Hello - I'm six months into my first investment property, a 4-plex in Midcoast Maine, and thought I'd share the numbers based on the experience so far. There's so much talk about how high prices have gone and how hard it is to find a deal, but I think we did okay for our first go of it - and we found this one on the MLS!
Purchase Price: $180k
Current Gross Rents: $3,050 ($800, $800, $825, $625)
P&I: $674 (30-year fixed at 4.375% w/25% down)
Taxes: $392 (Worked with city to reduce from $445!)
Insurance: $123 ($1 Million liability, $5k deductible - SHOP AROUND!)
Common Electricity: $15
Heat: $0 (Converted to individual heating units)
Vacancy: $250 (Approx. 8%)
Repairs/Cap Ex Reserve: $315 (Approx. 10%)
Monthly Cash Flow: $700
Down Payment/Closing Costs: $46,000
Initial Repairs: $7,800 (Roof/Exterior Paint)
Heating System Conversion: $5,500 (From K1 to Individual Rinnai)
Total Cash Invested: $59,300
Cash on Cash Return: 14.17%
Going into this deal, Cash Flow on paper was only about $150/mo, but we made some very easy changes to increase that dramatically. First, we increased rent on two units by $25 each, taking gross rent from $3,000 to $3,050. Next, we worked with the city to reduce the building's assessed value, thereby reducing the tax bill by about $50/mo. The previous owner had been paying heat for the building ($300/mo), so we switched this out to individual Rinnais and reduced this to $0 without any real push back from tenants. Also, the previous owner had a Section 8 tenant and was paying their electric, which they abused ($150/mo!) - We have since replace that tenant with someone who can pay their own utilities. Just like that, $150/mo Cash Flow became $700!
Obviously, it remains to be seen if my vacancy and reserve estimates are on target, but I don't think I'll be too far off based on what I know about the market, the condition of the units and the decent quality of the tenants.
I think we're off to a good start and we're excited about finding the next one. I'm curious to hear from other investors in Maine/N.H. to see if you're finding similar (or hopefully better) deals.
I hope to join you soon as a multi-unit owner in Southern Maine, and I'm making decisions on a lot of similar issues related to utilities and heating - whether to include electric, whether to separate heat out (and what system is best for large, 3 BR units). In my area, virtually all rentals have heat included - which is different than other areas for sure, so I'm leaning towards providing it, but increasing energy efficiency. I am also wondering what my vacancy rates will be - assuming high turnover, but hoping to figure out ways to keep that down.
Not sure where you've purchased in Maine - I'm in the Portland area, where costs are very high, it's been tough to find a decent deals. But for places outside greater Portland, as long as you research what rents you can get (they can be very low), and keep an eye out for opportunities to increase energy efficient/decrease costs, I think that it's possible to find stuff that can work on the MLS.
Sounds like you have done the heating work, but you might want to look into Efficiency Maine programs in the future - Kenny LaVoie's got a good strategy of putting money into making the properties weathertight to decrease costs/increase cashflow through using that program.
Hoping to close in a couple of weeks, and will let you know!
Incredible job. You did great itemizing all the expenses and also by adding value and finding ways to drive additional cashflow. Congrats!
@Mike Roy , Nicely done! And thanks for the detailed breakdown! Timing is perfect for me. It's great to see that your tenants didn't flinch when you switched the heat over. I am about to do the same thing, but thought I might have to reduce rents not to lose tenants. Do you mind including the town of your property? I am currently in escrow on a 6 unit in Belfast and one of the things I found was I could only put 4 tanks on the property, so I am going to convert 2 or 3 units to electricity which is just a little higher in price, but overall it will save me about 9k a year. Could you possibly go into detail about how you handled the change with your tenants? Were they on leases, for example? I'd also love to know a little more detail about the Section 8 because I am also inheriting one, and any additional improvements you did to attract new renters. Kaylyn
@Mike Roy - one more thing. Was the hot water running off the oil furnace? If so did you change that?