First Purchase, Alaska 4-Plex

21 Replies

Greetings Compatriots!

This is my first post, my first purchase, my first foray into real estate investing.

AND I AM TERRIFIED EXCITED!!!

I would love to hear any input from the sages here and become an active member of the community. My goals with investing are to create a 6 figure cash flow after all expenses (including mortgage, insurance, vacancy, etc).

I live in a remote village in the Bush of Alaska. I do not know if I will be here long term and there are numerous complexities in attempting to acquire and maintain property here, so I've decided to invest remotely. Because of this, I feel that I need to utilize a property manager.

I am purchasing a 4-plex in Anchorage, Alaska. I would rate the neighborhood as C, it reminds me of the places that I lived in college. The list price was $350,000 we negotiated down to $330,000 (This should satisfy the 1% rule, I am still trying to get a good enough feel for the numbers to not utilize this as a crutch). There is some CapEx that I'll need to put in come Summer, but nothing structural or safety related. The inspector said, "I would buy this property."

I utilized a spreadsheet from Roofstock to help organize the numbers. I am hoping that I’m being sufficiently conservative, but I am hoping that I can realize more cash flow than this for such a substantial outlay of cash.

Income

Month

Annual

Assumption


Rent

$3,450.00

$41,400



Vacancy Factor

$172.50

$2,070

5.0%


Expected Rent

$3,277.50

$39,330







Expenses


Month

Annual

% effective rent


Prop Taxes

$385.00

$4,620

11.7% (Actual)


PM Fees

$262.20

$3,146

8.0% (Calculated)


Leasing Fee

$81.94

$983

2.5% (Calculated)


Prop Insurance

$222.83

$2,674

11.7% (Actual)


Repairs & Maint

$180.26

$2,163

5.5% (Calculated)


Cap Ex Reserve

$172.50

$2,070

5.0% (Calculated)


Utilities (Avg)

$600.00

$7,200.00

18.31% (Actual)


Total

$1,904.73

$22,857

62.75%






Reserves


Month

Annual

Assumption (% effective rent)


Turnover Reserves

$213.04

$2,556

6.5%






Debt Servicing


Month

Annual



Mortgage

$1,070.43

$12,845







Cash Flow


Month

Annual



Unlevered CF

$1,159.73

$13,917

Income - Expenses


Levered CF

$89.30

$1,072

Income - Expenses - Debt Servicing






Net Operating Income


Month

Annual




$1,372.77

$16,473


I’d love to hear your thoughts and I am hoping to improve my ability to analyze and execute on increasingly profitable deals.

Thank you for reading!

@Sean Davis congratulations on your first investment! I have an idea of the property you may have just purchased. Looks like you’re probably off to the right start but it’s hard to say for sure with the info provided.

Hi @Sean Davis !   Your expense ratio is slightly higher than 50%, and all of your numbers actually look pretty close to what I would expect in Anchorage.  We could go round and round over a % here or there, but in the end, this is just a planning tool, and meant to get you into the ball park to make your educated risk decision about a property.

It also appears that you've put enough of a down payment on the property to make it cash flow.  That's a good thing and will help you weather all of the unexpected expenses that will undoubtedly crop up.

An entirely different discussion is if you are happy with the return on your downpayment as an investment.  I'm estimating that you're at about 24% if your property performs as advertised, which should make most investors plenty happy.

What village are you in?

Hi @Allen S. .  I live in Bethel, but am travelling to Tununak... weather permitting.  


I'd be very interested in seeing if there is any way that I can reduce my expenditures on utilities... that seems to be killing me.  The property management is also expensive, I've heard some rumblings about the group that is currently running the property, but I don't have any other contacts and I am cautious to rock the boat right away.

@Allen S. - On paper - looks good - but at this price point - he's 99% likely to have bought in the worst neighborhoods here - Mt View or Fairview  (that you yourself wouldn't buy in, am I right?). 

I wish you the best of luck @Sean Davis - but if you weren't warned about the downsides to these areas - then I feel for you! If your annual cash flow is 1k in a bad area - the juice is probably not worth the squeeze. IF the property was in such great shape and has such good cash flow - why did the seller take another 20k haircut on a lower priced property? Because they wanted out... again - if you went in eyes wide open with some caution from your advisors - then good for you - and with active eyes on the project -  you'll do okay. But you won't see the appreciation the rest of the city has. Every investment is an opportunity to learn! The inspector said he'd buy it - how many Mt. View fourplexes does he own? Smart money is on none.

@Sean Davis - I was actually thinking that your management was a tad low.  I would estimate 8% vacancy, 10% management, and at least 2.5% turnover, maybe more.  It was good to see that you had line items in for some of that above, and hopefully you can hit your targets.  Like Jamie alluded to, depending on the neighborhood, you might find that more challenging than you think.

@Jamie Rose - you're correct.  I am not a fan of investing in Mt View for many reasons, although the price and details make a lot of difference.  Also the question here was not one of if buying in a C-class neighborhood was a good decision.  Sean has already made that call for himself, so I found no need to second guess why he chose to do so. On paper he looks ok, it sounds like he put money down, and even if he makes 1/4 of the NOI that he is expecting he will still be above water. 80% LTV on a $330k 4-plex is a much different situation than 96.5%+ LTV on a $450k 4-plex in the same location.

