All Forum Posts by: Mark Updegraff

It is possible if you have a GREAT team.  If you don't have one yet, that would be what you should be focusing on.  I would recommend having a 3rd party view the property if you're unable to unless you have personally vetted the eyes on the property and you have enough background to know ALL the questions to ask.  

For a newbie, without a good team, investing in the dark will likely be disastrous!!

@Brandon Turner Different folks will have different views on what makes a good attorney.  Personally, I like the one who is easy to reach and has a large staff to handle all the backend stuff.  Others complain that this is the opposite of what they want.  They want the attorney approval letter that is 8 pages long and the guy/gal that does it all themselves.  

If you're going to do it and have it become a business you want to get your broker's license. To do that in NYS you need 2 years experience as REALTOR or equivalent points. Once you go through all that you can get your broker's license for your PM co LLC.

The work around for you now would be to deposit the monies directly into the owner's account.  Consult with attorney obviously as I'm not one nor do I live in your state.  That is what I did while I was in the process of getting my broker's license.  

A PM company has lots of overhead.  I'll echo what has been said on podcasts and on the forum.  It takes a lot of units until the PM company gets to break even.  Think hundreds of units.  I have two women full time on payroll and I keep them very busy.  At 10% fee and payroll of say 50k you need to be grossing 500,000 in rental income.  At 1000 per unit that is 500 units.  Ouch!  

We charge our tenants $25 for application fee which is a litter lower than typical (30-35).  That is a lot of adults to apply for one house.  How many bedrooms are there?

It depends on your pro forma.  

1. Capitalization rate, commonly known as cap rate, is a rate that helps in evaluating a real estate investment. Definition: Capitalization rate, commonly known as cap rate, is a rate that helps in evaluating a real estate investment. Cap rate = Net operating income / Current market value (Sales price) of the asset.

1. In investing, the cash-on-cash return is the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. It is often used to evaluate the cash flow from income-producing assets.

That is more realistic.  I would still like to know the actual operating costs associated with the property to comment.  Everyone calculates things a bit differently.  I find my method to work conservatively and I adjust it if necessary (area and condition are better / worse than average)

Adjusting and given my assumptions were correct on water, taxes, and insurance that puts you at a 16% cash on cash, which would be a green light.  

I wouldn't give the green light without more due diligence however.  Right now I have absolutely no idea what condition it is is.  You say you can get a new tear off roof for 5K?  That is low in my market, maybe someone uninsured.... What about the condition of everything else?  HVAC, plumbing, walls, electrical etc.  These all come into play for me when evaluating "deal or no deal."

The Housing Boom and Bust by Thomas Sowell

Are you confident on the repair cost and rental rates?  How are you verifying the rental history?  Is it a tear off roof or re-roof?  5 sounds like a re-roof.  How many layers of shingles are there?  

It is interesting that the owner is financing at 0%, why is that?  

Gross yearly rent at 750 per unit = 18,000 

-35% (10% PM, 10% Capital Reserve, 10% Vacancy Reserve, 5% Repair Reserve) = 11,700

What are the specific operating costs? Who pays water?

Cash Flow =11,700 - 1000 taxes - 450 insurance - 350 water  = 9900

9900 / 31,000 = 32%

Seems too good to be true

Welcome!  Looking forward to seeing you on the site!

@Doug Minton can you elaborate on your experiences in Rochester?  Was it because you had a poor management company or because you bought in a bad area?  We manage Section 8 / DSS in decent areas and have had not problems.  They prove to be quite lucrative for owners who know how to buy right.

Cheers,
Mark