new investor, finishing touches

[Kenneth LaVoie]

I'm still "pre purchase" -- about to go look at some 4 units in town. I wanted to "put out" my intentions again, what I want, what I THINK I can get, and "who I am" and take some feedback!

I had started with the intention of buying single families, but am willing to go 4 unit because I just don't relish the thought of either a. buying foreclosures, or b. buying low-retail and waiting for 20 years to make my money via appreciation. I don't like the pyschological ramifications of owing a "business" that doesn't pay off till late.

I own 2 small businesses that pay me over 60k per year with 20 hours work per week. In that vein, I will only accept move in or near move in properties. I have zero, and I mean ZERO desire to find "fixer upper / rehabs" for 25-40k and then fix up and sell at profit. I have utmost respect for this personality, and they deserve every dollar plus that they make, I have no intention of it though, doesn't fit my elegantly lazy personality. My other limitation is that I will NOT own multi units in run down areas where I'm going to get phone calls, etc. etc. Don't get me wrong, I don't need the elegant 4 unit in the best part of town. I'm talking decent areas, older folks, long term rentals, where asking prices are about 150-189k for 4 units - avg. rent per unit 500-600.

So where does that leave me? In the 2 towns I invest in (waterville and winslow maine) there are only about 36 houses and 45 3 and 4 units available "retail" on realtor.com -- I've done quite a bit of driving around, made an FSBO call or two, but nothing quite yet. Isn't it possible to do "ok" with getting a DECENT price on a four unit? Or paying 75k for a SFU that rents for 800 a month, tenant pays all??

Anyway, here are my two "plans" below. One plan for SFU, one plan for 4 units. I have used both the "50% expense" formula as well as the rent multiplier -- I know rents = 2% gives VERY cheap number, but 1.5-1.75% gives an number with 20% of asking price on a lot. I also double check using the 10 year excel calculator at www.kenlavoie.com/10-year-rental-analyzer.XLS

I use 10% for PM because my theory is, my COC return is what I compare to putting it in the bank. PM should NOT be included in that JUST because I do it myself. Whether I do it myself or NOT, I need to allow for it -- if I do it, it's my "pay" above and beyond COC. Also, I use 16% for vacancy - 8% for real vacancy, plus my mangement company charges approx. 1 month rent to fill a vacancy, so instead of putting that under expenses, I tie it to vacancy. 400 gallons oil at $3 per gallon per unit ... $500 per year for home warrantee (I'll pay for evenging out the bumps) -- 10% repairs, etc. actually comes out to 58% expenses as percentage of rent, -- and doing this with SFU and multi units, six ways to sunday always results in that number being btwn 42.3% and 58 percent, so I know the "50%" rule isn't too bad, all in all.

OK! here are my "plans" Any thoughts????

Basic plan: Purchase 1-2 single family homes per year in the Waterville – Winslow area, price ceiling approx. 90K, in well-kept, desirable neighborhoods, close to shopping and colleges, but not at the sacrifice of quality of neighborhood, that need little work to get ready and that will generate an average of $1,200 per year net cash flow per year over five years. Focus will be on single story, or at least those with a first floor master bedroom, to appeal to older tenants. The major portion of the income will come later from appreciation, either in the form of cash-out refinancing or selling, or simply from the rental cash flow once twenty year mortgages are amortized.

Multi Family: Purchase 1 – 2 multi family (2-4 unit) buildings in the Waterville-Winslow area, in decent neighborhoods, in move-in condition that generate(s) an average of 100 per month, per unit cash flow on average over five years. Favor will be given to those with tenants who pay own heat, or at least have separate heat systems. Neighborhoods would include: Burleigh St / Mayflower area, Pleasantdale, nicer streets off Upper Main in Waterville, nicer areas off Clinton Ave. in Winslow. If the nature of ownership appeals to me after one year, I will move toward owning 40 units within 5 years, with the intention of generating $4,000 per month ($48,000 per year) average cash flow. The intention will be to replace my involvement with LaVoie’s Landscape with this activity. I can increase or decrease the amount of money we keep based on the amount of maintenance / mgmt. I have the time and willingness to do.