All Forum Posts by: Kim H.

@George Paiva you are correct. The property will be vacant when I take possession.

@Jeff Kehl the zoning does allow me to rebuild. In fact, the current owners already have permission to build 3 additional units. But I probably won't venture down that road. I need to figure out how to own 9 first :)

I do worry about how the explosion will effect my ability rent. It's an unknown that no one can answer. And I don't think I am required to disclose it since that structure no longer exists and the problem was caused by digging off the property site by a utility company, but I will probably figure out a way to tactfully disclose it to tenants anyway. That's just me.

@Michael Seeker not really small, a suburb of Dallas. I didn't know about the explosion and I live 15 minutes from the property. However, I was in London on the day it occurred so I didn't see the initial news coverage.

Today is my first "decision" day. I am under contract in my feasibility period on my first multi family investment deal. I have another week in my feasibility period but tomorrow is inspection day, so lots of $$ being spent. I need to make sure my numbers (and other issues) make sense today before I take that next step that costs me money (besides my termination fee).

So here's the story. This property is located on Main Street in a pretty decent party of town (historic Old Town). A C+ property (only because of the fact that it is currently owned by a charitable organization who provides housing for the tenants, but very well maintained and good reputation) in a B- area (at least in my humble opinion). A block from the transit center and some development of new town homes (purchased individually with HOA and a few community amenities, most rented out at $1200 + per month) backing to the property. No other multi family nearby. A few older single family homes (nothing under $1000 per month in MLS for the entire city) in the surrounding streets. This property is a mixture of town homes (5 units) and single family (4 units) on 1 acre of land. Built in the 1950's, remodeled in the late 90's.

The bad. The property had a 10th unit (actually a duplex) on it that was destroyed in a gas explosion in January 2013. A power company was installing a utility pole nearby and hit a gas line. The gas made it's way into the unit, killing the tenant. There is an ongoing lawsuit between the family and the power company. The property owner and property are not involved currently (obviously no one can predict the future here).

Now remember, this is a charitable organization with no leases per se (although tenants do pay for their electric and gas which is separately metered, owner pays water, which is not separately metered). And most of the current owner's expenses and maintenance needs are provided by volunteers in the community. So no numbers for me to go off of. Everything is an estimate, except things like insurance quotes (which I just received one, still waiting on two others), property management fees and taxes (I will get a break on taxes for 2014 because I close after January 1 and the property is currently exempt).

Here are my numbers:

Rents (pro forma - very conservative I feel) - $8100 per month

3 bedroom house (1) - $1075

2 bedroom house (2) - $950 each

2 bedroom house (1) - $875

3 bedroom town homes (5) - $850

Maintenance - 10% - $810 per month

Vacancy - 5% - $405 per month

Property Management - 7% - $567 per month

Insurance - $4500 per year - $375 per month

Utilities (water, trash) - $1000 per month (planning to use RUBS billing to tenants and hoping to recover 85%-- current water bills are around $200 per month (verified) and trash is $130 per month, but I am padding for increased number of people in all of the units - only one person lives in each unit currently)

Landscaping - $500 per month

Advertising - 1% - $67.50 per month (I have access to MLS, so this number shouldn't be too much)

Misc Expenses - 10% - $810 per month (because I haven't had inspections yet and just don't know)

Taxes - $8650 per year - $721 per month

No mortgage

Closing costs - $5000

Purchase Price - $395,000

Rehab (just a plan at this point, all units need cosmetic updating) - $50,000 in first year

So, what am I missing here? Would you continue with inspections (around $3000 out of pocket tomorrow for general, asbestos, and structural) or pull the plug simply because of the gas explosion?

Thank you @William T. Today is my decision today. Since my inspections are tomorrow and I will be spending quite a bit on them, I would like to feel very comfortable with my decision to continue, barring any unforeseen problems with the inspection. Hopefully others will comment with their experiences.

No quite the contrary. The current owner is a charitable organization who was using the property as a means for temporary housing to help people in need. They are well respected in the community and the property is currently filled with elderly folks who love their current landlord. I've spoken with the current tenants and their only issue is that they have to move. The property is well maintained and has been part of this community for over 20 years. Now obviously I will be repositioning this from its current use to a for profit venture so it will take some effort on my part to market it as an apartment complex. If there are negative opinions I haven't heard them. Doesn't mean they don't exist or that people won't want to rent there. There are other newer town homes that back to the property and they are full, with even more being built.

The property I am currently doing due diligence on had a gas explosion a year ago. The particular structure involved is no longer on the property and the explosion was caused by a company digging in a nearby location. I have copies of inspections done on the remaining structures after the explosion which show them to be sound, except one which needs $15k to repair the pier and beam foundation. I have my own inspections scheduled two days from now. There is an ongoing lawsuit between a family member of the tenant who passed away and the company, not involving the property owner or the property. I have already determined that I like the numbers on this property and the location is excellent. It's just what I am looking for as my first investment, if it weren't for this issue. Anyone else ever continue with a property that had a tragic past? What was the outcome?

I will definately try them again tomorrow. I could be confusing them with another company or two. I have talked with so many people over the last few weeks and some on my list I've left messages with no response and others I've gotten only email responses from. They are all running together. Thanks for all of your input. It does help to hear so many different opinions and solutions.

@Pam R. I spoke with Guardian, but they only work with properties over 100 units. The only company I have found so far that will work with a small property charges $150 per month for the service. Right now the bill isn't even that much.

The water bill is currently running around $20 per unit with only one person occupying each unit. Do you think $60 to $80 per unit per month is reasonable to assume with a maximum of 7 people in each unit (over half are 3 bedrooms)?

It's per unit because I specifically asked "so you mean $72,000 total?". He even agreed it was crazy high. It is defined as a Capital Recovery Fee and he said the city council votes on the amount and that's what they have it set at. I guess no one every separates an existing meter.

I guess I can look into sub metering. If any companies would actually return phone calls....

There is so much to learn here. My simple residential real estate broker job is looking pretty good about now :)