All Forum Posts by: David Moore

@Chris Knapp

I'm in the exact same boat right now on one of my properties. Bought for 31K, rehabbed for 12K, now worth 90K. My realtor says the market supply is tight and time to list. I decided against selling based on what Karen Rittenhouse said in podcast #2. These rentals are like little oil wells. The check keeps coming each month. I find the amount of time I use on SFR versus mfr makes SFR continue to be attractive. If I sell the oil well now, I get the short term benefit, but I could likely sell it in 10 years for the same amount.

@Bruce Runn - thanks for that nugget.  That is good to know.  

Already submitted the offer.  Would I do this in the Twin Cities?  Maybe.  If I find a deal in the Twin Cities, I'm paying for it, but right now I'm not finding deals.  I expect the seller to reject and counter.  The realtor I've done business with before brought the deal to me.  He knows my tendencies...he would not have submitted it if he didn't think I would follow through.

On some of the podcasts, and books I've read, it says unless you are embarrassed by the offer you made, you bid too much.  All the money made on a deal is made on the purchase price.  And John, it doesn't snow in Minnesota much.  

@John Woodrich

The way I look at the $25K escrow is, the seller has to deliver the unit in a manner that can sell.  If the seller has deferred maintenance, it was his choice, but the market is not going to reward him for it with a higher offer.  I'm just trying to set a reasonable market for a seller.

There is another 8 plex in the town that has been stuck on loopnet for 2.5 years, same price, about 90K higher.  Similar buildings are going for a slightly lower cap rate in the area.

BTW, my price can go higher, but not much.  I'm super glad to have discovered the 25K land mine in advance.  Imagine the impact had I bought the thing, and had 20 months of cash flow gone in one fell swoop.  Thanks for your reply.

@Account Closed

There is one other thing to consider.  What if this tenant has a great payment history, and is a really good tenant? What we pay for a property, and our opportunity cost are things we tend to discount when we buy a property, but tend to cost tenants huge.  Should the tenant even be approached?  Did the seller disclose to you during the offer and contract period they had just signed a lease?  And if you accepted this as a  term of the sale, should you even approach the tenant?  Your opportunity cost stinks, sure, but why lay this on the tenant?  This tenant may be well connected, someone who has been in the neighborhood a long time. 

Another win could be out there.  But eating 12 months of opportunity cost might be the best thing you can do.  

@Brent Neuenschwander

I appreciate the feedback. I'm always willing to look through another lens. I'm managing the property myself. We self manage all our properties. We have family in the area as well. The on site caretaker currently gets a small amount off rent. I plan to give that caretaker a bigger discount when I raise the rents to market, and with that increase, get a little more out of them. That is why I'm going NOI 35K. I bought a building last year that needed 35K in cap ex. How did you arrive at your figure for capex? Just a percentage? Plus, the seller is going to pay for the lot repair. This building is in pretty good shape.

In Southern Minnesota town where we own 4 houses, there is an 8 unit, actually 2 four unit buildings on one lot, built in 1978, 3800 square feet per building, each with 3 2br and one 1br.

Asking price is $300K.  This town is one of my two backyards (shout out to J Scott).  This offer has lots of creative financing.  

First, a description.  Roofs are 5 years old, vinyl windows 7 years old, aluminum siding in 2013, new water heaters in 2015, one original boiler, one newer boiler.  Rents for 6 2br are $580.00, and 2 1br are $450.00.  Market rents for each $75.00 higher.  No garages.  Lot is in bad shape...cannot do a seal or pave over.  Have a bid from a local company for tear off and new asphalt for $25K.  We are financing 80% through out commercial lender.  This property was on the market in 2012 and did not sell.  Here is our offer:

$255K

Seller will pay $3K of our closing costs

Seller will pay us full rents in closing month.  Also will pay existing damage deposits.  

Seller will escrow 25K for lot repair. Funds left over disburse to seller after one year

Seller will carry back 10% of purchase price, at 5% interest, 30 year amortization, payable in 5 years, but no interest if paid within 6 months of closing.

Seller will pay 1st half year real estate taxes ($2300.00).

