All Forum Posts by: Eric Schaaf

Thank you very much for your insights!

1. Yes, the current set up is that the tenants pay for all their own utilities, including water. The owner only pays for trash.

2. I reworked that, and added in 10% of the monthly rent for a fee. Is that an appropriate amount? I'm not actually sure what that should be.

3. I've adjusted this to your current numbers, the math has been updated below.

4. Again, I updated that with an assortment of misc fees until I came up with $62,000 for total cash needed to acquire.

5. That's something I feel fairly confident in, actually. There's a pretty large demand in my area and the building is around 25 years old. I think that the value I set should cover it, at least, I assume. Again, no experience so I'll differ to you.

I had considered calling the realtor and asking for that information, but I didn't want to waste their time until I felt more comfortable with the numbers and had a serious talk with my partner about possibly moving forward on the property.

Updated Numbers.

That's with keeping the $395 rent. If I update it to the $425 that is just under market for the area it works out to the following...

Well then here are some stats from the analysis I did on it.

As I stated in the first post, this assumes rent of 395/month. We are fairly certain we'd want to raise that to 425/month which would result in a cash flow of 1114.70/month. 

That's the break-down of the "estimated" expenses. I'd like to reiterate that I have no experience managing apartments and real estate so my numbers could be wildly incorrect (hence why I am asking for some help haha).

And these are this is the financing information. I just chose 7% interest, because it seemed like the high end of what I'd be likely to get, though I certainly hope it is lower! I just wanted to make sure all my numbers were conservative.

 I'm sorry, I thought the link to my analysis would have provided enough information on the numbers for people to offer some advice. Is the link not working or was it not detailed enough?

Hi, guys. I've been lurking, mostly, and keeping my eyes open for possible opportunities in my area. I have recently begun speaking with a friend who is also interested in real estate. He has more capital readily available than I do, and this has, as a result, made me more cautious with my analysis of potential "deals".

I've located one that I'd like some help on. The property seems like a really good deal, but at the present time we aren't really prepared to make a move. We don't have an LLC or anything established yet. Further, I (personally) am not in a position to invest, really. He has a good amount of cash to invest, and could probably do this deal on his own. We've talked about the property a bit and I've shown him several different analysis-es I've done of the property. I'd like all of your opinions on it.

Additionally, I think it should be noted that neither of us have any property management/real estate experience and this is a 3 building, 9 unit property. (3 buildings, 3 unit per building, 2 bed / 1 bath each).

This is my analysis. 

I want to also note that only 8 of the apartments are available. I spoke to the Realtor briefly on the phone and he said the 9th unit needs rehabbed before it can be rented. The analysis includes $10,000 for that, and other assorted touch-ups for the buildings. Based on all of the photos I've seen and information the Realtor had everything else appears to be in good order. Slightly dated (style wise), but fine for the area the apartments are in. The rent is $395 per month, which is a little low for the area, and all 8 of the units are currently rented. We'd plan on upping that to $425 (which, for the purposes of the above analysis would result in cash flow of $1121.47 per month) which is just under market rent for the area.

Essentially, my question boils down to... Should I encourage my friend to make this investment happen, even if it is without me (or for a small share of it in exchange for assisting him, finding it, managing, etc.) or just wait for a couple of months until I'm in a position to invest my half of cost but risk losing the property?

Mark,

Thanks for your answer. I had made some of those assumptions, my question was just based around a worst case scenario.

Daria,

Thanks! That was more along the lines of the answer I was looking for. Obviously nobody hopes that they have to go months without finding a tenant, I was just concerned with whether or not I should worry about being able to sustain 100% vacancy for any real length of time. I appreciate your answer!

It's not that none of them are rented, 3/4 are rented out with the last unit being mostly renovated. It would seem the seller either lost interest or, there is something that I don't know about the property. I find it more likely than not that there is something I do not know about the property, but the question I thought of while doing the math on the property still remains.

In general, is it best to know you can afford to pay for the property off your income alone, without having to dip into your reserve fund?

Hey, BP!

I was looking over a 4-plex in a nearby town and while I believe it could be a solid investment, the monthly expenses without rental income would be, more than likely, unsustainable for me using just my W2 income. Now, obviously I would have a reserve to dip into for a few months while I screen tenants and put the finishing touches on the property, but my question is this...

When deciding to purchase a property, (my first, incidentally) should I make certain I can support it off just my W2 income alone?

@WilliamHochstedler, @JohnPowell

Thank you both for the comment on analyzing it as though it were to be rented out to another tenant. I hadn't actually considered that point. That would change up the math I was doing a lot.

@MaxJames

I was basing it off of the calculations I did with this property on the BP Calc. I went ahead and assumed $4,000 in closing costs and I looked up last years taxes which were at $1,497.93 and then using your percentages (which where higher than what I used before. I used 5% across the board for vacancy, repairs, capital expenditures, and property management. This time I used 10% for repairs and capital expenditures) as well as estimated the water bill at $120 a month, insurance at $150 (I actually have no idea what insurance would run me) and garbage at $50 a month. The future assumptions I left at 2% for each.

I entered rental income at $1,100 per month ($550 per unit). With the increased percentages, it looks like even if it were fully rented at $550 per unit it would still run at a negative of $167.96 per month. (Sorry, I just realized I did not put that I assume a 3.5% FHA loan at 5% interest). So, it looks like that property would be an absolute no go unless I could get the price lower.

Oh, wow. Thank you both so much for your replies. I hadn't thought of the situation from that side of things. I suppose I got so caught up in needed positive cash flow I didn't take the time to consider that even if I am still forced to "pay" rent, I would still be building equity I could draw upon later and living for cheaper, if not the same, amount of money.

I suppose I just needed to hear someone else say it before it clicked in my mind that, yes, it was an acceptable situation.

Thank you Ivory and Logan!

Hello!

I am new to real estate and I am currently saving up for a down payment on a small multifamily to house-hack for a year or two. I am having an issue though, and perhaps it is just that at the time, there are no real "deals" for my area. However, here is the problem...

Most of the properties I am looking at, when renting out the other half, would break even on cash flow, or run me around $100-$150 in the negative each month. My question is whether or not this is acceptable, seeing as how I would still be gaining equity in the house per month, while taking what I would normally be paying in rent myself and putting it in the bank.

Does anyone have any experience with this situation? I tried looking through earlier posts on the forums, but wasn't able to find an answer to my question. If anyone has any advice or experience, I'd really appreciate some advice!