New guy...and girl...and girl

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New guy...and girl...and girl

Andrew R.
West Hartford, CT · Member since 2017 · 38 posts · 11 votes

Hello! 

First off, thank you for contributing to this incredible corner of the interweb.  Amazing to see sincere dedication to helping others in such a competitive field.  I have gained so much from lurking, time to get involved.

A bit about me. 32 years old, married, 7 month old daughter, active duty military (yay VA loan!) currently stationed in Virginia for the next 2 years.

The plan; Buy a duplex/tri/quad in Virginia with my VA loan (can do down payment to ensure cashflow, if needed). House hack and BRRRR multi-families through the rest of my career as I must to move every 2-4 years (for the next 15 years). Upon retirement hold properties that are doing well and liquidate others (if needed). Then, reinvest in the area that we retire (undecided location). Sit on boat, catch fish, die happy.

Action taken; Lots of reading, looked at 10 properties (and counting), ran numbers on 50 properties (and counting), attend every open house we see to talk to realtors, drive/bike/walk for dollars, hired a realtor.  We are starting to figure out what we want and what constitutes a good deal but feel like we will never truly be ready....how do you know? Multi-families on the market are few and far between in our desired area, especially ones that cash flow prior to rehab.  

Best option so far; Quad (2/2, 1/1, 1/1, 1/1) listed for 450k.  

Monthly Rent- $3,575       Expenses-  $3,877 (10% repair, 10% vacancy, 10% mgt fee + taxes, utilities, mortgage, insurance, ect.)  We will manage until we move.

House was built in early 1900's but in a great area, very easily rented and should be able to bring rent up to 4k with little rehab....With a good home inspection and hope that negotiations go our way, I'm very interested....but is this biting off more than I can chew for a 1st deal? 

Thank you BP community,

Andy

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Patti RobertsonBusiness Member
Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
9y

@Andrew R. - I love what you are trying to do, and do agree that the property you are describing is in probably the best area you are going to get with a 4 plex.  I realize that is important, considering you are going to move your family into it.  From an investment standpoint you can get a much better return in our market though. Playing devil's advocate, here are the concerns I would have with this property.

1) Your budged monthly rent is BEST case scenario.  You are quoting the highest rents these units have ever achieved.

2) The 10% vacancy looks to be impossibly high for this building, based on the history.  The 2 bedroom unit is listed as active now and has been on the market for 205 days.  The time before that it took 108 days to rent.  Looks like the last 5 tenants have only stayed for one year terms. Units 2 & 4 have been rented for 2-3 years at a time.  Unit 3 bounces from 1-2. 

3) Looks like none of the utilities are separately metered.  Owner pays water, electric and gas.  Personally I would never buy something with shared utlities unless I bought low enough to pay to have them separated.  Especially in a 1908 building that has poor insulation what what looks to be old windows from the photos.  You didn't itemize your expenses, but you want to look at the building operating expenses separate from the mortgage/tax/insurance.  You are already not cash flowing with all units rented, based on your numbers though.  You should easily be able to live in your unit for free and have the other three units cover your mortgage in our market.  

4) It's harder to rent places in our market that don't have central air. In the last 6 months there were only 2 apartments reported as rented in Ghent and every one had central air. If I go back a full year, 13 rented with central air and 2 rented with window units. The average days on market for central air was 52 days, and the average days on market for the window units was 122 days. You can add central heat and air, but it will be very expensive because the you have to add all the duct work.  The units are also already small, and the duct work will make them fee smaller because it has to be added outside of the existing plaster walls.

5) What are you planning to spend on upgrades?  $4K won't take you very far. Over time you will be able to increase rents, but based on the long vacancy periods, you probably can't do that now.  Separating the meters would be key, but that's pretty expensive.  Looks like the wood floors need refinishing.  You can see that clearly in the photos for unit 1. Unit 2 floors look OK. Units 3 & 4 are covered with carpet, which means they probably need refinishing.  Of course you wouldn't do this while they were occupied, but refinishing the floors is a much better investment than installing carpet.

