First Time Rental Property Investor - Baltimore Rowhouse

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First Time Rental Property Investor - Baltimore Rowhouse

Kenneth Cheston
Real Estate Agent · Baltimore, MD · Member since 2020 · 65 posts · 24 votes

Happy Holidays!

I'm looking to get my foot into the game by purchasing a "turn-key" townhouse in the affluent areas of Baltimore. Here are some of the key factors. Looking for feedback especially if you are a Baltimore investor! Thanks in advance.

The Deal:

Purchase Price: $200,000

Down Payment: $30,000

Closing Costs: ~$10,000 (points, premiums, escrow, etc.)

Loan Amount: $179,000

Interest: 3.625%

30 Year Mortgage

______________________________________

The Margins:

Assumed Rent: $2,000

Monthly Expenses:

P & I: $983

Insurance: $33

Tax: $90

Maintenance: $200 (10% of rental income)

Vacancy: $166.67 (One month's rent annually)

CapEx: $100 (5% of rental income)

Total Expenses: $1,572.67

NOI: $427.33/month

*Zero utilities as these will be charged to tenants. There are no fees for trash in the Baltimore area.

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Tim JacobPro Member
Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
5y

200k turnkey will not get you A grade in the city or county. You will definitely get an updated C grade for maybe a little less but not much. Thus factor unreimbursed utilities in the city it could get you more. Capex go by $75/ month not a percentage. For the other parts making expense generalizations can lead to higher inaccuracies than looking at more of a case by case basis. What are you allocating for property management. I would go atleast 7% and most places charge more. I would allocate 10% to be conservative on that. 1 month vacancy is fairly high but might be a fair # if leasing fees are factored in. Otherwise I would say 5%.

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  • Stephen Kehoe
    Property Manager · MD · Member since 2015 · 186 posts · 125 votes
    5y

    Looks well researched. Insurance looks a little low. 

    0Reply
  • Tim JacobPro Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
    5y

    200k turnkey will not get you A grade in the city or county. You will definitely get an updated C grade for maybe a little less but not much. Thus factor unreimbursed utilities in the city it could get you more. Capex go by $75/ month not a percentage. For the other parts making expense generalizations can lead to higher inaccuracies than looking at more of a case by case basis. What are you allocating for property management. I would go atleast 7% and most places charge more. I would allocate 10% to be conservative on that. 1 month vacancy is fairly high but might be a fair # if leasing fees are factored in. Otherwise I would say 5%.

    4Reply
  • Tim JacobPro Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
    5y

    also taxes will be higher.  Especially in the city for a 200k.  If the assessment is close thats @2.25% so almost $400 at that amount.

    2Reply
  • Kenneth Cheston
    OP
    Real Estate Agent · Baltimore, MD · Member since 2020 · 65 posts · 24 votes
    5y

    Thanks Tim - that's a lot to unpack but I appreciate your insight. I have some questions below, but in general I may need to question investing in Baltimore altogether if the pricepoint is much higher outside of hunting for foreclosures or fixer-uppers. Thank you!

    1.) I'm not familiar with Unreimbursed Utilities - would you mind explaining?

    2.) Why is CapEx a fixed $75?

    0Reply
  • Tim JacobPro Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 520 posts · 379 votes
    5y

    1-  The city/ county charges you water.  In lower assets the tenants will stiff you so allocate money toward it.  In even high c grade ateast a portion of it which is 35 per person per month.  For A grade if you bill upfront its virtually nothing if you or your leasing consultant/pm arent bad at finding tenants .  Keep in mind they don't shut off water for non payment.  There is also issues with a common boiler and water, and water heat in multi if you that route.

    2- Capex is in general roof, water heater, boiler or hvac, and appliances. Most have a 20 yr life. Some will say less but when youbget too conservative you will never find a deal. I can say from a lot of time managing rentals 20 is about right. I don't count galvanized water bc i would replace all that up front. Some roofs are more expensive than others depending on type but in general appliances including some used should be about 2k. Water heater depends if gas or not. I dont get a handyman for that bc of liability so 800 to 1200 getting the supplies with a handyman and having a licensed plumber install it. Hvac whole replacement is 7 or 8 so thats the biggest 1. A roof can be between 2k and 6k and more if you dont layer over or just remove shingles or slate and not the sheathing. It depends on type. Other repair stuff is smaller and really not capex though it depends per property as something specific to a property might be added. Im sure others can be cheaper in some areas but I get licensed people for stuff with liability. If some handyman is doing your work you have to ask about quality so I would not roll the dice on replacing a water heater with monoxide issues if gas unless they know what they are doing. I would consider them for things like toilet replacement or a new wax ring just consider liability.

    2Reply
  • Kenneth Cheston
    OP
    Real Estate Agent · Baltimore, MD · Member since 2020 · 65 posts · 24 votes
    5y

    Okay thank you Tim you have been very helpful.

    0Reply
  • Johnny R brown
    Member since 2020 · 1 post · 0 votes
    5y

    ken, where you have 427.33 as NOI is that correct? Looks like that should be your Cash Flow or am I'm wrong? I'm trying to learn and don't want to get confused about the numbers. Thanks

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    5y

    @Kenneth Cheston I would get some actual rental comps, $2000 seems high if your purchase price is only $200K.

    0Reply
  • Kenneth Cheston
    OP
    Real Estate Agent · Baltimore, MD · Member since 2020 · 65 posts · 24 votes
    5y

    Johnny R brown - I'm not in a position to tell you the difference although NOI does consider depreciation (all expenses) where as Cash Flow is monthly net profit. I think the more common term is cash flow so that's my fault for not using the correct term. Thank you for bringing that up as I am also a newbie here.

