All Forum Posts by: James Wierzba

Hey @John Leavelle,

Thanks for pointing out the potential issues with an older property. This is the biggest unknown variable for me.

Also, I intended the "maintenance budget" to be the capex budget (different term, same meaning). Luckily the house was pretty much completely renovated, which will reduce the risk.

Also, good point: I should check about how feasible it is for me to shift utility liability to tenants

Hi All,

Long time listener and lurker, finally about to pull the trigger and make an offer on my first property (a duplex in a semi-rural town in the pacific northwest).

Numbers:

• Mortgage: $570 (with 20% down, $28,000)
• Insurance: $75
• Taxes: $110
• Maintenance budget:  $200
• Property management: $165
• Utilities (owner is paying currently): $185 -- note: I plan to change this at lease renewal
• Total expenses: $1,305
• Rental income (minus 5% vacancy estimate): $1,560
• Cash flow: $1,560 - $1,305 = $255

Info:

Duplex (2x 2bed+1bath)

It had quite a few renovations done. The seller is a wholesaler who bought it from someone who could not afford the repairs.  All new appliances. Roof is less than 5 years old. Both units are occupied, and are supposedly good tenants that pay rent on time. No pets or smoking.

Concerns:

• Age of property: 1893 -- should I be worried about this? Why would the age be a concern if everything about the property is in order?
• The rents are quite a bit higher than surround 2bed+1bath units, however the units are in better condition.

Thanks for the tip. I don't have much knowledge of macro-economic trends such as the one you are talking about. 

What indicator(s) would you recommend looking out for to know when the "right" time to buy is?

The question: 

I would like to know if there is an acceptable exception to the "cash flow is king rule". I am in full agreement that a positive cash flow is a very important goal, due to the fact it insulates you from gambling on appreciation, equity, and rent increases. 

I'm looking at the Seattle area (I live here) to make my first multi family ( 2/3/4plex) purchase. The outlook is very bleak in terms of properties that would generate a positive cash flow. 

I'm wondering, for those of you that preach "positive cash flow is a requirement": 

Would you relax this rule in a very expensive area, where duplex/triplex/quadplex prices are around 1 million? I would think that a small negative cash flow margin would be acceptable due to the much larger equity gains you are receiving (compared to a 100k property that has good positive cash flow).

I would love to know your thoughts.

I'm about 6 months away from saving enough for a down payment on a rental property but I have been sending inquiries to properties I see on realtor.com that appear to be workable deals (have positive cash flow). However this is simply based on looking at avg rent prices in area versus mortgage on the sellers price, then using the 50% rule ( 50% of rent income will be expenses). There obviously are a lot more details to it though.

This searching is just for practice and to get my feet wet while I save for a down payment.


My question here is what are key questions to ask the seller to get more info quickly, to be a me to evaluate it further?

So far my questions have been

1. Current tenants? If so what are lease terms
2. Rent income? ( current if applicable or else historical )
3. Expenses (property taxes, utilities)
4. age and condition of all major property expense items (get an inspection -roof, heating system, plumbing, electrical, structural, windows, siding.)


Things I can look at myself:
1. Neighborhood : schools, crime
2. check for leins against property

Are there any other questions i should be asking?

or is this too much for just crunching numbers on a property that I MAY be interested in? I can't ask all of this info on every single property that catches my eye