Rents plus laundry income total $4480.00. All expenses, including insurance, heat, maintenance, vacancy (5%), electric for common areas, trash, taxes, insurance total $2900.00. Cash flow is almost $1600.00 a month, or $200.00 per door, before rents are raised to market. NOI is $35K. My financing is 80% of purchase price at 5.25%, amortized 20 years.

Here is the risk.  This building will appreciate slowly.  I have to bid low because when I sell, no matter the rents, it is in Southern Minnesota, so I'm assuming only a 1% increase yearly in resale value. 

I like this deal for cash flow. CoC return is 35.08%, purchase cap rate currently at 13.48%, but will likely have to go 25K higher, so final cap rate about 12%. Caretaker on site for nominal fee. Your thoughts?

@Eric M.

I would advise you that if you cannot find a 2-4 unit property with good numbers, start looking at other types of properties. You talk about house hacking. What is bad about the idea of acquiring a 4 bedroom, 2 bath house, and you then rent out the rooms to other renters? There are many ways to go about this...don't lock your sights on just one type of property. I own 4 SFR, one four plex, and pursuing an 8 unit acquisition right now. I started with the houses.

@Justin Young

I disagree with a central premise of his article.  That is that you need $800,000.00 of equity to achieve $10,000 in monthly cash flow.  That you need massive time to build up savings to buy more property.  Our cash flow has been on the rise at a good pace since we started investing 3.5 years ago.  We are pursing a property right now that will put our monthly cash flow at $8,000.00.  Now, full disclosure, we are still working...part of our cash flow is my income and my wife's income.  

My last acquisition, in Feb 2016, of a 4 plex, was nearly all equity in the properties we bought previously.  We put very little cash in.  After raising rents to a bit below market, we now cash flow $300.00 a door, and we are still $200.00 per door below the current market, with rents skyrocketing.  Before that, we bought a single family house in a great part of town in the winter, for 31K, put 12K of our own funds into it for rehab, and it rents for $800.00 a month, and is now valued at $90,000.00.    We are now pursing buying an 8 unit building, which is renting at below market rents, at a price that will get us $200.00 per door, with very little money out of pocket, and for which we will add on $50.00 a door a couple months after acquisition.  For this building, we will invest all of $14,000.00 of our own money, for a 12 cap return.

You can do very well in rentals, if you buy them right, and wait for the really good deals.  

@James Conaway

I agree with @Linda S. on this.  When I bought my four plex last year, I learned from a tenant early on of cockroaches.  Did a lot of research how to take care of them, and after my local inspector did an inspection, she recommended going with a professional instead of the home brew solutions.   I searched and found a great pest control company.  I paid them, and followed his tips to prevent further infestations.

It kind of is not accurate to say that cockroaches move from one area to another, according to my pest control guy.  Cockroaches have to be in warm muggy conditions, so while they will travel through a living room, they generally need to be near water, and warmth.  Common areas where they habitate are a refrigerator condenser because it is so warm, by a kitchen sink, and in bathroom vanities.  

My pest control guy treated them, essentially using a bait that rendered their offspring impotent...they could not reproduce.  No bugs for 10 months and running.  Go professional, pay the price, and instead of laboring over trying to get a tenant to pay, just build it into your rents.  

We also have a policy now in place that tenant cannot buy used furniture or appliances...to keep the bugs out.  We tell them why, and we get full compliance.  We as owners will no longer buy any used appliances for the same reason.  

@Suhaib Hammad

I suggest you google "Twin Cities REIA' and go to a meeting. The first one is free. At the first one, find Mike Jacka, who will be speaking at some point in the meeting, and ask your question.

You need to find a realtor who is a real estate investor.    I am an investor only, and have zero interest in getting a RE license.  I can buy a property, and in the contract if it says 'as is or assigns', I can wholesale the deal to another investor.  Now, in most cases, you get the funds at the closing.  You, acting as an investor, if the language is right in the contract, can legally do this.  

There are title companies that are nervous about this, and just don't have the facts. Then there is North Title, who is very investor savvy and friendly, and does stuff like this all day long. I also know a little about FISH MLS....they seem very investor friendly.