There is a house for sale in town for $120K. Built 1921. It is 1900 sq ft with 1 and 3/4 baths. It has a basement but the concrete is in bad shape, it would cost $100K to fix it right. I believe it is sound for having the house on it, but is bad shape none the less. Has 3 bedrooms is very out dated with 1950s appliances and decor. Large beautiful yard. rent $700 to $750.
It also has 2 rental houses with it. One is outdated, about 800 sq ft with a bedroom upstairs. Would rent for maybe $400.
The second house was recently updated, central air/heat, 860 sq ft should rent for $500 maybe more.
Each house separately metered.
Taxes and insurance $160 month
$120K @5% for 15 years +950 per month
Four plex in a neighboring town for $170K. Built in 1970s, is 2 full stories high. Has 3 units of about 850 sq ft with 2 bedroom 1 bath, and 1 unit of 1 bedroom, 1 bath with about 550 sq ft. I estimate rent at $500 each for the 3 units, and $375 for smaller unit. Laundry income of $150 per month.
Landlord pays water and gas, has boiler heat. Need lawn care and snow removal.
Estimate water, gas, snow removal, and lawn care at $420 per month.
Taxes and insurance $220 per month.
$170K @ %5 for 15 years = $1350 per month
Property A pros
Is local can self manage. One unit is modern, but all 3 can be rented as is. Is much older will have more maintenance. Has metal roof on main house.
Property B Pros
Much newer, all units are rented. One roof, one heating system. No need to update.
Property A Cons
Old buildings, smaller houses need roofs in 5 years, have T lock shingles, may need new roof to get insurance. Smaller rental pool for lower end small house. Potential of needing expensive fix someday. Needs updating of units.
Property B Cons
Thirty five minute drive to other town, may need to hire manager. Height of building means any work on roof is extremely expensive.
Please let me know your thoughts and why you would pick one or the other. Maybe you would pick neither. The 100% financing is by using a 2nd mortgage on a property with a lot of equity. These are the best price to income ratios around. I expect both to sale within 30 days or less. property A just had a price reduction of $100K due to getting the estimate of repair for the basement.
I would like to see these properties through the eyes of other investors.
I would keep looking for other deals.
If you can get a serious price reduction on Property A then go for it. Just seems like alot of work (estimate).
you will rent a newer home easier.. those 1920's houses scare me.. they are 100 yrs old now!!!
I would keep looking. Property A doesn't make sense unless you can fix its problem with less than $100K. You still will have a 100 year old house.
I don't think property B would cash flow enough above your cost of money.
@Gerald Harris , @Bill Jacobsen , and @George P. , thanks for the input. I put an offer in on property A for $91K they countered back at $119.5K but did let me see their appraisal which had an estimate to repair the basement of $68K which is too low. Apparently the owner is in a nursing home and medicaid is making her sell her home to help with nursing home costs. Turns out i actually know her. Did work for her before, good people. I raised my offer to $105K. If I get it at that and put $15K down payment, it drops my payments $712 per month. Thanks for the feedback still not sure I will get it.
My quick thoughts are Prop A has 3 separate buildings so there are 3 roofs, 3 sets of mechanicals, and 3 exteriors to maintain compared to the 4 plex.
I think you have mentioned before its tough to find decent properties that cash flow in your area. Is a 35 minutes drive really to far for you to self manage? I guess that can be a tough drive in the winter for you.
When I plug the numbers you gave into a spreadsheet, Property A = $456/month - without PM or Repair reserves. With PM and reserves of $500/unit/yr its $259/month and runs a DSCR of 1.14. This would not meet my criteria, not to mention you have to invest 100k in the foundation
Prop B on the spreadsheet is even worse, showing a $66/month cash flow w PM and $500/unit/yr repair reserves.
If you would like a copy of the spreadsheet to see my numbers I could email them to you.
Just out of curiosity, what town is this in Jerry?
@Ethan Bowen it is in Thermopolis WY. There are only 42 properties on the MLS at the moment so deals are few and far between.
As an update I made an offer of $93K on Property A, they countered with$119,500. finally decided to counter at $105K and told them not to counter back, take it or leave it. They took it.
I actually do not have the money for 20% down at the moment so have 2 options. I have a property with only $15K owed the bank can refi for my 20% equity they need, I also have a house I bought but resold to a friend that should close in the next month. I hate refinancing when you get close to pay off, but since I borrowed the money for the down on the house I am reselling from my rehab fund and emergency fund, I would like to repay those and not just reinvest. Financing $105K @ 5% for 15 years means $830 a month in payments, financing $83K means $670 a month in payments. The decisions you must make in buying never seem to end.
If 35 minutes drive is too much, then I am baffled a bit since you are in WY and I would have just assumed that there would be more rural locations where it would be a bit of a drive.
The B property has landlord paid utilities that I believe are a con that needs to be considered.
The A property might be classified as non-conforming in some zoning locales; sometimes that restricts re-building in the event of disaster. That could mean the secondary structures are not allowed to be re-built or that any re-build must be on identical foundation (or footprint) in exact same location on the parcel. Sometimes this makes insurance and financing a challenge. So you should look into whether you might have such a potential situation in a disaster.
@Steve Babiak thanks for your thoughts. Not being able to rebuild is not really a concern. I actually was the fireman who put the fire out in one of the back houses. Grandfathering here is much simpler than in most towns. these 3 houses are quite old were probably built before zoning ever occurred in Thermopolis. My concern is what @Chris Adams mentioned of 3 roofs, 3 mechanicals, etc. Especially with their age. There were no updates done on 2 of the properties, but there was maintenance. Our rental market seems strong at the moment so I am hoping to capitalize on that.
Just a quick update, I close on the 3 house deal tomorrow. I am desperately trying to get 2 other rental units upgraded to get rented and now have added 3 more. it gets much tougher to rent after August 1 here as school starts August 20 and folks want to be settled in. I am hoping 1 bedroom houses are not affected by the normal family crowd time frames. I will post more when I finish closing.
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