All Forum Posts by: Conrad Pels

@Dennis M.

Thanks Dennis,

I’m beginning to see what you mean. I went to a showing yesterday and the place is quite a dump. Im sure some investors would have been licking their chops with excitement at the rehab possibilities but for someone who is just starting out, it seemed way too overwhelming. My biggest issue with it is that there were so many things that needed attention, it would be really hard to accurately estimate the rehab cost. On top of that, how can you be sure there aren’t hidden skeletons in the closet, ready to jump out and surprise you after closing on the deal.

I think for my first property I’m going to be looking for something either turnkey or requiring a small amount of work so I don’t bite off more than I can chew. Am I being too timid here? What do you more experienced folks think the best strategy is for a raw beginner to get their feet wet?

@Jonah Hartsburg

Rent currently $525 avg, $2100 total. Expenses $1100 approx. NOI $1000. Mortgage $600, cash flow $400.

After $30k-$40k rehab. Rent $625 avg, $2500 total. Expenses still $1100. NOI $1400. Mortgage $600, cash flow $800.

I do have access to the cash needed to rehab. But, would I be better off taking out another loan for the rehab and saving my cash for a second property purchase? Is more leverage (borrowing) always better?

@Cameron McEvoy

It’s a hilariously small world.

I’m also from Sydney, Aust. Been living in the states since 2005. We may be able to get that coffee someday when I’m home during an annual visit with my wife and kids.

I’m living in TC and becoming more and more familiar with this market, so if you have any specific questions about TC or northern MI real estate hopefully I can be a helpful resource for you.

@Trevor Mitchell

Hi Trevor,

I see you posted this a few years ago. Just wondering how you've been progressing in TC area real estate. I am new to the area and also a newbie investor. Would definitely like to meet for a coffee with you or anyone else in TC interested in exchanging ideas about REI.

@Ryan Schwab

Hi Ryan,

I'm also new to REI and have only been in northern MI for about 6 months. My wife is from here and we decided to relocate back to her hometown area. I'm just getting my feet wet, looking to hopefully close my first deal within the next month or two. I see this post was from a year ago. How have you been progressing? Have you learned anything about this market you can share with another green horn?

@Gretchen Fontichiaro

Hi Gretchen,

My wife and I just moved to TC about 6 months ago. She’s originally from here so we decided to relocate here from New England. It’s a gorgeous area and I feel lucky to live here.

I’m in a similar position to you, having just started researching the market and trying to find deals in the area, as well as listening to audiobooks and podcasts every time I get in the car. I’m hoping to get my first deal done in the next month or two and I’d like to have at least 6 by the end of next year.

All the best to you!

@Jonah Hartsburg

No, I forgot to include the repair work. Thanks for the reminder.

Ok, so I drove by the property today, and I have a tour scheduled for Wednesday with my realtor. The property is aesthetically mediocre, although it’s definitely not a dump. Is there any way to include pictures in these posts? I haven’t found a way yet. One good thing I noticed during the exterior walk around was that the units appear to be individually metered for gas. So, although I’d pay for some utilities, it seems the tenants pay for some others.

The important thing from my point of view is that it seems structurally sound, and many of the improvements made by the seller have been of the larger and more important structural type (new roof, new refrigerators, new upstairs windows). Most of the work that needs doing is cosmetic in nature. I think 10k worth of landscaping and a new exterior paint job would do wonders for the place, and I will know when I’ve toured the units how much work they need inside. I know one of the units was remodeled recently.

So, I'm thinking the rehab may cost $30k or so, or maybe up to $40k. I believe after the rehab I can increase the rent from $525 avg per unit to $625, thereby increasing the NOI from $1000 to $1400, and the monthly cash flow to around $750. Perhaps that's an overly optimistic figure. From my calculations it should come in at around 1.4% if I allow $40k for rehab and can increase the rent by $100/month.

@Jonah Hartsburg

Thanks a lot for the reply, Jonah. I agree it might be a better deal to try to pick up the 4-plex and do the work in order to increase the equity and potentially get my invested money back. I don’t think there are any going to be many comps because it’s a small village (only around 1000 people) and I doubt there are other 4-plex properties. The nearby town which is much larger has higher priced real estate so comps there wouldn’t really be relevant.

Question about comps... Would an appraiser be solely looking at other properties that are exactly the same or very similar (triplex or 4-plex) or do they also look at the sale price of other homes that are a similar age, condition, sq footage, etc, even if they may be SFH? Sorry if that's a dumb question but I've never heard it answered before.

