All Forum Posts by: Matt Clark

Thanks everyone for the great comments.  @Andrew Johnson 

@Kendra B. @Matt Kauffman. @Caleb Heimsoth

Although it is customary in this area for the landlord to pay water and trash, water in this city is very high, so maybe I'll look into RUBS to bill that out to the tenants.  The rents are $50-100 low in my opinion.  

The boiler is only about 3 years old.  Roof and windows are old, and the property has a little deferred maintenance, but is in rent ready condition.  

The 75% vacancy I think is due to this owner divesting his whole portfolio and he hasn't even put a sign up to rent them.  They are in rent ready condition.  He bought 3 buildings 20+ years ago and now is ready to get out of the business.  I've managed a building just two blocks away, with a more awkward layout, and everytime I tried to rent it, I had more calls than I could deal with and 3+ applications submitted (with credit reports) within 1-2 weeks of posting the vacancy.  I had people move out on the 31st, and new ones on the 1st.  So I think the vacancy is just laziness.  I will probe the rent rolls much further and make sure this isn't a long term rental issue though.

On the open market, I'm seeing this same cashflow and the asking price is twice as high, and the buildings are selling.  I do not understand how anyone is making money if you were to buy this cashflow at $130-150K.  

Does anyone think I'm being too conservative figuring in 10% vacancy, 10% repair, 10% capex, and still asking for 15% cash on cash?  If I see 12% should I pull the trigger?  I've sat on the fence for years.  We might be moving towards a high in the market and that's why no on market deals make sense, but I'm also looking at this long term.  I don't need income, this is more of a retirement/wealth building activity because I have cash sitting doing nothing. But I'm not interested in buying a building that is a part time job making 0-5% cash on cash. 

Deal or no deal?  

4 family building, all 1 bedroom units, Cincinnati (Norwood), working class, B- neighborhood, but near a good and growing private university.  

Rent $450 (1 rented, currently 3 vacant)

If all 4 are rented for $450, gross income = 21,600 /yr

Owner pays common electric, gas & electric for boiler, water, & trash = $4400 /yr

Taxes = 2600 /yr (per owner)

Insurance = 1300 /yr (per owner)

Landscaping = 936/yr estimated

All expenses = 9236 /yr

NOI = 12,364 /yr

Purchase price = $85,000.  (I'm seeing 4 families in this neighborhood selling at $150K on average)

I am estimating 10% of rents for vacancy, 10%for repairs, 10% for capex.

I'm putting 25% down, and the loan rate would be approx 5%, I'm getting a estimated payment of 342.22 (principle & interest).

I'm looking for a simple way to gauge if this is a good investment or not, so I thought an easy way to compare it to the stock market is just looking at a simple cash on cash return.  

In this scenario, if I put $21,250 down, and my cashflow is 1773 per year.  that's an 8% cash on cash return.  

If I take 3 of the 4 rents up to $500 (which I think is achievable, that bumps this up to a 14% cash on cash.

My target criteria was to get as close to 15% cash on cash as possible, taking into account the vacancy, repairs, and capex.  If I can make 8% historically in the stock market, why would I go to the trouble of owning real estate if it's not making considerably more.  Is 15% cash on cash too much to ask for?

I have managed rentals in this neighborhood before, and sold real estate in the area, and I think I'm being very conservative with my numbers.  I believe the 10% vacancy can be taken down to almost 0% with strong management.

If vacancy is only 5%, and repair is only 5% over time, the cash on cash is 18.5%.