney and good Building Inspector is to use the inspection reports to RE Negotiate Prices and Get adjustments - if you need it - for the repairs costs or get the repairs done by the seller before the bank mortgage commitment.
Why ruin your credit score with hard inquiry IF property is not acceptable in the present condition for the value. Bank can order appraisal if you pay the fees BUT you can ask them to hold the process till you confirm, sometime even after appraisal too!
Well, not many would like such long response.
Visit the neighborhood, get copies of any problems sited, from local town Health Dept for habitable condition of the apartments and Building Dept and Police Dept etc. too.
The list is long when you are buying first time, then it becomes habit to be aware and you would just to it for next property.
Real Estate Agent 路 Luray, VA 路 Member since 2016 路 459 posts 路 293 votes
7y
Honestly, in my opinion, the deal is close. If you have $348 with raising the rents and can increase that another $133 by billing back water (and assuming the tenants pay for their own trash collection, lawn care, snow removal, etc.) then you are at $481. I would look to get the price lowered a bit so that you are getting that cash flow closer to $600. I do think you are covered on your repairs and reserves.
How is the demand in the area? Is it a market that is experiencing a lot of growth and likely to continue? Are the taxes current taxes or based on the new sales price?
Personally, if the demand and market is strong and the things I touched on above can be done quickly to bring the cashflow to at least $500/mo then I would do this deal. I think 30% of income going to vacancy, repairs and capex is conservative and gives you a good cushion.
Generally, we will lose about a month's rent on turnover if there are a decent amount of repairs to be done (which can be covered by the tenants security deposit as well) so that would bring your vacancy down to 8% assuming every unit turned over once per year ($3,700 instead of $4,200 for the year).
You could give self managing a shot but with the property almost 2 hours away I think that is going to be rough for you. Also, I believe New York can be a tricky state for property management so it would be good to get a Property Managers insight on that.
Feel free to message me if you have any other questions.