All Forum Posts by: Daniel Miller

246 UNIT - STORE 4 CHEAP

6400 Eastex Freeway

Houston, TX 77026

It is currently listed by M&M. I understand that the expressway separates the facility from the traffic flow right in front of it, but it gets a lot of exposure and there is residential all around it.

For $425,000 I am looking into this. I hear great things about the Houston Market. It has a ton of units, an easy to navigate layout, and has value-add opportunities.

Please tell me why I should NOT look into this...please be as critical as possible.

@Nilay Shah

Nilay,

The 50% rule actually works in a different way then Seth described.

You take the total Gross Potential Rent, which in this case is $1750 x 12 months.

This equals $21,000. Take away one month for vacancy loss.

You now have your Effective Gross Income, which is $19,250.

From that you take away 50% for operating expenses like Taxes, Insurance, Repairs and Maintenance, HOA Fees, and a Management Fee.

You are now left with your Net Operating Income, which equals $9,625.

The Principal and Interest Payments equal $535 monthly, which equates to $6,420 in debt service annually.

You take your NOI and subtract your Debt Service. This leaves you with $3,205 annually in Cash Flows Before Taxes.

That is my interpretation of the 50% rule.

Yes, I would calculate one month's rent as vacancy loss.

If everything is brand new than you should be all right for a couple years as long as you screen your tenants well. One of my uncles bought, rehabbed, and leased out a nice apartment building. He furnished all of them and charged $1750 a month. (South Beach) He did not screen his tenants well at all. If they had cash he would let them move in.

One gentleman opened up a business in his apartment. He gave coffee enemas to all his friends and people around town. It was supposedly very healthy for your colon. Anyways, there was coffee stains (and more) all over the walls and furniture. It was gross and he had to call the police.

As long as you screen your tenants and do a good job this should work out.

Those are great HOA fees...I manage a couple condos and their fees are $485 and $800 monthly. That includes RE taxes though.

You do not have any vacancy rate applied to your analysis. What if, hypothetically, the individual who leased the condo left after the first year. It then took you one month to rent. The new tenant would have to pay two months of rent just to make up what you lost in the one month on an unoccupied condo's expenses. Also, you did not factor in any maintenance and repairs. What if the A/C goes, the dishwasher starts leaking, or a fixture needs to be replaced? You did not budget for this either. There are going to be some costs associated with readying the condo in between tenants.

Just my $0.02

@Sean Kuhn

I like your offer. I have around the same amount of money to play with right now and I have structured some offers that way as well. There was this killer deal but the guy would not go for it.

Listed $795,000

Offered $700,000 - He holds mortgage for 3 years at %7 interest only payments. Parents front me $150,000 to put down. I finance the $150,000 at 8% interest with my parents (they are sticklers). I basically break even the first year while I implement the proceeding plan.

Stats first...

16 Unit - 16,000 Square Feet - All 3/1s - All separately metered - Rent $750

They were all separately metered and the utility bill was $500 a month! There was no clubhouse, pool, or excessive outside lighting. If I could reduce the utility bill by 20% (very possible), raise rents by $50, and reduce insurance by 10% (currently $14,000) the property would have been worth $1,000,000 at a 9% Cap Rate. At the end of 3 years I would have paid my parents mortgage down by $20,000 each year (budgeted; they wanted a chunk of their principal back) I would have refinanced with a $640,000 loan and probably could have sold the property for $925,000 at the very least.

Anyways, I like your plan as long as you can add some value to it and increase rents or reduce expenses. The initial cap rate seemed kinda low.

Yes, I agree with you Sean. The price is a little high.

Gross Potential Rents of $36,480. Minus Vacancy Loss of 10%. Effective Gross Income is now $32,832.

Taxes, Insurance, Utilities, and garbage equals $15,944.62

Including Repairs and Maintenance, ($650/unit annually) Replacement Reserves ($200/unit annually) and Management Fee (7% of EGI) your Net Operating Income comes out to:

$12,133.26

Purchasing this property at $256,500 (90% of listing price) would give you a cap rate of 4.73%.

I would say that the listing price is way too high.

The property sounds good. These are right in my wheelhouse. I love block/brick multi-family properties. There are a lot of benefits. If the area starts to appreciate, instead of one SFH appreciating (and its rents) you can raise the rents on all the apartments.

I manage a 9 unit that I also live in. The rents were all $675 in late 2011. The rents are now between $750 and $825. The apartment has appreciated approximately $200,000 by just raising the rents.

4 units with rents in the $700s should be right around a $200,000 price tag, although the taxes are ridiculously high on this property.

Just my $0.02

There are some scoundrels, but I have not met them at the REIA meetings that I attend. The gentleman who runs the Monday Night group I attend puts out a disclaimer before the meeting begins. He states, "This is an integrity based meeting. Anyone who is looking to take advantage of someone needs to get the hell out of here". He uses precisely those words.

A lot of the people who attend those meetings are old-timers. They come in their to help others out, hone their craft, and sharpen up on news around town. In 12 step meetings the first priority is to help the newcomer...I have a suspicion that the old-timers who have been in RE for decades have the same thought process. Pass along their knowledge to someone who is hungry, determined, intelligent and NOT going to waste their time. They have probably made tens, if not hundreds, of real estate deals. They get more satisfaction out of trying to help you accomplish your goal than they would in "stealing" your idea and reaping the profits.

I would sit and listen the entire meeting. Do not say a word during the open discussion part of the meeting (if there is one). Walk up to someone who you connected with after the meeting. Someone who is calm, cool, and collected. Do not talk to someone who can't sit still the entire meeting and acts like he has poison ivy on his *** when properties are being advertised. Someone who is there with his wife might be a good option. Someone who made you feel comfortable when he spoke.

Just my $0.02...

@Colleen F.

My parents asked me the same thing...how would the be set-up. I do want to make sure that end is covered if something potentially happens to her.

My idea was to get the 9 unit under contract and have her hold the mortgage. On the four unit I would try to get my parents to co-sign a conventional mortgage.

Waiting to hear back from the bank...

I agree with Will H. Property #2 looks like your best bet. There is a lot of information missing...RE Taxes, Property Insurance, etc., etc.,

Are these properties all in New York? Those prices seem cheap for what I have heard from New York.

Deal looks good to me. Follows the 2% rule.