All Forum Posts by: Jeff Kehl

For me acquisition costs vary widely depending on the type of financing, services needed and even the time of year and that's for properties all in the same geographic area.

For example:

Financing - origination fees, appraisals, points vary depending on the lender and type of loan

Legal - Title insurance is usually a percentage but the attorneys fees, recording fees seem to vary quite a bit especially if any kind of title issue comes up. In Georgia attorneys do closings not title companies so this probably varies by area. Also we pay stamp taxes to the government which I'm sure varies by area.

Services - If you get them, Inspection, Survey, Termite, rekeying etc.

Taxes - depending on the time of the year I pay prorated property taxes at closing

Having said that, I usually figure on 2-3%.

I'm in the middle of splitting utilities on my 20 unit building. The best answer is buy a property without landlord paid utilities... I was lucky enough to have pretty good market demand though so I just started raising rents. We got the rents all up and now are switching them all from gas boiled water heat to electric. Has been a very large project because it involves rewiring from original 1930's wiring to current code. Hoping to have that done by this winter. I'm not sure splitting the actual water will be economic but I'll reevaluate next year after I see how the heat goes.

Your Cash flow will DECREASE with more leverage because as you say now you have a larger mortgage payment to spend the cashflow on. Probably what you're think of is Cash-on cash (COC) return. It increases the more leverage you use because there is less of your own money invested.

Ex. You buy a $100k house for cash and you make a $5000 cash return in a year. That's a 5% COC return.

If instead you put $20,000 down and get an $80k mortgage and spend $3000 on mortgage payments, your cashflow falls to $2000. But your COC return is now $2000/$20000 or 10%.

Also notice you have $80k more to invest in other properties.

The trick is to use the use the leverage to increase your COC returns but not use so much that you have cashflow problems.

Also, there are several articles here on the site that explain this in a lot more detail:

http://www.biggerpockets.com/renewsblog/2015/04/18/leverage-vs-pay-cash-rental-properties-debate/

Wow, I looked up your town, 5000 people is pretty small. I only saw 1 rental listed anywhere as well. I'd say your best bet is to call some local realtors and ask who does property management there if anyone.

Ask yourself who is moving to Evansville and why. You want to make sure you're not investing in a place with negative population growth.

I see you're not far from Madison. That's probably a great rental market but the properties are probably expensive right now. Looks like you're only 30 minutes away so probably a bedroom community for Madison? If so I'd say that's a good sign.

Yes I agree, you'll find tenants unless your area is very depressed. If it makes you nervous though, you should do some research and see what market demand for rentals is like in your area. How many ads for rentals are there on craigslist now versus a year ago? You can do the same for your local newspaper if you still have one.

Also find out who the biggest property managers are in your area. Call some realtors and ask if you can't find out another way. They usually have websites where you can monitor how much inventory they have and what they are charging for rent.

I keep tabs that way in my town and right now we are at multi-decade low vacancies. This is due to the fact that nothing has been built new here in the last 8 years and the unemployment rate has come down substantially.

Personally I'd go for the newer duplex especially for your first rental.

- unless you're doing most of your own maintenance, the lower maintenance costs are attractive

- Older houses split into rental units often come with shared, landlord paid utilities which I hate

- You'll have less turnover in a newer, nicer place

All of that to me means more cashflow upfront which you can save up for the second rental.

I've done several deals like this recently. We just include a 'seller to hold a 20% 2nd note for x%' in the purchase agreement. My lawyer then does a 2nd position note and security deed when we close and provides us both with an amortization table and payment amount. I do it fully amortizing over 5 years but you could do interest only or amortized over a longer period with a balloon.

I've found that if I fully amortize it tends to eat up all of the cash flow/make the property slightly negative cash flow but I like doing that so I'll be in a good equity position in 5 years.

Not sure how different this would be in Canada though... Whoever closes your transactions can probably advise you.

Here's a couple of detailed expense breakdowns. One thing missing from here is any employee costs if you're going to have management or maintenance staff.

If it's in a good area of Atlanta, $1250 rent should be doable for nicely renovated units. It's hard to find a decent place to rent for under $1000 most good area there.

I personally would not burn 3 units for you and a manager to live in but let's say you do.

13 units x$1250 x12 = 195k gross rent.

with 50% rule your noi is: $97.5k

At an 8 cap that's $1.2 million.

If you use all 16 units as rentals, the number is $1.5 million arv.

Keep in mind your expense are probably going to be less than 50% the first few years if you've just rehabbed all of the units.

Another consideration is that a ton of new units are being built around Atlanta right now so that might make rents softer in the next few years.

It just depends on the property I think. I ran GRM on several of my properties and they ranged from 4 to 7ish. The worst performing is the one around 4 because it is very old, requires lots of maintenance and includes heat and water in the rent. The ones I have around 7 are mainly duplexes <10 years old have little maintenance, no utilities paid by me and tend to be some of my best performers.

I'm closing on some 4 unit buildings this week and I'm paying around 6 grm. They are 80's vintage but in good shape, water is landlord paid.

All of my properties are in a smaller town that doesn't really compare to something like KC though.