All Forum Posts by: Tandi H.

@Anthony Wick  Great plan!  And you are coming out even better placed.  We are converting a duplex into a triplex this winter.  When it's finished, we're planning to keep the two end units as long term rentals, and the middle unit as a furnished "medium" term rental - 3-6 months.  I've heard once you get in with traveling nurses you can do really well, if the location is suitable.  

Also, we're putting in WiFi for the whole triplex, and will offer that to each new LT tenant at a reduced price to them.  We have to supply it to the furnished rental anyway.  All you need is a mesh network to cover the whole place.  Then we make a little bit more on that.  Eg, if each tenant would have been paying $50/month, plus install, for their own WiFi, we offer it at $30/month.  We're paying a locked in rate of $40/month.  We pocket a little and it's less hassle for them.  Win-Win.

@Anthony Wick  Thanks so much for the thorough feedback and explanation.  That was an amazing amount of help.  When it came down to it, it was the repairs that also made us step back.  There could easily be $10-20k (or more) of plumbing upgrades and repairs needed.  

@Jaysen Medhurst  Those are great points.  Actually my husband's first thought was also to upgrade the electric and put in mini-splits.  However, looking into the cost and potential interior work that would need to be done for electric upgrades, again we are talking a serious amount of investment.

So here you go:

General consensus on acceptable purchase price:  $500k

Listing price:  $660k (!)

My realtor found out the seller bought the property in 2005 for $500k - so he though that they probably won't want to go under $600k, at a minimum - which is way above what both of you priced the property at.  At $600k, with all rents raised to $650, it still had an okay cap rate - then our realtor found out the current taxes were based on assessment of $220k. At a $600k purchase price taxes would triple to over $9000k/year, completely deflating the COC.

Long story short, we are passing on this one. 

Anthony, we are actually back to looking at the FSBO duplex that was also on my radar. It just makes more sense numbers-wise and it feels very much within reach. We can get $250/door - it's not huge money but it's solid and doable. I still want to keep looking for larger units but in the mean time we can pick up some smaller properties. And we can get 30 year loans on duplexes, no fear of refi'ing with higher interest rates.

Right now I'm hearing rumors of lenders offering less than 25% down - I want to find out if that's possible in my state.  For some reason I thought that there was a min 25% DP for investment props in NM.  I think a realtor told me that.

Thanks again for all the insight, number crunching and attention to details!

@Ayne C.  Thanks so much for your enthusiasm!  : )  I'm excited too.  We are looking into commercial loans with a local bank that has portfolio loans.  

@Jaysen Medhurst  That's great info.  Thanks for your advice, I appreciate it.  I'm including more numbers below if you want to take a look at them.

After going into a unit and checking out the common areas today, my broker described it as "B-" in terms of interior, and "A" in terms of location.  I agree, the rents do seem way to low considering water and gas are included.  Tenants pay electric only.

@Nathan Gesner Thanks for your input too, I see your comments frequently and you always have wise feedback.  If you have a moment please check out the numbers below and let me know what you think.

@Anthony Wick  More great advice!  Yes, my broker says "pro forma means 'big lie'" - total agreement with you.  I think I found a huge missing cost in the pro forma they sent...plus it didn't include any debt expense!  That's a good insight that 1% doesn't work for larger properties with more owner expenses, I don't think I've ever heard anyone point that out before.

So here is more info, let me know what you think is a good purchase price for the building -

(I will post the list price but I want to see what people think before hearing that):

• 10 x 1-bedroom units, most about 500 sq ft, a couple around 600 sq ft.
• C. 1930 construction.  Wood floors, built in glass door cabinets, original cast iron heaters.  AC "swamp cooler" units in a window of each apartment.  Storm windows over originals.  Stucco exterior in decent shape, could use repainting.  Building is in a historic district so changes to exterior have to meet guidelines and be approved.
• We went into the PM's unit, it was small but cute and pretty good condition.  She's the "mother hen", has been there 13 years, gets a discounted rent, and keeps tenants in line.  
• Newer (2008) TPO roof - that's one of the best for our area.  
• Newer water heaters; one gas and one electric
• Large boiler; however needs to be flushed frequently because of degrading old piping.  Owner has his maintenance man come every few days (!) in winter to flush the boiler.  My guess is this labor is not shown in R&M cost, which was just listed as a flat 5%.
• Plumbing is a mix of original galvanized and cast iron, and replacement plastic.  Access via basement which is under about 25% of building, rest is a narrow dirt crawl space that requires a "small plumber" (sellers agent said this, lol)
• Electric service is old  - only 100 amp service with 30 amps to each unit.  PM says she tells tenants not to run lots of electric at once and doesn't have a problem with tripped breakers.  My agent was an electrical engineer and VP of our local power company...he said as long as it works leave it be.
• Kitchens have gas stoves.
• Basement has access to electric meters, boiler, and hot water.
• No laundry, no garages.  7 off street parking spaces and free on street parking.  
• Small amount of planting beds around base of building and in courtyard.  Building pretty much takes up entire lot.
• Numbers from seller:

