All Forum Posts by: Michael E.

Originally posted by @Colleen F.:

Is it lead complaint?  Who pays utilities?   The big one would be what are the deferred maintenance items roof, paint, mechanicals because your reserves aren't going to do it if you have a lot of  deferred maintenance.  Lastly is there an opportunity to reposition for higher rents, are your rents below market. 

These are the items that will make or break your numbers I think but there are a lot of people better on the analysis side then me.

 I don't believe that it is certified "Lead Free" but it is registered with MDE and has lead certs. I believe everything is separately metered although I'm still sorting some of that out. Also still waiting for more info on when the roof, hot water heater, etc were last replaced. I think the rents are a little below market value, yes. 

Hello everyone,

I was looking for some feedback on a potential property in Maryland. There are 2 buildings, a duplex (1 BR + 4 BR) and a 5 unit (1 Efficiency, 1x1 BR, 2x2 BR, 1x3 BR) for a total of 7 units. Both buildings built in 1950's, which as far as multi-family props in this area goes, is on the newer side.

Currently fully rented with mostly long term tenants, bringing in around $5100/month plus ~$100/month from coin-op laundry. Purchase Price 405k. Assuming a loan of 20% down at 5% for 20 years.

I added up all the expenses and estimate them to be around 55% of the gross income, so around 35,000, but this includes a lot of guesses and fudge factors. This includes 5% vacancy, 8% property management, taxes, insurance, lawn & snow removal, pest control, trash removal, utilities for common rooms, cleaning/repainting at tenant turnover...as well as guesstimates for capital reserves ($750/unit/year) and repairs ($400/unit/year). 

I don't have much experience to draw upon to know if the cap ex, repairs, and maintenance estimates are reasonable, so they are really nothing more than an educated guess. The sum of my estimates for Cap Ex, Repairs and Maintenance is coming in around 23% of gross income, so I think that's on the conservative side, so certainly depending on how much you want to play with that number, that will change the numbers below...

Year 1 Metrics (all figures are on an annual basis):

Gross Income = 62,400

NOI = 27,788 including capital reserves (33,038 w/o)

Debt Service = 25,659

Before Tax Cash Flow = +2,129 including cap reserves (+7,379 w/o)

Cap Rate: 6.6% including cap reserves (7.8% w/o)

Cash-on-Cash: 2.2% including cap reserves (7.6% w/o)

Expenses = 55% of gross income (including cap reserves, vacancy, and management)

Monthly Rent = ~1.3% of purchase price

Assuming rent, expenses, and appreciation are all 2% (conservatively), here's the long term projections for Buy and Hold with no refinancing:

Year 10 IRR Before Tax: 13.2%

Year 20 IRR Before Tax: 12.31%

Any thoughts? I'd really appreciate your feedback. Thank you!

Thanks Mark. Aren't there marketing fees that a seller would typically pay for an auction house? I'm looking at a property that is FSBO so when putting together an offer I was assuming the seller would be saving ~6% on realtor fees by selling to me versus his alternative of listing it with an agent. However I think his alternative to selling to me is to use an auction, so I want to know how much money the SELLER would save by selling directly to me (no realtors) rather than selling at auction, assuming equivalent sales price. (Property is around 400k in case value affects the % rate) Thanks!

What are typical fees and commissions that the seller pays at a real estate auction that he wouldn't otherwise in a FSBO direct sale?

Originally posted by @Seth Williams:

Hi @Michael E. - unfortunately, the deal referenced above didn't end up working out. In hindsight though, while it would have been painful to cough up several thousand dollars to fix this issue, it also would have been a serious cash cow over the long haul. Definitely worth the one-time cost of getting these units metered separately. If the opportunity came up again today at the same price, I'd buy it in a heartbeat.

You raise a good point about the age of the property though (the one I was looking at was of a similar age). I don't think I'd lose sleep worrying about this, but you're right, it could be an issue - and it's probably worth setting aside a few extra dollars in the unlikely event that it does come up.

