All Forum Posts by: James W.

@Brandon Hershey How would you make that work if they are on the same PID?  

I'm not sure if they are two properties on the same lot or if they are separate buildings with separate PIDs, but that will change things a bit as well considering the financing is different for both.  If you pay cash or would want to do commercial for both, that might change things though.  

Personally, If they are not on the same PID, I would look at them separately and evaluate them separately since one of them will likely perform better than the other one.

When looking at the expenses, make sure you fully understand what expenses are paid by the landlord.  Also, determine the market rate for rents on your own to determine what is reasonable and if it is feasible to pass some of the utility costs to the tenants over time.  I see posts all the time about passing the cost to the tenants, but it doesn't always work if you are already at market rents with them included.  

I wouldn't waste the time on an appraisal at this point.  Just because it may or may not appraise at $750k, doesn't mean it will be a good deal for you to invest in as an investor.  

Ask the seller for actual financials for the last few years and see what they say.  If they give you the we don't prepare financials for a given property as it is a part of a larger portfolio line, I would look at that as a red flag.  Make sure you do your own analysis either way.  Some things to make sure you consider are trash, water, sewer, gas, electric, city licensing fees, maintenance, Cap Ex reserves, vacancy, management costs, and snow removal/lawn care.  

I'm not sure if you have any experience yet, but possibly jumping into two buildings with 9 units seems like more than I would recommend chewing off if you are new.  The triplex seems like it might be more manageable to determine if it is something you like.

@Bruce Runn I invest in the suburbs of Minneapolis and St. Paul and know there are some opportunities in that area, but I don't know the pockets of those areas well enough and many areas require you to drive through the hood to even get to them.  Most of the multis in the area that I see are very old with deferred maintenance too.  

I only invest part time and travel a lot for work, so I do not have the time to find as many off market deals which limits me to acting quickly on something that is a deal on MLS.

I own a few properties in the Hopkins/Minnetonka area and am currently looking further outside of the cities for places that have a shortage of housing that can perform well. Those areas will not see as much appreciation, but will put the money back in my pocket faster too.   I just closed on a triplex that will be my first experiment with this strategy so we'll see how it goes.

@Jay Helms Mine are planned to be long term buy/hold deals and my current properties are B class.  There doesn't seem to  be as much of a difference in A and B rent in my area so I strive for A class tenants in B class housing.  With the way the market is in my area now, all you can hope for is your payment to be covered with A class housing.  My plan is not just to acquire the asset, so I will leave those places to people who are not as concerned about the return. 

Most of the deals I look at now don't provide much return so I am looking into more C class areas with stable towns where there is a shortage of rental housing and the cost to build is too high.  While these areas do not appreciate as much, it seems like they can generate a solid return.  @John Woodrich has a 4 plex in one of these areas.  After turning over a tenant, he had over 30 applicants to fill the 2BR/1BA unit.  

I'll email you a copy of the worksheet I use.  I'll be interested in seeing your thoughts.

@Jay Helms sorry if it looked like I discounted your experience, but I don't know enough about your situation to take much from it.  You were planning a flip and made it through, but I don't know your financial position, how the events impacted it, or know what issues you experienced aside from an assumption that it would have been harder to sell after the downturn. I started with a few flips, but am not in that business now.  I but am personally more interested in the experience of buy and hold investors in that timeframe.  

As far as how I calculate cash flow, I probably over analyze, I would rather know too much than mess it up.  I built an excel worksheet that

1. Does a high level analysis given various rent levels and different financing structures (0%, 75%, 80%, and 100%-assuming possible refi desired later)

2. Completes a detailed analysis of the property at an expected rent level calculating the Cap Rate (even if it doesn't matter), Cash ROI, Total Cash ROI (including amort), DSCR, Fannie/Freddie impact and returns at a few other Cap Ex levels.

3. I have a page to look long term actual performance with graphs and a separate page where I can input actual performance for tracking (haven't been using yet)

In my analysis, I will run different scenarios for the property at various rent, vacancy and expense levels to see how it will perform.  My goal is a property that will perform well in a stressed environment but I have not experienced one so it is a guess as of this point.  

My worksheet calculates the loan terms and payment (all I need to do is input the rate and term)

My Cap Ex calculation comes from a separate worksheet that looks at replacement items, their expected life and cost estimates to help get a better estimate of actual long term cap ex.  Of course labor/material rates will change, but I did not specifically take that into consideration.

I can factor in income/expense increases which usually does not look good so I understand I need to ensure I raise rents at the same rate that expenses increase.

I have automated just about everything so it does not take long to do a quick analysis.  I don't waste the time with a quick napkin analysis as this is just as quick and has more info.  

If you want to take a look, I can send you an example.  I wouldn't mind feedback if there is something you think I have wrong or don't agree with.  

Test the lines with air as said before.  It will let you know if/where the leak is coming from so you can get an idea on how bad it is.  I made a tester on my own that connects to my air compressor from parts at the hardware store but I believe you may be able to find one online.  

You could always find an inspector that offers this service too.  

If there is a component missing (fixture) there really will not be a good way to test the system unless you can shut off the supply line to it and prevent the air from escaping there.

@Jon Loca I have done it at a property before and can send you a copy of the lease I used at the time.  I did not get a legal review of the contract and beleive I put it together myself a few years back but I can send you a copy if you message me your email address.  I looked at it again and think it addresses most of the things you would want to address in the contract.  

@Ola Dantis I agree.  If purchasing a property with a lot of deferred maintenance, it can be a short term issue, but it purchasing a property with some newer items or if you factor some of it into your initial analysis of a shorter term deal, it may not be as much of a surprise.  Some items are not too difficult to determine such as the condition of the roof, exterior, interior finishings...  It is also easy to determine how old some of the mechanical items are such as the water heater and furnace.  

@Nicholas Richard Ray Hopefully more will post their experience!

@Nicholas Richard Ray I would think the Cap Ex numbers would be more important for a long term buy and hold investor compared to a short term investor.  The short term investor may not have to recognize as much for Cap Ex if they buy a property in reasonably good shape, do a good inspection on the front end and get out before anything big comes.  

It sounds like your intent is to be conservative, which is not the case for everyone on here.  There will always be the draw of high returns on very minimal money down even though the return leads to a lot of work and very few dollars coming back to the investor.