All Forum Posts by: Aaron Montague

@Sam Teifke I agree 100%.  This is why you need to have the extended communication with everyone involved.  Each and every place I have purchased with tenants has come with some sort of off-the-books deal associated with it.  Verbal agreements are enforceable if they can be proven.  My recommendation for the communication is to note everything AND get it into the lease via addendums, I should have been clearer on that.

People don't mind change, though they tend to hate surprises.

@Nathan Christensen I like your approach and your numbers, except your property management %.  8% seems at least 2% too low from my experience.  I do not know the Minneapolis market at all but I'd venture a guess that 10% is going to be the low point there too.

@Ryan Schroeder @John Roesler @Bryan Tinajero - Any insight on my thought?

Keep calling around.  The huge insurance companies generally have a program for just about everyone.

I speak of Geico, Farmer's and that sized company.

@Santos Vargas I would look at this house as an investment, even if I was going to live in it for a while. It gives you a clear picture of what it looks like long term. This is not an investment I would make due to the ROI, which stands at only 3.18% assuming your can get $1200/unit/month. I don't have the full set of numbers, but I guessed. As @Morgan Wallace said, do you have the rest of the numbers available? The ones in italics are the ones I made up.

@Jeffrey A Hayes yes.

Look at your monthly Cap Ex cost over the next 30 years.  Is everything brand new today?  Awesome.  Over the next 30 years you are still going to need 3 water heaters, a roof and at least 1.5 furnaces.  There are exceptions in both directions on longevity :)  A slate roof is going to last your just about forever though you will need someone up there replacing a few slates every 7-10 years.

Remember that any money you have in your Cap Ex account goes directly into your pocket if you sell the place before you use it.  The money is going to be post tax unless you put all of it towards something like "future expenses" in your accounting.  Nice to have the account with $10k in it when that $5500 furnace replacement comes due in 11 years :)

1. Inspection Clause with a "back out for any reason" attached

2. 3 Way communication with you, the current tenants and the current owner.  This is designed to make absolutely sure everyone is on the same page with the basics: last month's rent and security deposits, who changes the light bulbs in the hallways.

@Matthew Lahickey What sized multifamilies are you referring to?  2-4 family houses or 5+?

@Matthew Lahickey I believe you are mixing some terms here.

In my mind ARV is a term generally reserved for flippers. I buy, I fix and I intend to sell at an ARV, after repair value. To me if you are figuring an ARV you intend to sell the property, no matter the type, at the end of the repairs. The starting formula that I work from is (cost of acquisition + repairs) < 70% of ARV.

A seller might try to increase the sale price of a property by downplaying the expenses.  Value means the amount that I would pay for the property, no matter the sale price.  To buy the property using credit I'll need an appraisal from a 3rd party appraisal service.  The appraisal is based on the value of the land and the building(s), not on expenses based on running a business through the property.

Now the appraisal could go up depending on what improvements were made to the property.  The cost of these improvements would be an expense that I would actually point out to a perspective seller.  "I put a brand new roof on 3 summers ago.  That is something you aren't going to have to deal with for years!  Here is the paperwork from the really good company that did the work."

If anything is not clear or you don't agree, please let me know.  I'm always up for learning a new way of looking at something :)

@Sam Teifke's list is good, I'd add a 3 way communication between the current owner, existing tenants, and yourself.

The lease says X, Y and Z.  Does everyone agree to that?
Is there some agreement that isn't in the lease that someone believes should be there?  (1st floor tenant shovels snow / the hallway lights are tied to apartment 4B's electric bill so the tenant only ever pays $35/month / etc)

Quadruple check the money situation BEFORE closing.  Lease says there should be $3000 in security deposits coming to the new owner.  Does the current owner have them readily available?

@Charles Seaman's thought above is a great.

People tend to want to own if possible.  So I would posit there is at least an extra couple hundred dollars per month they are willing to fork over to own a house/condo.  There will always be renters, it is the exact supply that is in question.

If a city/neighborhood is up and coming, then your supply of renters will increase rather nicely.  The rents will also go up, most likely SLOWER than the cost of ownership.  If you can find a place where home ownership is going to cost you $300 or more than the rents for an area, then I think you've got a solid place to find rentals.

If you can find a C -> B neighborhood you have a gold mine :)