@Allen S. - his Cash flow is supposed to be: $89 a month. I don't know how much cash he invested to get that. NOI is a calculation for CAP rate returns BEFORE debt servicing. His Cash flow he is estimating is to be like $1,000 a year. So I think you misunderstand his expected returns.

And my main concern is: I feel for first time investors when they buy in rough areas, IF they have not been fore-warned of the pros and the cons. You're right, 330k is a decent starting price - and he should be able to make some money. Only time will tell if he couldn't have done better.

@Allen S. The property is in mountain view.  I have been warned that it presents challenges.  I drive the neighborhood and I do like the street that I'm on, but recognize the climate of the neighborhood is... Disreputable.  I was told that I'd have to put 25% down, it being an investment property.  That puts me in for about $100k.  

@Jamie Rose - I am nervous investing in a lower rent area.  I've been following the market for months and consulting with an agent in town, this property is the best one I've found on paper by a wide margin.  It's my first investment purchase, first time working with this realtor, remote, but I remain optimistic.  

I don't love the anticipated cash flow, and will be constantly looking for ways to cut costs and increase revenues.  I don't know that the market can support much higher rent for these particular units at this time, though.  Current rents are $850-900 on a 2bed/1bath.

If anyone has any insights into Mountain View rentals, I'd love to connect with them.

I don't have much to add as far as analysis. But, good for you Sean! Starting and taking that leap is the most difficult aspect of Real Estate investing. There are so many people that call themselves RE investors that don't even have a primary...much less multiple rental doors! There will be highs and lows, and you'll definitely learn a lot. Taking the jump is something to be proud of, I'm excited to meet you at the top someday! 

@Sean Davis This area is very difficult.

Ive managed that area for many years......Just be ready that many items don't fit on a spreadsheet....like picking up trash around the dumpster because everyone will on the street will use it. I've dealt with murder, shootings of the building, fires, showing a property and calling the cops as I was watching a pimp drag a person, and more. 10% isn't enough for me to strap on a gun and manage here anymore so we have been slowly saying good bye to accounts as there isn't enough money. However thats me.

Some can handle this stress and welcome it as we all start somewhere.

Ps. Don't forget to add leasing and legal costs. It is higher on costs in c buildings unless you have strategies to offset it.

@Jamie Rose - again, you're right. Major math error on my part... I had gone straight to looking at his NOI and missed his levered cash flow numbers. That'll teach me to use tiny phone screens.

@Sean Davis - obviously my comments above relating to your returns aren't correct.  However, I don't want you to think all is lost.  My guess is that you'll hold this property for a year or two and learn a ton.  Then sell it and get something else.  Jamie is right that you will likely have many hassles and proceed with caution with these investments.  Had you posted before purchasing I would be 100% in agreement with Jamie that this isn't a good return and you'll spend much more time that you think keeping up with it.  If you had financed 100% as a house-hack, I think you'd be in a much more precarious position.

@Sean Davis  Hi Sean - I fear I may have discouraged you with your post on here. Buying your first rental is awesome -and you got a fair price on it. I hate when I see investors that get into a bad position when their realtor wasn't straight up with them and advising well. I hope you were given good counsel. 

If there is anything I can do to help you on the journey - hit me up - I am here to help. And I want you to grow - my contact information is on my profile - don't hesitate to ask. 

Sean, welcome to a unique group of investors here in Anchorage. 

This market is tough due to a lot of anomalies you don't see in other markets. I may have missed it, have you already closed?

Good to see you Allen & Keenan, its been awhile!

Hi Everyone,

I pulled out of the Mountain View property at the 11th hour.  The owners kept providing disclosures that were not adding up and new information about the property kept making it feel less and less like an investment that would work for me.  I appreciate all of the feedback that everyone here has given me, thank you all for being so knowledgeable and supportive.  I am keeping an eye on the listings daily and still trying to break into the market.  I feel that I have learned a lot about the process to apply to my next venture and am glad to have the community here.


Thank you again! 

@Jamie Rose what happened to you in Mt. View bud? LOL

@Sean Davis Jamie and Kass are right about the area. I invest in Fairview but I’m not interested in Mt. View. I have investor friends that own a bunch of property there and love it but it definitely takes a more unique investor for that area.

Hey, I am one of those Mt View Investors, although we also have places in other areas as well.

Mt. View can be really good. But I wouldnt reccomend it for someone who isnt going to be there to monitor it, or if you dont have a really good PM who knows the area and is willing to do it. You really need to keep a close eye on Mt View places. We have had generally good experiences, but I live in the area and my tenants know that I am always around. Besides that I havent had issues there, but it does vary street by street. In my experience the closer to Mt View drive you are the worse it gets. 

I agree that it's for the better your backed out. Find an easier place to manage, especially if you wont be around. Or invest in security cameras with an internet connection so you can constantly monitor everything happening. But again, that's an added expense.

You will find a place, just keep looking. Feel free to reach out if you have any questions.