All Forum Posts by: Clayton Mobley

Another issue I'm noting upon closer inspection is that you have very low vacancy and maintenance figures. Now, some places really do produce  3% rates, but where did those numbers come from? Is this from the current owner, a third party, or your own estimates? Currently, this duplex is half empty as-is, so how long has that been true? How long will it continue to be true if you're doing rehab work? If you increase rent? 

In terms of maintenance (you have down as 'repairs') and capex, how old is the property? You're looking at a pretty low-scale rehab of only $10k, so does that mean this was recently built. Since one tenant has been their for 22 years, i'm guessing not. So when were the big items updated? Appliances (if provided), HVAC or AC unit, roofing, flooring, water heater etc. If these are all original to the building from 22 years ago or more, you're looking at a lot more than a $10k update or a much bigger Capex outlay than 2% in the pretty near future. Now, if everything has been updated in the last five years or so, this could be a different story. Again, there are some details I don't have that would help with the analysis, but these are all things to think about. I assume you're looking at buy and hold, so you have to think about what non-cosmetic things will be coming up down the road that will eat into your profit, or in the case of the current numbers, put you deep into the red.

Hey @Zac Boelkow , taking a look at the numbers as presented, yes this is a pass. Your margins are too thin, your after-rehab value is barely more than you put into the property. 

Now, I know you say you think these units can rent for 700-800 after a little TLC. My question is, if you only think the place needs $10k in rehab (which is not very much in the scheme of things for a duplex) then why is only one side rented at the current 'steal' of $550? If you jack up the rent, you will likely lose those long-term tenants, and my guess is you'd need to put a lot more than $10k into this property in order to warrant a higher rent. If this is already a fairly amazing property that only needs some small cosmetic upgrades, then the current rent rate should have folks lined up around the block. Since one side is vacant, my guess is there's another piece of this puzzle missing.

Now, maybe it's only recently vacant and was previously occupied by another 22-year tenant. Those are the kinds of details I don't have, but my gut says that a $10k rehab won't warrant such a large rent increase and that you may be misjudging the curb appeal of this property because you want to find a deal - which is a verrrryyyy common thing for new investors, so if that turns out to be the case don't beat yourself up about it. Everyone is itching to get started as fast as possible in the beginning.

@Yuuj V. i think that's the smartest course of action. There will always be REI to be had, and as it looks like we may be nearing the top of this cycle, you may find that you end up in a better position by waiting a bit and buying the dip. secondary and tertiary markets dont get hit as hard by that dip, of course, but esp if you're looking in any primaries (memphis, SF, SD, NY, Seattle, Chicago etc) keep the swing in mind.

not saying this isn't a good investment, just that you need a more comprehensive picture before you can really decide

@Yuuj V. Yes the closing and rehab costs aren't the only issue though. You don't have a figure for vacancy or maintenance expenses, which will change your take home considerably. Also, does that rehab include new capex items (HVAC, roof, water heater, flooring etc), or are the existing items pretty new as-is? if not, you're likely looking at bigger repairs or replacements sooner rather than later (one reason you should always have a cash reserve)

Last point: I wanted to second the comment another poster made about flying out to see the people you work with. Esp for new investors going out of state, the trip will be worth the price ten times over. Whether you go turnkey or build your own team, go out there, tour the market, take a look at their handiwork, look people in the eye. The types of people you want to work with will be more than happy to accommodate your visit. Consider it an investment in your investment.

Good luck!

@David W. Are you looking to pay cash or finance? Either way I generally advise folks, ESPECIALLY new investors, to steer clear of anything sub-$50k. Unless you live in the market or have boots on the ground you really trust, anything under $50k is likely going to be more headache than it's worth and/or be in an area you don't really want to deal with. For new investors, sticking to solid B/B+ areas is the best plan whether you're in your own market or not. 

That being said, our average price for a B/B+ SFR in Birmingham is $100k. Some are down near $75-80k, others more like $130k. These are turnkey properties (so rehab done, managed, etc) so if you have an agent or know the area you could perhaps find cheaper props in good cash flow areas, but you'd need to do the rehab on them - plus you'd be fighting with us to buy them ;)

There are plenty of markets where you can get a decent cash flow prop for $100k, mostly in the South and Midwest. You'd need to decide if you want to go the turnkey route or assemble your own team (agent, contractors, PM etc). If you go turnkey, prices will be higher because everything is done for you (though you shouldn't be paying more than market price). You can get lower prices for props that need work, but then you need to pay for that work, manage it, etc. If you do it well, and there are no pricey surprises along the way, you could end up with a rehabbed prop cheaper than if you went turnkey - so it's a trade-off, price for effort, price for time, price for consistency. 

Point is, regardless of turnkey or DIY, you can find props in your price range in a few good markets. BUT don't pull the trigger on something just because it's in your price range. I'd say sit tight and save up until you find a solid investment, rather than buying something sub-par just to get in the game.

Re: the Boardwalk prop - I agree pouring $100k into a single dp is not the most effective use of your capital. I'd say sit tight, save up, and then use your capital to buy a few lower priced props in markets where your money goes further. With $100k, you could put dp's on 3-4 solid B/B+ cash flow turnkey props in Birmingham, grossing about $2,900 - $3900 in rent per month. If one is vacant, the others could still be cash flowing. With one big property (unless we're talking MFR) a single vacant month eats into your returns pretty severely. Also, there may not be as big a market for renting the kind of prop that requires a $100k dp (assuming value of about $500k, rent of at least $5k). People that can pay that much rent would likely rather just buy a house.

Post your numbers on your current prop and the one you are considering and you're likely to get more/better/more detailed answers.

Good luck!

@Yuuj V. I guess my answer would depend on a couple items. Firstly, does the house you are considering require a TOTAL input of $30k, or is that in addition to the $18k dp? If it's in addition, you've essentially wiped out your reserves. Especially since your other prop is not yet rented, I would not recommend getting into such a cash poor position. 

If it's $30k total, then it's maybe worth considering as you'd still have $20k in cash as a reserve. BUT all of this hinges on one very important phrase you used a couple times: 'if my math is correct'. I (and other BP members as well I'm guessing) would need to know more about your expenses and income assumptions on these properties to give a real answer. I know both calcs included a PM, but where are your numbers coming from? Your assumptions, a third party, the seller? Those kinds of details can make or break an investment.

Also, if the new house has 'other costs' that sounds to me like it needs work, which takes time. Once you buy the house, that rehab time is vacancy - unless you are buying from a good turnkey outfit that ensures you don't close until the rehab is done. If you already have one vacant prop, having another under your belt isn't going to make things easier, or less stressful.

I get that the FOMO thing, I really do, and I think you'll find a LOT of new investors have the same issue - you feel like you NEED to make a move. Sitting still is losing money. But the truth is, sitting still is sometimes making/saving money. Esp if you think a crash is imminent, go with your gut that says you need to have cash on hand.  Don't pull the trigger on something just because it's in your price range and you want to be 'doing' something. 

One last thing: While it is true that having your company do the maintenance work would mean you end up getting some of those expenses back, I would not include that fact in your calculations. Run the numbers as if those expenses would be outsourced completely. That way, you either end up with a little extra on the return side or, if something happens and you do have to outsource that expense, your ROI isn't totally thrown off.