All Forum Posts by: Tyler Child

Thank you Brad and Jean for your insights. It would be my first property, so I want to do it as close to right as I can. Eitherway, I'll learn a ton from the process.

I'm real close to putting in an offer on a 4-plex. It looks like it will cash flow real nice and with a 12% cap. It is in a not so desirable area, but it has a solid rental history. It was built in 1880 and shows its age...

Should I be overly concerned about things like age? ...

Robert you have a similar situation to the one I'm thinking about doing. In my case I'd open up a line of credit against a stock portfolio.

The question I'm wrestling with is how should I go about paying back that line of credit. As it stands it would take a few years using the cash flow from the property + cash flow from my job which would delay my ability to save up for my next down payment on another property.

Thanks J.

It looks like if I add in the cost of a new septic then my cash on cash return would be closer to 12.6%. Still not bad from that angle. Do you think it would be worth adjusting down my max purchase price? Essentially the cost of a new septic system would wipe out that discount.

Here are the numbers that I am working with. Currently all utilities are being covered by the owner. I conservatively padded the utilities by 10% from 2013.

List Price $260,000

Discount(%,$) 8% $20,800

Purchase Price (Max Offer) $239,200

Percent Down 25%

Down Payment Amount $59,800

Amount Financed $179,400

Interest Rate 4.60%

Costs of Repairs (Make Ready): $10,000

Length of Mortgage (Years) 30

Monthly Mortgage Payment $919.68 Annually $11,036.21

Gross Rental Income $3,700.00 Annually $44,400.00

Vacancy Rate 5%

Net Rental Income $3,515.00 Annually $42,180.00

Expenses

Maintenance Reserve Monthly $83.33 Annually $1,000.00

Utilities Monthly $625.00 Annually $7,500

PropertyTaxes Monthly $650.00 Annually $7,800.00

Insurance Monthly $154.92 Annually $1,859.00

Other (HOA fees, Lawn Care, Trash, etc) Monthly $133.33 Annually $1,600.00

Total Expenses Monthly $1,646.58 Annually $19,759.00

Net Operating Income $1,868.42 Annually $22,421.00

Mortgage Payment $919.68 Annually $11,036.21

Total Cash In (Downpayment + Repairs) $69,800.00

Net Cash Flow $948.73 Annually $11,384.79

Cap Rate: 9.4%

Cash on Cash Return: 16.3%

Hello,

I am closing in on purchasing my first rental property. I must say its been an interesting but nerve wracking experience. I've done my due diligence and pulled all of the information I could regarding taxes, utilities, and even went to the city planners office to pull the property file and look through to make sure no hidden surprises. I will only purchase on a discount as I want to make money going in, however I am trying to determine how big that discount should be taking in to account repair costs.

I haven't had an inspection yet, however my Dad who has been renting property for 30+ years came with me for our first showing. First off they don't have the utilities broken out per unit, so that would be something I would want to change. For the most part the interior looks in good condition, nothing major needs to be done, we may run a better electric line to one of the units so we can add a stackable washer/dryer. The exterior has some wood rot where the roof meets the siding, the door sills also have some wood rot and on the corners of the building. The big issue I forsee is the age of the Sceptic system which looks to be 24 years old. I've done a little research and a well constructed sceptic system will last 20 years. The local sceptic company estimated a $15k-$20k expense to replace one with a double tank for a building of this size.

So if none of these repair costs are a deal breaker, then how should I construct my discount.

The property is listed at 260,000. With no repairs I would go no higher than 240,000 so that I make my money going in. Tacking on the expenses of the wood rot repairs (maybe $5k), plus another $20k for a sceptic system, then I am looking at a $45,000 discount off the list price. Does that sound right to you all? Should I calculate the discount a little different?

I love this community.

Best Regards,

Tyler