All Forum Posts by: Ryan D.

I advise you do not roll utilities into the rents - have rents & utilities be separate charges. There are several advantages here: you can advertise the actual rent, rather than the higher rent+util number when marketing your property, which makes it more attractive. Put it in the lease that the utilities are a separate charge, & that all monies collected will first go to paying utilities charges, and then to rents - in many areas you can not evict a tenant for not paying utilities. This way, if a tenant decides to stiff you on the utilities bill, the way you apply their check will have them underpaying rent, for which you can evict. You can also put it in your lease that the utilities charge will adjust on an XX month basis. This allows you adjust the utilities charge every so often based on your actual bills, where as if you rolled them into the rents, you could only charge this at the end/beginning of leases. In some areas, you can not charge tenants more for utilities than you are actually paying the utilities company, so we aware of relevant local laws. In practice, with such a small building it is practical to just take your average utilities bill over the trailing 12 months, divide by the number of people living there, & bill accordingly each month.

$120k purchase price - is this PER duplex, or total for the two buildings? If this is the total for the two buildings, and the rents really are $3k/m, and it’s in at least a C class neighbourhood, then this is a slam dunk and you had better get it under contract (& start due-diligence) before someone else does. As for it being 30-45 min away, this is most people’s daily commute. As Real Estate investing goes, that’s in your back yard. I recommend you manage it yourselves for a while, to get an idea of what property management is REALLY about. After you ha e an idea of what it really takes to do a good job managing a rental, then you are far better equipped to know what to look for when hiring a management company.

Nick, consider this: You have an outstanding (student) debt of $38,500, for which you have to make monthly payments of $190 for the next 20 years. If you have $38,500 in cash in your pocket, you can pay off the loans right now, & in 20 years have absolutely nothing to show for that $38,500 - it’s gone, poof, vanished, you’ll never see it again. BUT, you have eliminated the stress associated with the loans. Your 2nd option would be to invest that $38,500 in a property making a 10% CCR, which gives you $320/month cash profit. Make the student loan payments front this, and you will still have $130 left in your pocket every month. In 20 years, your student loans will be paid off, you will have 20 years worth of cash flow profits in your bank account, a largely paid off property, all the appreciated equity on your balance sheet, PLUS you will still have your original $38,500. For all this, you will have had to take one some extra work, & deal with the stress of having the student loans for the full 20 years. You decide for yourself which option will yield the better results for you. Keep in mind, that the easy road may be less work/stress, but it never leads to wealth.

When analyzing a property, you must include ALL your expenses with REALISTIC numbers. You wont get it exactly right, but its easy to get fairly close if you do a bit of research. Many new investors forget to factor in for:

• vacancy: 5-8% is about right in most markets 
• regular maintenance: my experience has been apx $70/m/unit
• CapEx: my experience has been apx $70/m/unit

Others have mentioned the missing items, but don't forget CapEx. In my experience, I spend on average apx $65/m/unit on regular maintenance, and $70/m/unit on CapEx, but this may be lower for you if the HOA is responsible for things like the roof, plumbing to/from the building, building exterior, etc.

I suggest you bill the water back to the tenants, which is easily done.

If you can come up with enough capital for an all-cash offer, that makes your bargaining position much stronger. Then refinance the cash back out after you close, with a 30-yr fixed mortgage. 

Cash on Cash return is really only useful for when you are analysing a potential deal. Once you purchase the asset, any non-equity expenses (appraisal, loan fees, transfer tax, etc) which ARE part of your initial cash outlay (& effect your CCR), are unrecoverable sunk costs. Beyond this, the relevant cash flow metric is your Cash on Equity return - this is the amount of net cash flow the asset generates as a function of the amount of equity you have in the property, and will (generally) decrease each year as you equity increase will outpace your rent increases. Once your cash-on-equity decreases to below your personal threshold for investment returns, it’s time to consider moving the equity to a different asset in which it can give a better return.

Bob wants to sell his house. Person A makes an full price offer, contingent upon financing, & Bob agrees. Bob gets excited & begins planning for the future. 2 weeks later person A finds out they have terrible credit & the bank won’t loan him enough money to buy Bob’s house. The deal falls through, & Bob is sad. Next, Person B & C get into a bidding war, & eventually Bob settles on Person C’s offer, for $15k above asking. Bob gets excited again. Person C gets approved for the loan, but only up to 80% of the appraised value of the house, which comes back at $5k less than Bobs original asking price, which means Person C now has to come up with an additional $20k to close the deal. They ask their parents, friends, and even great uncle Charlie, but can not find the extra money, and once again the deal falls through. Bob is once again, sad. This all happens twice more, & by this time Bob is now frustrated & a bit angry, because his plans are being postponed by one unsuccessful offer after another. Eventually, person F walks into Bobs house with a suitcase full of cash. Person F shows Bob the suitcase full of cash, & explains to Bob that she doesn’t have to ask the bank, her parents, her friends, the credit reporting agencies, the appraiser, or even great uncle Charlie, for any kind of permission whatsoever to buy Bobs house. She then offers to buy Bobs house for $25k below his asking price, & tells Bob that if he agrees, he can have the suitcase full of cash right here, right now, & sticks out her hand to shake. Bob is delighted to be done with the whole process, & the deal is done.

You can still involve him in your project without using any of his money. His time & work can still add value to your project. Once he sees your investment become successful, he may then have an interest in participating financially in a future one. Show by example.

In Most state the PM or owner has the right to inspect the property if they give the tenant a required minimum notice. If the tenant is not cooperating with this, then PM does have the right to enter the house & they should have the keys (at least in every state I’m aware of).

There is no problem using capital from a LOC to purchase property - I’ve done this several times. They are your funds & they are seasoned. A good strategy is to use the LOC to make an all cash purchase, that way you increase your bargaining position, then once the property is yours, get a lower interest 30 fixed loan on it, & repay most of your LOC. You’ll end up leaving the down payment on the LOC, then pay that remaining balance off with your profits. Repeat the process for the next property. Just be sure that the property will cash flow enough to cover all your normal expenses (debt service on the 30 yr loan, CapEx, repairs, vacancy, taxes & ins, etc) PLUS enough extra to pay off the LOC in a reasonable anoint of time. Be aware that the interest rate on that LOC is variable (typically adjusting each quarter), so have a plan (back up funds) to pay it off quickly if the rates go up too high too fast for your business model.