All Forum Posts by: Aaron Montague

@Erik Jason This discussion needs to move to numbers.  Somehow they need to move from a monthly negative cash flow to a positive one. I'd work out a budget and see where they can change some things around.

What are the total payments on the house?

How much do they have to pay each month on their credit cards?

Can they stay in the house and take roommates?

How much would a rental in the area they want to live in cost them?

@Kevin K. How about getting a roommate to help pay for the renovations?  

Austin is a HOT market right now. I would imagine the growth of the area will come out to wherever you are eventually.

@Mike Hoffman

Looks like a solid deal with that small down payment.

The insurance number strikes me as low.  Do you have quotes to back up that number?

Cap Ex is always a hard determination.  If the place is in good condition I think you'll be fine with $200/month. Here is how I look at Cap Ex.

Why did you pick 5% for vacancy?  8.1% represents 1 empty month each year.  Do you expect longer term tenants or rapid turnover?

What is your exit strategy?

@Erik Jason - Can it be turned into a rental property?  That will help them pay down the mortgage considerably and hopefully put some extra in their pocket.

@Victor So I wrote this a while back as a guide for my Cap Ex number:

https://www.biggerpockets.com/blogs/4795/47262-cap...

Essentially add everything up you are going to need to replace for the amount of time you are going to own the place and divide by the time.

I recommend separating Cap Ex from your maintenance costs.  I put them in separate accounts as well.  This is a personal preference.

Seems like a solid plan.  

Considerations:

HVAC - Is there central AC that must be rerouted?

Load Bearing Walls - These are NOT cheap to remove and reinforce.  Adding a door frame is not hard however.

Small 2/1s -  Is there going to be an increased difficulty in renting smaller 2/1s? Will you have to account for some extra months of vacancy if you have the least desirable 2/1s in the area?

Weird Shaped Apartments - How do you plan on taking the 10x10 area away from the existing 2/1s?

Sound - Do you plan on putting sound proofing in the new walls?

Bank Appraisal - No clue.  Check with the banks to see how they value multis.

@Jim Costa I like your numbers better than mine.

My view:

Trash - How do you only spend $50 on trash every month?  My dumpsters are $89/87/87 for a 2 yard dumped every 3 weeks.  This was the cheapest option from 3 different companies.  More power, and money, to you, this number seems rather low to me.

Cap Ex - This is always a tough one, I agree.  I can safely say that my $200/month for my Duplexes over the years has been a fairly accurate number.  Your point on the roof is well taken.  @Chris V. check with the seller and make him produce the warranty if there is one.

Management Fee - This is where Jim and I disagree on a philosophical level.  If you figure in $0.00 for a management fee as a self management fee you are bound to stay with that property financially and physically. With Jim's numbers you can "lose" $120/month as a PM fee and still have this be a good deal.  If that amount is the difference between making and losing money on a deal you are screwed if you want to move.  Unless the place is easy to sell of course.

Sewer and Water - If you can get your tenants to pay this bill, more power to you.  Be aware that if they are NOT currently paying it they are under no obligation to accept that bill.  Sewer and Water bills are generally a lienable(sp?) bill as well.  So stay on top of this bill even if they agree to split it and pay it somehow.

You have our perspectives.  Go forth and make money!!

@Christopher J Lemmon

What are the numbers about this deal that you like?

@Chris V. This looks like one to walk away from.  Tough tenants, fixes probably coming due sooner rather than later, etc.

Rerun your numbers and see what you come up with. I don't look at anything that isn't returning me $150 and 10% CoC for Buy and Hold deals.

@David K.

I look at 2 different return numbers, Cashflow/month and CoC. The minimal I'll look at is $150 cashflow and 10% CoC. Both numbers are important because they tell slightly different stories.

Vacancy rate is 8.1%  It assumes 1 vacant month/apartment/year.  It is simply 100% divided by 12.

Capex is the major capital expenses you foresee during the amount of time you own the place divided by the number of months you plan on owning it. I have several posts on how this can be decided over the course of ownership. Please look it up and see if you have any questions.

Ops is the general operations costs like lawn and grounds keeping.  This is part expectation and part knowledge.  Snow plowing is a great example.  I'd plan on having a bunch of plowing done each year but I'm super happy if they plow only comes once a month, etc.