All Forum Posts by: Dustin Beam

Hello beautiful people of BP KC,

I'm getting an apartment worked on now. Frankly not sure I got the right guy(s), but that's a different story altogether and not about price. 

I got several quotes for a 2 bed, 2 bath apartment, approx 850 sqft, for ceiling and walls. I had one guy that was going to do it for a great deal, but had health problems and cancelled. The other guys quoted me around $1500-2700. 

That might be the going rate, but still a tough pill to swallow considering it might last 1-2 tenants. Obviously on reason why long term tenants are great. On the flip side, I'm replacing all the carpet w/ vinyl plank flooring for $2500 that, hopefully, I won't have to touch for 30 plus years. Much better ROI.

I know that it isn't an apples to apples comparison, but all the same, what kind of prices do you get? If you got someone that does good work for cheap, please PM me.

Thanks everyone

Finding the right handyman and/or contractor has easily been my hardest challenge through year one of owning rental property.

My property is in Raytown. But since it's all in one location, I can't pretend to be an all inclusive expert on the city. Mine is near 67th and Raytown Rd. I feel it's a safe blue collar neighborhood. My gut feel is that when you go East or South of there, it is as good or bettter. The opposite seems to be true in the other directions.

Again, not saying it's cut and dry, but it somewhat seems to be the case.

 I don't need to think it again. Assuming traditional type financing, $2.3M in purchase price means approx $11-12k mortgage. That's neglectign taxes, maintenance, etc. 

So while the current owner might be able to swallow 7-10k per month to keep it afloat, I am not in a position to do that. So while they may make a ton of money in the end, I wouldn't because it would be forclosed on. :) So yea, I'm glad it ain't me.

If it's that hard to get someone in, divide your monthly asking rent by 12 and reduce it by that much. (same as letting it sit empty another month before finding someone). Get someone in there now and worry about getting that rent number up next year. Maybe things will heat up by then.

JMO.

 I recently posted in another thread about how I can't ever get the "1% rule" to ever work in an analysis. That's about where your potential purchase is. It's also about what all property in my area goes for. If it made sense to me, I'd be in hog heaven.

But to keep this on track, let's look at yours. I'm assuming it would be a 30 year note, and $350 is the yearly taxes. Which is nice and cheap, BTW.

Your unavaidable expenses will be taxes, mortgage, and insurance. Can't get around those. I'll assume somewhere around $100 for insurance per month, taxes are $30 per month, and with 20% down mortgage = 500/mo.

$630 right off the top are coming out of your income. Still looks pretty good. I would assume 5-10% vacancy. I use 8.33% vacancy (one month per year it's empty). So that's $116/mo. Sub total = $746/mo.

Capital Expenditures. Also non-avoidable, but also an estimation. I count the appliances, roof, paint, ac/heater, water heater, etc and googled average life span of each, estimated cost of each, and then average it out to a per month cost. a rough estimation for a duplex according to my estimation is about $150/mo. New sub total is $900/mo in expenses. Still looking alright.

Now maintenance. Are you going to do lawn care? Pay any utilities (water/sewer/electric)? These are things you absolutely want to know. If they are metered separately, you can. If they aren't, tougher to put that on tenants. Let's assume the duplex is separately metered, but you pay water. So you have water, sewer, and maybe trash. They mow the lawn. Let's just call that $150/mo. New sub total = $1050 in monthly expenses over the long term.

Now maintenance. Depending on condition this will vary. But I'll assume it's not brand new, and even if it was, stuff would come up. This is just an estimate, but let's say 150/mo (basically one minor service call per month, adjust as necessary). Sub total = $1200/mo.

Last, but not least, management. If your goal is to just grab a few properties, a manager may never be necessary and you can ignore. If you do think you'll need a manager at any point, it would be a good idea to include their cost now, so that the duplex isn't a loser once you hire one. Most here on BP will tell you a manager will cost more than 10%, but let's just say 10% anyway. So that's $140/mo.

Grand total = $1340/mo.

That's almost all of your rent. Am I saying to run for the hills and stay away from that property? Nope. Many people have built good wealth on the "1% rule". I don't see it....well that's not true. I see it as a breakeven typically until inflation causes rents to go up and cashflow the property and/or you build equity and sell. Then you get those capital gains. Or maybe you see they are way below market value and can easily raise rents. 

That's just not enough for me personally. But your goals might differ. And dont' take my analysis as solid gold. There were obviously some estimations in there. Just don't go in blindly. Consider the items I mentioned and make an informed decision. Good luck!

 I'd like to find property w/ that rent to sale price ratio. :) But since we're advising the seller, I'd advise selling higher. But like was previously alluded to, it's going to be market driven. Check what other properties are going for in your area. Looking at realtor (filter for multi-family and use the maps viewer) to get a decent idea of what asking prices are going for. 

REaltor usually has what the rents are. Whether they are actual or pro forma, I can't say. But it will be a starting point for what things go for based on rental amount.

I wouldn't use percentages to estimate Cap-X. Cap X will be basically the same for a duplex in California or a podunk North Dakota (not picking on ND haha). But basing the Cap-X on percentages will give wildly different numbers.

For the record, I can't ever make the "1% rule" work in an analysis. However, many people have made it work in real life. Your mileage may vary. 

So someone bought it for $2.3M and is renting it for $5k/mo? 

Whew, glad it ain't me.

Maybe you've done it, but first things first. Do a detailed analysis of the property using actual property tax and actual rental amounts. See if it will work financially. If no, then find comparable rents in the area. If you can realistically raise the rents, analyze again if it makes money. If so, proceed with the questions to seller. 

I'm not a seasoned negotiator, but when speaking with sellers, I try to make it just a basic conversation. Not a checklist of items that I want answers to. Although I do try to integrate all those questions into the conversation.

But again, square one is determining if it makes money, and if not, what would need to happen for it to make money (ie- raise rents or lower price, or both).