All Forum Posts by: Account Closed

You indicate that you are using an owner-occupied FHA loan but also state that all three units are occupied. Is one of the tenants vacating the property prior to sale so you can move in? I'm not a lender but I wonder if they would allow you to use this type of loan if you weren't occupying the property from day 1?

I would check out Nolo's "Every Landlord's Tax Deduction Guide" to get a feel for this information.  Hiring a good accountant is probably the best thing you can do though.

@Thomas Blaine I once looked at and tried to analyze a 70+ unit multifamily property with records worse than the one's you posted.  It's amazing the lack of professionalism you see with some owners/operators.  

I agree with the other members that you should insist on the schedule E.  It's unlikely that the owner is going to under report expenses to the IRS.  Income is another issue but hopefully you can reconcile the owners bank account with a lease audit to confirm they are actually collecting the stated rents.  

If you do obtain the schedule E and the overall expenses are low, it's likely they are skimping on maintenance, repairs, advertising, etc.  I would throw them out all together and build a budget that illustrates what expenses should be if it was properly managed and base my offer on this.  

@Jeff B. is spot on.  In addition to what J stated above, how are you planning to finance this/these investments?  Even with the required 25-30% down payment, due diligence expenses, closing costs, and capital reserves, a lender is going to question the operator's experience.  Do you have a team in place to help analyze and operate these assets?

With that said, you're definitely in the right place to learn about all things multifamily.  There are BP podcasts with experienced multifamily operators that have a wealth of information.  I'd start by listening to these as well as reading the BP articles on multifamily investing.  Another great resource is Kevin Bupp's Real Estate Investing for Cash Flow podcast.  Best of luck!

@John Alder I think it highly depends on the tenant you are targeting/the typical tenant for the area.  There are many neighborhoods in the city of Pittsburgh that have great rents and high housing costs but are in terrible school districts.  These areas have high concentrations of young professionals (without families) and college students who have no need for a good school district.  Therefore, it doesn't really matter that the school district is lower quality.  

I agree with the others about insurance.  This should be a relatively easy figure to find out.  Based on the purchase price and income the property brings, it seems like it could be a good deal.  One concern I would have is the utilities included in rent (if any).   I'm assuming you would pay for water, sewer, and trash but if you also pay for heat and/or hot water, the deal may not be that strong.  Also, how much deferred maintenance does the property have and do you expect real estate taxes to increase upon sale?  Best of luck!

I agree with @Rich N..  I would try to find out as much about the owner and his situation as possible.  It sounds like he's milking this property for all it's worth or maybe there are health problems where the owner needs the money and just can't afford to put it back into the property.  

The property has plenty of upside potential given it's low rents, poor management, and current condition.  I'm not sure why an owner would let a property decline to realize lower property taxes.    If this property's truly in a good area/school district, maximizing the property's income would outpace any real estate tax increase.  

The property is depreciating in value because it's not being kept up.  Depreciation is an accounting paper loss that you will be able to take advantage of when you purchase the property. Depreciation doesn't affect the value as someone noted earlier. 

At the end of the day, you can't afford to buy the building for anymore than the capitalized NOI. Don't let the owner or property manager talk you into buying based on proforma NOI.

Good luck!  I'm interested to see how this turns out.

@Account Closed said.

Congrats, @Ian Hoover!

I don't think the size of the Realtor's company makes any difference.  You need to talk with agents and ask them leading questions about investment to see how they respond.  It definitely comes down the individual, not the company.  There is tons of great stuff on BP about working with agents.  Also, if an agent says that the rent will cover your mortgage....move on.  They obviously don't know the expenses involved in operating a property.