    Investopedia is a great site that I've used over the years that speaks a little bit to the difference although it insinuates that cash flow is a business term where NOI is a real estate term so it may muddy the waters.

    https://www.investopedia.com/a...

    0Reply
  • Kenneth Cheston
    OP
    Real Estate Agent · Baltimore, MD · Member since 2020 · 65 posts · 24 votes
    5y

    Nicholas L. The issue is actually the purchase price, but your instincts are correct. Something is wrong. As Tim Jacob pointed out - I was looking in the most affluent areas in Baltimore like Fells Point or Charles Village. 200k wouldn't give me a great turn-key property unless I was seeking out a fixer-upper, but even then I not sure the numbers would work. Rent is actually $2,000 dollars in these areas. I use "rent-o-meter" which grabs comps from the areas and shows square footage, rent, bed/bath, and location. The purchase price was the faulty variable.

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  • Kenneth Cheston
    OP
    Real Estate Agent · Baltimore, MD · Member since 2020 · 65 posts · 24 votes
    5y

    Nicholas L. but thank you - you are right. If I had gathered fully evaluated comps I would have seen a problem.

    0Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    5y

    @Kenneth Cheston got it.  Good diligence on your part.  Will this be your first rental?  Do you own or rent a primary?

    0Reply
  • Kenneth Cheston
    OP
    Real Estate Agent · Baltimore, MD · Member since 2020 · 65 posts · 24 votes
    5y

    Nicholas L. - how are you tagging me? I'm copying your name from your post (I can no longer call myself a millennial). Nick I'm a first timer or looking to purchase my first rental property. I live in the D.C. area where prices are sky-rocket so it made sense to look into Baltimore although the city has it's own set of problems. I have been talking to realtors and they suggest areas between the "bad" and the "good" contain blue-collar tenants. These areas contain price points and rents that start to make sense. This is now my focus. How bout yourself Nicholas?

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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    5y

    @Kenneth Cheston I just type your name in the comment box with an '@' before it and it comes up in blue.

    I used to live in the DC area, I have one rental in Arlington that I used to live in (so was not purchased as a rental). It basically breaks even every month, but I don't plan on selling it and it will cash flow once it's paid off. I also have two rentals in CT. I live in Pittsburgh now, and am hoping to BRRRR 1-2 properties in 2021. It's tough to find deals right now with listing prices where they are.

    0Reply
  • Kenneth Cheston
    OP
    Real Estate Agent · Baltimore, MD · Member since 2020 · 65 posts · 24 votes
    5y

    @Nicholas L. see if that worked... 

    Yes listing prices are crazy right now. Good for you grabbing a househack in Arlington. With Amazon HQ moving into Crystal City it's tough to find something that is reasonable. Nice my brother lives near Hartford, CT and says it has some promise. Pittsburgh! I'm an Architect and just helped finish documenting the new landside terminal at PITT airport. See below. I have a friend who just rehabbed a place and another who is househacking a townhouse in downtown. Seems like it is up and coming with healthcare, education, and start-ups as the drivers. Good luck with the BRRRR. That is definitely a powerful strategy from what I have read and researched.

    2Reply
  • Ozzy SirimsiBusiness Member
    Real Estate Agent · Baltimore, MD · Member since 2016 · 1k+ posts · 782 votes
    5y

    I wish Baltimore city charged $1000 for the RE taxes :D)))

    I would not be surprised it is it more than $3500

    1Reply
  • Julius Chinn
    Member since 2020 · 104 posts · 54 votes
    5y

    Say it aint so JOE.

    We have another Turn Key Company representing C Class as  A Class.

    OMG!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    0Reply
  • Jeffrey Evans
    Investor · San Jose Ca · Member since 2020 · 125 posts · 115 votes
    5y

    I am in Cali and its to pricy here for me, so I am purchasing a sfh rental in Tx for my first investment.  So much good info on this site.  I love reading about everyone's journey and experiences on here...   

    0Reply
  • Kenneth Cheston
    OP
    Real Estate Agent · Baltimore, MD · Member since 2020 · 65 posts · 24 votes
    5y

    @Ozzy Sirimsi you are absolutely correct. As Tim pointed out earlier taxes are 2.25% so this scenario would be $4,500! Great point.

    @Julius Chinn Julius it was actually me imposing my will upon a certain area trying to make the numbers work! Very naive of me.

    @Jeffrey Evans I couldn’t agree more. I wasn’t not even expecting responses to this forum out of exhaustion from other newbies asking the same question but we haven’t a lot of helpful investors here. Seems we are in a similar situation. Best of luck! I’ll be looking for updates on you’re journey.

    0Reply
  • Account Closed
    Real Estate Agent · Pittsburgh, PA · Member since 2020 · 111 posts · 51 votes
    5y

    @Kenneth Cheston I'm a little unfamiliar with the Baltimore market as I'm from Pittsburgh, but this deal looks pretty enticing even from a perspective of a "lower priced" market. You were right about the up and coming comment that you made about Pittsburgh. There is so much going on around the city to hopefully encourage migration patterns from our larger neighbors. What really has me concerned is the whole no fee for trash service.

    0Reply
  • Kenneth Cheston
    OP
    Real Estate Agent · Baltimore, MD · Member since 2020 · 65 posts · 24 votes
    5y

    @Account Closed The deal does look enticing and may be too good to be true. As Tim pointed out a 200k would give me a C grade property in an A grade area. Now I'm looking for C grad properties in B grade areas. Best of luck in Pittsburgh! I'll have to confirm the trash fee although that is what I am seeing from the city services site.

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