All Forum Posts by: Adam Gollatz

Im confused about the scenario. Did I tell you to go fix a leaky faucet or something at a unit and you are there with the tenant, or am I the owner showing you around to get a quote?

5 units renting at 11k, so ~2200 each a month sounds like they are high end properties, and I would budget much more for repairs and capex, closer to 15% , right now you are at 4%. I also dont know what PM companies charge out there, but it might be more than 5%. If you rerun those numbers, Im pretty sure its a walk away deal.

Hi Bill,

Lot going on there and without the numbers of the investment, there are 2 things I would be mindful of.

1 - Buying an investment that takes daily management when you are so far away. You are placing a lot of trust in the property management company, especially if you are busy 60hrs a week with work. Do you have more options for PM companies if that one doesnt work out? How is the long term year round rental market up there? Managing 1 duplex that is 4hrs away is more doable that an short term rental business.

2 - Going into business with a family member. Have you done business together before? It also sounds like you are going to buy it together but each have a unit separately. If thats the case, I think thats also a recipe for disaster. What happens when the PM company can only rent 1 unit? Or you need to fix a common house element? Id say run the whole thing as one business, and split it down the middle, or whatever you agree on. If you are set on being separate, then Id say look into converting it into a condo/twindominium. 

Would you mind sharing some of the numbers? net income, expenses, vacancy rates etc? Feel free to message me if you are more comfortable with that.

You have to work all pieces of the puzzle at the same time when you start out, and you will never have the complete picture of any one piece until you pull the trigger.

Like @Cassi Justiz said, most HML can ballpark rates, but they may have lending tiers, so they cant finalize numbers until they see the numbers for a specific property. Same goes for contractors, they can ballpark material and labor prices by the sqft for flooring, paint, etc, but once work starts, its very likely things can come up. But dont let a little unknown deter you. You only need 90% of the pieces to be able to tell if a deal is truly a deal or not.

@Eric Teran To answer your original question. Yes you should follow up and quickly. It seems like you've planted the thought of selling in his head, so the longer you wait, the more likely he is to talk to friends and family, another investor, a realtor, etc.

With that being said, when you do talk to him, be ready to get it under contract. You dont want to further the idea of selling and get back to him later with a number. You said it has been rented for the last few years? Chances are if you know what it was renting for relative to other comp units in the area, you already know what kind of condition its going to be in. Run the numbers for that scenario, so when you speak to him you can do it with the intention of walking through (to verify) and giving him an offer on the spot. Whether or not you offer an inspection contingency is on your comfort level of what you see.

Keep me updated on how it goes, and feel free to reach out if you have any questions.

@Mary M. I read a statistic saying the average appreciation of homes is around 3-4% If you take into account the hot markets going up almost double digits, that leaves some markets near flat. We all invest differently, depending on our scenario. 

I think for someone starting out, without a lot of money to put down a down payment, buying for appreciation is not a recipe for success. The numbers you run on your first venture are always a little off after the first year(maybe taxes jump after you purchase, insurance goes up, etc). If you run the numbers perfectly and you end up with a house that breaks even, you still have the very likely scenario of a big expense before your calculated capex/repair and vacancy reserves are built up; tenant moves out, something needs to be fixed, etc. 

Hi Eric, 

I have family in the Northern VA/DC area and with the announcement of Amazon, I can imagine that area is going nuts. It sounds like there is some potential money to be made, but I'd sit down and narrow in the ARV and your scope of work/rehab budget more and be sure to factor in holding costs (and selling costs if you plan to flip it) before making a decision.

550k - 425k -100K =25k to cover holding/selling and make a profit

700k - 425k - 50k = 225k to cover holding/selling and make a profit

See my point? Wth the buzz in the area, I bet there isn't much room for error 

Hi Patrick, the short answer is most likely not. Building a home is profitable when done on a large scale, like an entire subdivison when you can reuse architectural plans and benefit from the economy of scale or in high end custom home markets. If this is something you are really interested in, speak to a local builder or a reputable GC and see what their construction costs are typically running.

There are a few things you can do that will help out. 

1 - Know your rental numbers. You want to be spot on with what it will rent for. Im assuming this is your first property and you've been renting for a while so you are hopefully in tune with your rental market. You can easily see how an extra 150/unit/mo can turn this from an easy no into a maybe. 

2. With that being said, don't start changing numbers. Its easy to make the numbers justify the sale. Raise the rent, cheat the maintenance, Boom, its a good deal. If you have to make a change to a number and it goes from a no to a yes deal, have it double checked by yourself and another set of eyes or two.

3. Look in different areas. Try the edge of where you are looking because rental numbers can hold constant through areas where selling prices fluctuate. There are thumb rules to save you some time, Id say look for a property where the monthly rent is around 1% of the purchase price (for this deal 3300/mo). The higher the better. That should get you closer to what you are looking for and save you a lot of time doing in depth analysis for nothing.

4. The VA loan will allow you to go up to 4 units. More units tend to be more efficient for your numbers. Verify with your lender, but a duplex with a cottage home/guest house could qualify. It doesnt always need to be a single building.

Hi Adam,

The term good deal is very relative. I assume you are referring to it sounded like a good deal because it appears to be under market, but it is looking bad because it doesnt show positive cash flow? To answer your question, no your calculations look spot on, its your expectations that will be off. 

Every market is different, but generally speaking, higher end properties (380k duplex is likely high end) tend to cash flow less. To make matters worse, the VA loan will require you to buy a turnkey property eliminating chances for forced appreciation and going no money down raises your monthly payment just a little bit more.