 Ok, thanks for the follow up Seth. I tried calling the gas company today, was on hold for 45 minutes without talking to anyone before I gave up ("...your call is very important to us..."), so I'll have to try again some other time. 

Originally posted by @Seth Williams:

I finally got some answers from the gas company in my area (DTE Energy). They are telling me that to re-meter this 4-plex, it would cost $936 for the first unit, and then $338 for every unit after that (so it averages out to $487.50 per unit in this case - or $1,950 total). 

This doesn't include any new gas lines that may be needed (which are about $9.75 per linear foot). It also doesn't include any new appliances that may be needed in each unit (like new hot water heaters - if all 4 units are currently sharing one hot water heater at the moment).

So at the very least, I'm looking at a cost of roughly $2,000 - and possibly upwards of $5,500 or more (if new appliances and gas lines are needed). 

It's not cheap, but given that the current landlord pays more than $3,000 annually for the gas bill at this place - it's an improvement that would definitely pay for itself in fairly short order  (and significantly improve cash flow in the future). Is it worth the cost? I think so - though it may change my offer price a bit.

 Hi Seth - I'm looking at a property that also has gas master-metered, and the landlord is paying in the ballpark of 5-7k a year (!) in utilities. That's kind of a non-starter unless I can get it separately metered. So I wanted to follow up and see how things worked out for you.

Did you end up installing separate meters? How much was it? Was there a significant amount of related work, beyond just the meters themselves (e.g. new duct work/piping)?  The building I'm looking at is 100+ yrs old so I'm also concerned about opening a can of worms with now having to comply with more recent codes/standards - did you run into anything like that? 

If you installed separate meters, did it affect your rent or occupancy? It's common in my area for tenants to pay for all utilities (either directly or indirectly via reimbursement) but I'm at least a little concerned that rent would have to drop if the tenants are no longer getting their heating bill paid for. The numbers are borderline working with the current rent and ignoring the gas bill, so installing separate meters and having reduced rents would be a potential no-go.

Anyways, just wanted to get your thoughts on the process and see how it went.

Originally posted by @Joe Villeneuve:

 Never give an exclusive buyer agreement if you are an investor.  You will be hurting yourself big time.

Why do you say that? I can certainly think of a reason or two, but wanted to hear your answer. 

On the flip side - If I'm not going to sign an exclusive buyer agreement, shouldn't I take extra caution to avoid that realtors listings, since they will be representing the seller?

Originally posted by @Joe Villeneuve:

My qualifiers for a REA:

1 - Must not have a problem with presenting any offer you make. If they feel you continue to make offers that are too low and have no hance, without any logic of how the offer amount came tobe, then they can walk away from you...but before that happens you should stop wasting the REA time

2 - Must make offers before you have inspected the property. Your 7-10 day inspection period on accepted offers is in the offer for that reason. If the REA says that's wasting their time, the are wrong (it's the opposite) and move on.

3 - they need to be HUD certifiied.

If the answer to any (as in all 3) of the above is a not yes...they're not investor friendly.

@Joe Villeneuve: Why the HUD certification?

I'm currently looking for a realtor who understands the investment side of real estate, and I'm talking to 2 or 3 of them. Is it unethical or in poor taste in any way to go on a first round of tours as an "interview" with more than one agent, and then afterwards pick the one agent that you're happy with? (with the understanding that if I want to make an offer on a property that I've already seen, that I would have to do so with the realtor who originally showed me the property regardless of which one I picked moving forward)

Like any one I want to do my due diligence on the property that I invest in, the terms of my financing, etc...and that includes my realtor. How am I supposed to really evaluate a realtor otherwise?

What's your strategy/how often do you request pro forma data on a property? e.g. do you only request pro forma data through your realtor when viewing a property and the property is a strong candidate? Or do you request data first, and use that as part of the screening process to determine which ones are worth taking the time to tour?

I guess another way of asking is, "which comes first in your screening process....touring or requesting income and expense data?" (or other?)

Thanks!