All Forum Posts by: Kenneth M.

I think it's a great idea to own where you live. But, you need to self manage the triplex. It's not rocket science to manage a property, and it makes so much more sense to own a property you can easily get to to see what's going on.

A property manager will cost you much more than just the monthly fee. There are so many unexpected fees (although they're buried in the contract), and they will use their own maintenance guys and charge you inflated prices, on and on - or at least that has been my experience and my daughter's experience and the majority of owners who hired PMCs.

Get this book. It was my bible for 8 years managing a 26 unit building in Santa Clara. They include all the forms and contracts you could ever need:

http://www.nolo.com/products/the-california-landlo...

They're even having a sale this weekend.

I did not use this service, but many BPers say it's a good one for screening:

https://mysmartmove.com/

The Nolo book will also have info on screening tenants. Feel free to message me with questions, too.

Just have good criteria and don't waiver from your criteria. Screen for everything - credit, criminal, evictions, check all references. If you are good at screening for great tenants, you will have minimal tenant problems.

And I suggest you do month-to-month agreements, as it's easier to get rid of problems, and if you need to change rules, etc., you can do so with a 30 day notice.

So, remove the property manager from your calculations, and voila! Positive cash flow :-)

Thank you Sue, this is a great point. Perhaps it is something I can do...if I feel it won't take away focus from my work.

And thank you all for great advice.

After your comments, I decided to back out of the deal. And the main reason is not negative cash flow (it's actually neutral to SLIGHTLY positive if you don't count PM). But the main reason is that the flipper actually fixed the property and raised the rents to the highest point possible (and convinced the renters to pay for their own water--despite there being only 1 meter).

In the long run, there is little upside in the rents (aside from the standard 3%), and only expenses (a new roof in a few years, fixing the 3rd unit, etc).

My new strategy is to go to less desirable locations nearby--lower income neighborhoods where there is plenty of potential upside if the property and deal is right.

If that doesn't work, I'll drive the 90 minutes to somewhere that makes sense.

I'll keep you posted and surely ask for advice.

Again, thank you all for the thoughts!

2 Votes

Wow! Thank you very much everyone for such great opinions.

A little more background: I've analyzed several dozen rental properties in the area (mostly triplexes and fourplexes) over the last several months, and they're all pretty much the same: if you're lucky you get a 5% Cap Rate (rare...most are in the 4's). It takes 25% to break even and if you add the 7% property managment, you go negative by a couple hundred or so. (taking into account standard costs for vacancy, capex and fixing stuff).

Could it simply be that in So. Cal the appreciation potential is so much greater than other areas that it drives the short-term value of rental investments down?

And if this is the case, I'm not sure what to do...because any property I'm likely to get into runs into the same problem.

So...my options, in this case becomes:

1- Oh well, deal with a negative (from your reactions above, it seems unwise)
2- By something in another part of the country (also risky since I'm not there to keep an eye on it and I'm trusting 100% to a mngmt company)
3- as Clint says above, put 30% down on a Single Family Unit.
4- Keep trying to find a needle in a haystack
5- Just pay off my primary residence and forget the investing thing.
6- @Radhika Miriyala excellent point above: put 35% down, but only on a property that you can improve and raise rents on in the near future.

Again, i appreciate your thoughts and advice you've given me above. I'm taking them to heart and probably not placing this offer.

1 Vote

Hello,

Newbie here!

I'm putting an offer in on a triplex in southern California for about $950k

Its in a desirable area and it brings in about $5k a month in rents. The rents are about as high as they can go, so I can't increase them.

If I put 25% down, consider some for capex, vacancy, repairs and property managment, I'm looking at about $300 negative a month. (property mgnmt is $450).

I don't need the cashflow and see it as a long-term investment.

Given these scant details, does it seem just wrong to go negative? (there are no properties in so cal areas that are positive when you factor in prop mgmnt and 25% down).

Or would I be better off just paying off the home I am living in?

1 Vote

All Forum Posts by: Kenneth M.

Kenneth M. has started 1 posts and replied 3 times.

Post: Is it OK to buy into a Negative Cash Flow Property?

Post: Is it OK to buy into a Negative Cash Flow Property?

Post: Is it OK to buy into a Negative Cash Flow Property?