I love the idea of a 4-plex because I could conceivably rent out two apartments while working on the other two, thereby still covering the mortgage and most expenses while I’m able to rehab at the same time. Then again, this is my first investment so maybe the duplex which is more of a turnkey place would be a smarter way to “dip my toe in the water”. I can definitely see benefits to both.

I am looking to buy my first rental investment property, and after analyzing the market where I live (Traverse City, MI) for some time, I’m thinking there are other places within an hour or so that may provide more bang for my buck.

I’m considering two places, both located in a lovely little village near Lake Michigan about an hour from my primary residence. The village is very close to a larger town that has a hospital and large-ish school system and many retail and restaurant-type establishments, so there’s plenty of folks there looking for long-term rentals.

Property 1:

This is a duplex, built in 1895. It was purchased by the seller in 2003 and extensively remodeled in 2004. It is approximately 1100 sq ft and has an upper and lower level unit. I’d consider this a class B property in a class B area.

Both apartments are currently rented to long-term tenants, for $800 and $650 per month respectively. The rent seems to have only increased by about $50 per month on each apartment in the last 5 years, so there may be some potential to raise it.

Asking price is $139,000 so the rental income to purchase price is 1.04% - not great but as I said the rent is probably due for an increase and the property has been on the market for some time so there may be room to maneuver on price.

I don’t have details on the expenses of this property but using the 50% rule and assuming 20% down and 4.5% rate the monthly mortgage is about $550, meaning $200 per month cash flow.

Property 2:

This property is a 4-plex in the same village, built in 1900. It has been updated quite extensively since 2013, including 2 new refrigerators, new windows upstairs, complete remodel of 1 unit, and a new roof in 2015. Also, the exterior looks a little outdated and the landscaping looks a bit shabby, so I’m thinking there may be some quick equity to be earned by improving the cosmetics of the property. Currently 2 out of 4 units are rented with 2 vacant. The property is 2 levels and 2200 sq ft. Asking price is $139,900. It has been on the market for 2 weeks.

The four units rent for $500, $575, $475 and $500 respectively. The seller lists itemized expenses of $646 per month, not including vacancy, management fees, cap ex, repairs and maintenance, snow removal. Using the 50% rule, with the same assumptions as with property 1, the property should cash flow at about $450 per month, and comes in at about 1.5% monthly income / purchase price.

Any thoughts? Because I'm new to this I tend to favor the duplex in my mind because it's been nicely renovated and it's more attractive, but that's probably just the newbie in me talking. I know I should be looking for ones that could use a little attention for their potential to raise rent and improve ARV. Also, the 4-plex has had some important recent improvements like the roof and windows, meaning cap ex would probably be lower in that property than the duplex, where the roof is > 30 years old, for example.

I’d appreciate some insight, advice, suggestions, warnings or whatever else anyone might like to share!

Thanks

Im new to real estate investing. Currently I’m in the information gathering and market research phase. I live in Traverse City in northern MI.

My wife and I currently own a large SF home which is our personal residence and a small cottage an hour away which we used for vacations (her family lives nearby) and plan to turn into a short-term vacation rental in the not-too-distant future.

I have been looking into different types of real-estate investment recently. I’ve listened to Brandon Turner’s books on rental property investing and managing rental properties. I’m also devouring BP podcasts almost every time I get in my car!

I am currently most interested in investing in multi-family homes for the extra cash flow, especially since TC is quite expensive (for Michigan) and it’s hard to find SF properties that meet even the 1% rule, let alone the 2% rule.

However, I do think that buy and hold investing in SF properties may work in TC using the BRRRR method. I have been listening to and learning more about BRRRR lately and have a few questions about strategy.

1) Is buying foreclosure properties a smart way to get properties cheaply in order to maximize the equity? Or am I better off sticking with regular homes for sale on the MLS with motivated sellers?

2) How big a risk is it to buy a home that needs a lot of work? I’ve been burned twice previously when buying homes that passed inspection without any major red flags, only to find out that serious and expensive problems exist in the house only after we took ownership. I am a little scared to buy a place thinking it’s a crackerjack deal only to find out there are tens of thousands of dollars worth of structural repairs needed after it’s too late to back out.

3) If BRRRR is such an amazing investment "hack", which it seems to be, then why isn't EVERYONE doing it?

I’d be especially interested to hear from other people investing in Northern MI. I plan to attend a real estate meeting in TC in the near future.

Thanks in advance. I’m glad to have found this community.