All Forum Posts by: Aaron M.

@Pascual Torres

Double Check your numbers. I ran the numbers and i am getting about a 7% Cap and 9% CoC with 5390 Annual cash flow which is $400 bellow yours.

That being said

Looking at your explanation it looks like you did not take in to account Vacancy, Maintenance, CapEx, and Property Management. In my opinion Vacancy, Maintenance, and CapEx are a MUST when analyzing a property. People can make the argument that they will manage themselves and not include it, however i would not buy a property that does not cash flow well while paying a management company. If self manage that's just a bonus to you.

Once you include these factors the deal looks very different (Vacancy 5%, Maintenance 5%, CapEx 5%, and PM 10%). Cap 5%, CoC 2.7% and Annual cash flow $1607 which is less that $100/month per door.

If you were able to get the other unit up to $895 it gets better. Cap 5.85%, CoC 5.28%, Annual Cash Flow $3147.

To me it seems like a low CoC return.

@Charles Kennedy  yes I am certain that the market in the area can support the rent increase.     I agree the pay down plays a role in the deal but I guess the argument is that your tying up cash that you could use to buy a better deal.   As you said that money is locked in until you sell or refinance the property.

Hi all,

I could use some feed back on a potential deal.

-Side by Side Duplex located in good neighborhood

-3 Bed / 1 Bath

-Asking Price 118K

-Both units rented ($750 and $775)

-Taxes  $2800

-Insurance $1200-1300

-Sewer $400

-All other utilities separated and paid by Tenant

-Other Factors 5% Vacancy, 5% Repair & Maintenance, 5% CapEx and 10% Property Management

Upon drive by the property seems to be in good shape.  

The financing behind this would be a commercial loan (20 yr @4.45%).   

As it sits it is a 8% CoC with $183 monthly cash flow which really does not excite me.

My thoughts are with minor tweaks (slight rent increases $25 per unit, and a 110K purchase price) the numbers start to work. This would bring 12.5% CoC and $264 per month cash flow. In our area I don't think its a GREAT deal until we hit 18%+ CoC and get cash flow in the $350+ range however given the neighborhood I think I am willing to accept the 12.5% and $264.

Another thing I have thought about is that because we are purchasing this under and LLC we need commercial financing. The bank we work with is great and have the best deals around that I have found. The down side is they don't offer 30yr commercial. Simply switching the financing from 20yr to 30yr makes a huge difference. So what may be a great deal for someone that can do 30 yr turns out to be only so-so for me. Should I put any weight in this?

John Franklin I think you have this reversed. Rent bellow market rent would produce a lower NOI resulting in a lower cap rate. Given the lower NOI you would have to purchase at lower price to meet the market cap rate

Some typical numbers for expenses are 5% vacancy 5% maintenance 5% cap ex 10% property management utilities that you would pay Taxes Insurance Debt service The percentage for maintenance and cap ex may be higher depending on the condition of the property

We have been marketing 3 units for about 3 weeks now.   The rents range from 650 on the low end to 750 on the high end.  Our requirements were very much like yours.  We have found that the 3 times rent is generally not an issue however when you start stacking requirements you start limiting your tenant pool.  Finding the "perfect" tenant is difficult.    So far we have filled one unit with two tenants that meet all requirements, and a second where the husband had a credit score slightly below 600 but the wife had a credit score of 700+ and income was well over the 3x criteria.   Also the recent payment history on the husband has been good.

 I also consider why the score may be low.  Is it because of something like medical bills or school loans  that may have happened in the distant past or is it low because they have been late or don't pay utilities?

Our criteria is applied in this order

1.)  Income must be 3 times rent

2.)  Clean criminal background

3.)  Credit Score

I would stick to a 600 bench mark for the unit you described

@Steve B.  I didn't over look that.   I want to run the reports myself

@Account Closed

@Account Closed Thanks for the feed back.   I am going to use Rentec Direct.  They are actually sending an inspector today.  

I think so far my steps are the following

1.)  Conduct phone screening.  If they are interested and we didn't hear anything alarming during the phone screening we would schedule a walk through.

2.)  Walk though with potential tenant and supply them with an Application form

3.)  Once the return that with the application fee (for each person over 18) we will run the checks using Rentec Direct

4.)  Make a final decision whether to accept the applicant

@Thomas S. , @Filipe Pereira

 Thanks for your responses.   Even though I am just starting out,   this is a business for me.  I plan to snowball the cash flow to acquire additional properties.

Thomas,  can you suggest any companies that will allow me to do our own credit reports?   How about fees what are you charging your appliances to process the application?   Do you require both credit and criminal checks on all occupants over 18 or just who ever is signing the lease?    How about application fees what is typical for application fees?

@Filipe Pereira Actually I am not sure. To give you some background I am a new investor going to be closing soon on 8 units (First deal), comprised of 3 duplexes and 2 SFH. Currently 3 units are vacant but ready to rent (no rehab needed).

I would like to make my application process as consistent as possible and have no idea how to handle applicants that don't have easy access to a computer or email.  

On a side note,  I understand having SSN presents a potential liability issue.  I remember reading somewhere that if I needed to evict or go after a tenant for any reason it would be virtually impossible without the SSN.   Is there any truth to this?

I have a rental application that i can print and hand to the applicant  OR have them fill out the electronic form and print the completed application

From this form i would like to run the credit and background checks

What sites are out there that will allow me as the landlord to run the checks instead of requiring the tenant to have an computer, email address, and credit card to do it own their own.

I have evaluated cozy and TransUnion Smartmove but both (i believe) require an email be sent to the applicant for them to fill in all information to run the checks.