All Forum Posts by: Dustin Beam

Hello beautiful people of BP,

What are your thoughts on townhomes that now has a defunct HOA?

The properties are essentially now single family homes as far as owner responsibilities (lawn care, individual meters, etc). Many roof lines are actually separated, but some aren't, so obviously some complication there if the neighbor doesn't want to replace the roof and you do (or vice versa). I would say they are B class, not in a densely populated area, but close to lots of developed area (has to be billions of dollars) over the last 10 years.

The building(s) I would be looking at would put me as the primary owner. So owning 3 out of 4 as an example. 

At this point, I probably view the lack of HOA as a good thing, but is there anything I'm glossing over? I don't know what I don't know and would appreciate any thoughts you have.

 That's one reason to listen to BPs podcasts. Besides the things you learn from it, they ask the guest to suggest a RE book after each episode.

 Just to be clear, I didn't question cash on cash return, I realize you can get good percentages on that when you don't put much down. I'm questioning your cashflow. 

For every $1 being borrowed, you will basically pay 0.5% each month for the mortgage (assuming 30 year fixed, 4% interest). So for a 100k loan, each month you're gonna pay almost $500/mo to the bank. 

You stated that you are not meeting the 1% rule, so in the example above, you have less than 0.5% of the purchase price to pay for cap-ex, vacancies, insurance, maintenance, etc. Those are a lot of expenses to be covered by the relatively low amount left over and still have $400/mo in your pocket.

Is it mathematically impossible? I won't say that. I do think you should show your analyzation to get some second opinions in case something is incorrect.

It seems odd that a property that is almost fully financed, with rent less than 1% of purchase, cashflows that well. 

Until this thread, I didn't even know about this, but from my 5 minute research the tax bill seems to benefit LLCs. Maybe I missed something?

 That's fair, and I don't have much info either. I'm just going off current rentals in the area (estmated at $500 for single bed units). If that much is true, it's giving you 1.5% rent to purchase...and that's with no negotiating on purchase price. 

Street views of the area seem ok from google. No bars on business windows etc.

Crime maps are pretty negligable. 

IME, even if the units need updated, it won't really matter as long as they are rented. A "slow flip" seems possible by using rents to upgrade as they empty.

But I HAVE to be missing something. KC is also known as a reasonable area to invest in and if it's what it looks like to me, it would be bought real quick here.

@Paul Sian @DL Martin 

@Craig H. @Eric Sztanyo

I came on this thread because I'm very loosely considering investing out of state. I saw this ad on realtor, and on the surface seems like a decent deal.

https://www.realtor.com/realestateandhomes-detail/...

However, I'm from KC and don't know the area. Going off this conversation, it seems like this property should have been snatched up (assuming my estimation of them all being single bed units renting for ~$500/mo). It's been on the market for a few months though. What am I missing?

My thoughts are not the gospel, but I would assume you three will need to be personal guarantors of the loan anyway, so there won't be any difference whether or not the LLC is applying for hte loan of if you three did it without one. I could be incorrect though.

I considered suggesting mini splits (with ductless AC) as an option but decided against it because of cost. And I don't know of a way to split the bill with the system you linked. That outdoor unit will need to be on a breaker, and that breaker will be on a single meter. So if that's the case, you won't be able to separately charge accurately the electricity for it. You might be able to back charge for it by dividing the total bill by number of units, but I'm not sure of the legality of that and it might be a headache.

It is also basically a 4.5 ton unit. 1 ton of cooling for an apartment is probably not enough unless they are pretty small. Just some food for thought. 

You may just want to get an HVAC guy out there and talk it through with them to get a bid. Layout and exterior space can make a big difference. For instance, if you have a basement for the furnace, ground space for the condensing unit, and it's a studio apartment...then that greatly simplifies installation. If you're tight on space both inside and out, then that makes things much harder.

I do commercial HVAC building system design for my day job, however not multifamily. From an investor perspective, I would agree that you want the tenant's paying for their heat and cooling. I personally can't really imagine buying a property that didn't allow me to do that. I'd have nightmares about tenants leaving windows open all winter.

But, if you're talking about 8 split systems, with new ductwork, that's going to exceed $10k easy. I'm assuming the existing is baseboard heaters with window unit AC and no ductwork anywhere? 

If this were me, I'd consider the following and go from there:

Scenario A: There is an existing furnace w/ ductwork.

In this case, I'd verify to see if your electrical service could handle 8 outside ACs with internal electric furnaces. If it can, get a bid and see if it's feasible for you to go this route and meter separately.

Scenario B: There is no ductwork.

For this one, I'd go back to your original plan. Upgrade/repair/replace existing boiler items that need it, go w/ window AC units and see if you can legally have thermostats that have a maximum setpoint of 72 degrees. If your boiler is capable, that should keep the apartment warm and discourage any open windows in the winter nonsense. Charge rents accordingly for picking up the winter heating bill. Since electrically metered separately, they can keep it as cold as they want in the summer.

Just my thoughts.