All Forum Posts by: Jeff F.

Nice Job @Justin Frye - FHA Loans take a lot of work (and typically a long time) but are worth it.

What types of debt are you carrying? (car loan, credit card, etc)?

Sounds good @Adam Hays - Congrats on taking action!

@Bill S. - I'll be sure to get a few when it's done and post them with what I've got. 

Time for the April Update.

I've spent the last 3 or so weeks in India & Myanmar, so I missed a few of these questions:

As for the siding, they're putting new stuff over the old stuff, and the final cost was around 26k. They are about half finished at this point, and I hope for them to be done in another 10 days or so. 

I've also gotten a few bids and once the siding is finished im having a electrician out to the tune of 8k to convert to multi meters for electricity - one for each unit, and a common area account, which should add a bunch of value to the property. 

The problem tenant has been notified that I will not be renewing their lease at the end of april and has responded accordingly. They've been complaining about bed-bug issues for a while, and now are refusing to let the people in to spray the unit. I suspect that they will damage the unit as they are leaving, but they likely cant do much more than what's already damaged and it will be nice to get rid of this problem and get that unit producing.

The work on the other two has been slow going because of structural issues that require correcting of some floor joists and other things, but is continuing. Obviously, my original goal of april 1 is out the window. I suspect that's not the worst thing in the world, as it will allow me to show them (Im hoping for may 1 now) with the siding finished and the new windows in so the building will look much nicer. Given the location and the updated finishes as well as the look of the building, I'm expecting these to go quick once they are up and running. 

This building is finally fully under control - focusing on just inefficiencies due to poor management, I've returned ~750/mo of cashflow to the property with JUST the lights/gas and making the tenants pay their own way. This has cost me almost nothing. 

Your rehab numbers seem low. What needs to be done?

Good work - just shows that this doesnt happen over night!

Another Month, and another update.  

Good news (at least a bit) this time. I finally feel like this property is under control. Tenants are locked out of places they shouldnt be in, all paying rent on time, and are generally doing as expected. The water bill has gone down significantly from last month, as has the electricity/gas bill. The heating bill was higher for 2 of the emtpy units than it was for the 4 occupied ones, which was an unfortunate and rather costly ($200) oversight. I just never thought to turn the heat down when I was in there. There's plenty of room to move downward on the bills, and a lot of that will happen as the units get turned with new stuff. 

Demo has started for 2 of the vacant units, and I'm hoping the units will be ready to show by april 1. 

The tenants are also at this point all on their own gas bills, so next month the utility bill should go down to approx 200, a far cry from the 980$ that I paid the first go around. 

And for the fun:

One of the tenants is convinced their bathtub will fall through the floor. The property manager says the subfloor needs to be replaced, but doesnt think it's that bad. Unfortunately for this tenant, the way they have been acting and the fact that they have a relatively urgent repair that needs to get done means that I will be notifying them that I will not renew their lease come the end of april. They seem to be a pretty needy tenant, and they seem to be causing many problems for the property manager. This is not something I want to deal with, nor do I want them to deal with. This unit will be the next one up for rehab. 

We were notified that homeless people (not sure how many) have been sleeping in the small foyer that serves as an entrance to 2 of the units. This was remedied with a lock to the exterior door and should be fine now (finally, the problems are getting easier and cheaper to solve!)

Rehab has continued to uncover issues. As you can see from the earlier pictures, many of the floors were rotted through and had to be replaced, however there are potential structural issues there with some of the main supports as well as the floor joists. I'll be meeting with the property manager (and a structural engineer) tomorrow to determine what needs to be done. This is unfortunate because it has kind of put the rest of the rehab on hold for the moment. It's really pushing against my deadline of showing those by 4/1, but we will see what happens. 

Still taking losses on the property, but was able to talk to a few bankers about a refi. I'll be in pretty good shape once every unit is turned and rented. 

Also got a quote about siding and am not sure what to do. It'll be 23k to re-side the entire place. Painting is not going to cover it, mainly because the current siding panels are asbestos and many are missing and are unable to be replaced. I'm considering it for a few reasons (mainly because of what I've heard from a few people in this thread) - that while the inside is nice, if the outside is bad then people will just skip it, but 23k is a whole lot of money to pour in there right away. Any thoughts on this would be a great help.

I also think i'll be taking a day or 2 each week off from my day job to speed up the rehab on this place and start getting the income up. While I have the cash, It'd be nice to stop the hemorrhaging. 

Hi @Matthew Kelly

This is a good strategy - buying a 4 unit with an fha - and i've done it. However it seems like you're missing quite a bit on this deal. 

First - the 240k price seems a bit high. My 4 unit was 220, and gross rents were 2400. I am house hacking this as well. 

My down payment was around 9k, but you'll also need to prove you've got 3 months reserves to pay the mortgage when pulling the FHA loan. SInce you're looking for a gift for the 3.5%, im suspecting this is something you do not have.

You plan on immediately raising rents, but what about the turnover that you might induce? Can you afford all 3 of your tenants leaving after you raising thier rent $70 some dollars (10%) per month? Why are you so confident that you can raise the rents to 800? Have you done a market analysis? 

You mention nothing about other expenses. Who is paying your water/sewer/trash here? Who is paying electricity/gas bill? Are they seperately metered? 

Have you budgeted for cap ex (8-10%), repairs (8-10% - could go lower if building was new), and property management (10%), and vacancy (8%)

Taking all those at 10%, you'll want 250 per, for a total of 950 (with vacancy allowance) per month on the deal, and then you'll still need to pay the note (at whatever) and PMI. Not seeing the cashflow here unless something changes.

Could this be a good deal? Yes, if you get lucky, have almost 0 issues for a year or 2, and are able to  build a reserve while living for free.

Could this be a bad deal? Absolutely. YOu could raise rent, have a tenant refuse to pay, then you evict them, while they destroy your place on the way out. You could need a new air con unit when things start heating up in texas (next month? now?)

Can you afford all those things? 

@Joel Katsma - "The only thing I am concerned about now is them trashing the place before they leave... Can't be much worse than it already is... "

I was in the same situation. I knew I was going to do major work on it, but I offered them cash-for-keys anyway. They didnt take it, but the 3 day pay or quit worked well.