$72,600 Gross Rents:  8 units renting at $625 on 1 yr leases;  1 unit renting at $675 on 6 mo lease; and PM pays $375

- $3630 5% Vacancy 

$68,970 Effective Income

- $25,393 Operating Expenses: 

• $3611 Property Taxes
• $3884 Property Insurance
• $3630 Repairs and Maintenance (this flat 5% seems way off - especially with babying of plumbing required)
• $1620 Electric
• $2976 Gas (trailing 12 mo avg)
• $4584 Water/Sewer (trailing 12 mo avg)
• $4008 Grounds Maintenance (we would do this ourselves, there's very little)
• $1080 Wifi for PM's unit  (seems high, we usually get it for $40-50/mo around here)

$43,577 Net Operating Income

?  Debt Service - we would be getting a 25% down commercial loan.

*How much would you price the property at?*

PS.  I know you all said to base price the current income, but I do think that rents could go up to 650-675 pretty easily, especially with gas paid by owner.  That would boost annual gross rents about $5000 to $77,400...

I'm going to look at a 10-plex tomorrow....the basics are it's 10 x 1-bedroom apartments, in a U-shape around garden entrances, with street parking.  Just over 5,000 sq feet.  Units are renting for $625 each.  Close to downtown area, historic structure (wood floors, old built in cabinets), neighborhood is a mix of SF and multis, B class.  Cute exterior.  From photos looks like decent shape.

APOD shows net income of about $40k per year, with management.  It's hitting right around the 1% rule in terms of sale price and gross rents.  

Also this week, we had a retiring landlord approach us about buying his portfolio, which includes a couple duplexes and single families.  

First, what should I be looking at when evaluating a 10-plex? So far we have just a duplex and SFR. Are there different things to pay attention to?

Second, if you could get the same net returns, would you choose to get a single property like a 10-plex or multiple smaller unit properties, and why?  What is more work?  Higher return on larger units or more units?

Thanks.

@Nathan Gesner @Dennis M.

I wish I was in your area!  I have the funds burning a hole in my pocket, can't find a decent place to buy.  For example, just found a triplex, about $300k (common in this area for A-B neighborhoods).  If it had been in better shape I would have bought it.  A+ location, C- building.  Old galvanized pipes, ancient water heaters and AC units, crumbling stucco, terrible layouts...hard to find anything in a good area and good shape at that price around here.  I want to cash flow $1000/mo per property with 25% down, that would be 3-4 doors.

Finding deals that aren't in C neighborhoods.

@Troy Larson

I'm in ABQ and have both STR and LTR. I would be happy to discuss my experience with you if you want to send me a PM.

The STR market appears to be strong, and it also appears at this point that ABQ gov is not going to shut them down. We don't have a lack of housing here so STRs are not impacting rental rates.

ABQ has required us to collect lodging tax recently, and AirBnb does collect it for you.  

For all STRs, remember it is active business income, not passive rental income, so depending on your tax bracket plan to pay 25-30% of income for your self-employment federal and state income taxes, which is a significant reduction of earnings.  NM taxation is a PITA to work with by the way.  

I'm also noting a saturation of STR in the popular areas, and a resultant drop in nightly rates to stay competitive. We have a very inexpensive studio unit which stays booked, if you had a full house I think you might have lower occupancy. Many travelers are singles or couples.

My strategy is to always be able to turn a STR back into a LTR if needed, and still be profitable. That just makes the most sense, and gives you the most options.

Thanks Sarah!  Those are a lot of great ideas that I will start incorporating!

Sarah, we are in the beginning stages and want to create a business that will run by itself, eventually...right now I'm property managing and finding deals, and husband has W2 job until we have enough properties.

Can you give some suggestions on how to set it up correctly from the get go?  Any details are appreciated.  

@Ed Emmons Thanks Ed for the input.  Yes, I have 10% for Vacancy and Repairs, that's 5% each...I don't have 5% for Cap Ex, which is probably a mistake.  I'll add that Cap Ex in.  The AC maintenance is minimal with "swamp coolers" that we have here in NM, and my husband does that, so it doesn't add much expense, just new pads each year.  Maybe a new water line if one freezes.  They are very basic machines so easy to fix.

The Airbnb expenses I already account for in the income, however what isn't taken into account is the income taxes on that active income.  It's different than passive rental income.  I'm not sure how that is going to end up reducing the net AirBnb income as we just started this year with Airbnb so I don't have a year of tax experience yet.  I would assume 25% at least.  There are expenses of furnishings, supplies, etc, to reduce that business income though.

Thanks!