All Forum Posts by: Joe P.

I'd consult with a tenant-landlord lawyer immediately. Spending some money there to understand your options and the best way to move forward will be worth it.

I'm also in the boat of "if you aren't happy living here, lets terminate the agreement, no penalties, and get you moved out" -- I'd check with your lawyer but if the living conditions are so substandard whereby she calls the DOH, but when given a free and easy opportunity to leave and doesn't take it...seems like it would work against her down the line when cases are brought (if you get to that point).

But the main point is, no one here is in your situation and can't represent you in court. Free advice is exactly that...free...and while there is some very good advice here, you have people who have studied years and years in this filed, litigated cases, and have advised hundreds of clients in your situation.

It's no different to me than people who blindly speak about topics they no nothing of -- politics, climate change, national and global banking, etc. There are people who dedicate their lives to these topics; I'd rather hear from them instead of "Joe P. from Philadelphia" on my specific issue.

@Kateryna Kilinich try re-running with more conservative numbers. I don't see many ways to make this one work, personally. But I am an extremely conservative investor; I like going into deals with as much runway as possible. This eliminates me from purchasing more risky properties that traditional investors are more interested in working with. If something is under the 1% rule, as this one clearly is, 999 out of 1000 times, I wouldn't even bother.

If other investors were to chime in, I bet a majority of them are going to chime in with some of the same concerns -- low rents to purchase price (low cash on cash return), no set-asides for initial issues (think $10,000, at the very least), and low budgets in general for the things that more than likely will go wrong.

My current duplex is running at a 65% expense to income ratio right now, and that's before I've paid my debt service. Feel free to check out my 1-year-plus review here: 

https://www.biggerpockets.com/forums/432/topics/768334-a-year-of-progressor-maybe-not-deal-analysis-after-1-year?highlight_post=4513923&page=1#p4513923

I could be sounding a premature and conservative alarm for you, but you have no margins to begin with and are going to be running a deficit. Whatever your rent is now, surely that's got to be better than losing 2k a month in cash that you could be saving for the next property. If you're running a $24,000 a year deficit, than you are either insanely rich (and don't need the property) or someone running a dangerous game who will not be able to get ahead without major sacrifices elsewhere.

Look at the sales prices and potential rehabs needed and that should eliminate most properties. On MLS deals are difficult (not impossible) to come by and by running some basic estimates on your own, you'll find out quickly what has potential and what can be quickly discarded.

Also ask your agents for average 1, 2, or 3 bedroom rents of various areas you are willing to live in and compare to duplex comps. 1% rule is great, but there are areas of the state you can get closer to the 2% rule and that's where you want to focus. E.g. a place renting for $2000 and on the market for 400k is not a good deal, most likely (low cash-on-cash return) but a place renting for $2000 and on the market for 150k will have initial better COCR.

Since it's not 1964, perhaps just ask your tenant if they are smoking pot in the hallway.

I think you'll have a better outcome just asking them to take it outside since there is no smoking of any kind in the units or common areas.

I know plenty of pot smokers, most of them (haha) are not criminals. It's 2019, it doesn't hold a stigma much these days.

I'd be more upset if there was a tenant trashing a unit or causing bug issue or causing maintenance issues. This seems like an adult conversation over Doritos may work better for everyone long term, especially if they're good tenants who pay on time.

@Armel Bayot ask your realtor who they would work with as a GC and pay that person to walk through. You'll get a sense of their prices and you review. You can even put it here and let folks comment on it. The GC can give a price and just ask for what's going to be the biggest aspect of the rehab making up the price. Make sure there is also a split in materials and labor when they provide the pricing.

@Aaron K. then if she is occupying a unit, she overestimated her income by 50%.

The calculator gave her a very good estimate of where she would be at her inaccurate numbers...50% expenses + PITI, she's showing a monthly loss of -$350. If she's occupying a unit she loses out on another $1600 per month in rent.

And she's only put $2000 aside for total rehab. Really?

I've spent 13,000 in my duplex that's rented...lots of deferred maintenance that didn't show up when I walked through. She has negative margins before she even steps in the door with razor thin set-asides.

I don't know about you, but everything in this calculator is a card stacked AGAINST her success...she's overestimated her rent, underestimated her set-asides, underestimated her probable rehab costs, and I do think underestimated closing costs too. My duplex was 103k in NJ and closing costs were 7k -- taxes. Maybe 30,000 is high...but I guarantee you it will NOT be $2,000.

Sorry, this one is so much of a dog it's not even funny. She's buying a peak market unit, less than 1% rule, 50% expenses/PITI rule is negative, she's underestimated everything...sorry if I'm painting a grim picture but she's going to be paying out of pocket $1500-$2000 a month JUST TO LIVE THERE. I know she's renting now, but jesus -- that's an absurd payment for a long period of time on an investment property.

If she bought a property at 250k that needed 100k in work, with an ARV of 400k, and living in it and refinancing, maybe it makes more sense?

....why though, @Armel Bayot Margins are so tight to begin with and as @Remington Lyman indicated you've already underestimated the rehab.

Biggest mistake I made going into my duplex was thinking it was ready to go...after all, it showed very well. Big mistake. I've spent over $13,000 in a little over a year in replacing, fixing, and handling some issues. Totally blew out my CAPEX and maintenance budgets, which I thought I was conservative on when estimating.

Razor thin margins, no value in ARV, underestimating rehab...you're stacking the deck against yourself.

If you have 157k cash laying around, look to invest in properties that are +1% Rule, like 2%. Look for value-add properties in B/C neighborhoods. This is going to be a 800k paperweight.

I think you were aggressive with your P&I numbers, but just sorting through that...

5200 a month in rent - 3181 in principle/interest - 375 in taxes - 100 in insurance = $1544 after debt service.

Your CAPEX and maintenance are way too low. You haven't accounted for property management.

There is this awesome calculator aspect called 50% rule -- investors talk about it all the time. You can expect that every monthly collection of rent will cost you 50% in expenses, plus your PITI; this is what the calculator has estimated for you:

50% Rule Cash Flow Estimates
Total Monthly Income: $5,200.00
x50% for Expenses: $2,600.00
Monthly Payment/Interest Payment: $3,181.98
Total Monthly Cashflow using 50% Rule: -$581.98

Do you like losing money? Because you're going to lose $600 a month on a property at the top of the market. Yikes.

You're going to refinance from 77,000 to 85,000? I don't think that's worth it to you, at all. I don't get the reasoning. It looks like your going to hard money loan, but that only makes sense if you have a ton of room between acq/repair and ARV.

Your repairs and CAPEX are low - I'd go 10% for each.

I also think you will struggle to get 4% interest rate on an investment property. More than likely you'll get 5.5% or higher.

I see no set asides for water/sewer?

So you're putting 5% down? On an investment property? Fat chance.

Is this an owner-occupied unit? If not, you'll need to put down 25%. Your interest rate more than likely will be 5.5%, at least, with an excellent credit score.

Your vacancy and CAPEX are low -- 10% for each is better.

I'd re-run this with adjusting your numbers correctly.