6) I'm running out of time to look, but I would be curious to do more analysis on rents +utilities vs rents without utilities.  Most buildings either the tenant pays all their own, or only water is included.  Tenants love to have utilities included, but we never get enough premium in rent to justify the expense.  In addition, your expenses will spike in the middle of summer and winter.  Window unit air conditioners draw an extraordinary amount of electricity in these old buildings with no insulation.

I know Ghent is great, but you may have better luck holding out for something in Ocean View that's not in a flood zone - they do exist. 

I hope this was helpful.

757-472-2547
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  • Patti RobertsonBusiness Member
    Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
    9y

    @Andrew R. - I love what you are trying to do, and do agree that the property you are describing is in probably the best area you are going to get with a 4 plex.  I realize that is important, considering you are going to move your family into it.  From an investment standpoint you can get a much better return in our market though. Playing devil's advocate, here are the concerns I would have with this property.

    1) Your budged monthly rent is BEST case scenario.  You are quoting the highest rents these units have ever achieved.

    2) The 10% vacancy looks to be impossibly high for this building, based on the history.  The 2 bedroom unit is listed as active now and has been on the market for 205 days.  The time before that it took 108 days to rent.  Looks like the last 5 tenants have only stayed for one year terms. Units 2 & 4 have been rented for 2-3 years at a time.  Unit 3 bounces from 1-2. 

    3) Looks like none of the utilities are separately metered.  Owner pays water, electric and gas.  Personally I would never buy something with shared utlities unless I bought low enough to pay to have them separated.  Especially in a 1908 building that has poor insulation what what looks to be old windows from the photos.  You didn't itemize your expenses, but you want to look at the building operating expenses separate from the mortgage/tax/insurance.  You are already not cash flowing with all units rented, based on your numbers though.  You should easily be able to live in your unit for free and have the other three units cover your mortgage in our market.  

    4) It's harder to rent places in our market that don't have central air. In the last 6 months there were only 2 apartments reported as rented in Ghent and every one had central air. If I go back a full year, 13 rented with central air and 2 rented with window units. The average days on market for central air was 52 days, and the average days on market for the window units was 122 days. You can add central heat and air, but it will be very expensive because the you have to add all the duct work.  The units are also already small, and the duct work will make them fee smaller because it has to be added outside of the existing plaster walls.

    5) What are you planning to spend on upgrades?  $4K won't take you very far. Over time you will be able to increase rents, but based on the long vacancy periods, you probably can't do that now.  Separating the meters would be key, but that's pretty expensive.  Looks like the wood floors need refinishing.  You can see that clearly in the photos for unit 1. Unit 2 floors look OK. Units 3 & 4 are covered with carpet, which means they probably need refinishing.  Of course you wouldn't do this while they were occupied, but refinishing the floors is a much better investment than installing carpet.

    6) I'm running out of time to look, but I would be curious to do more analysis on rents +utilities vs rents without utilities.  Most buildings either the tenant pays all their own, or only water is included.  Tenants love to have utilities included, but we never get enough premium in rent to justify the expense.  In addition, your expenses will spike in the middle of summer and winter.  Window unit air conditioners draw an extraordinary amount of electricity in these old buildings with no insulation.

    I know Ghent is great, but you may have better luck holding out for something in Ocean View that's not in a flood zone - they do exist. 

    I hope this was helpful.

    757-472-2547
    3Reply
  • Andrew R.
    OP
    West Hartford, CT · Member since 2017 · 38 posts · 11 votes
    9y

    @Patti Robertson - Thank you so much for your insight!  Looked at her this morning, charming, great neighborhood; however, single pane windows, incredibly small dining/living room in the 2/1 unit we would occupy, some knob and tube wiring, and a questionable foundation made it a solid pass.  Starting to realize house hacking a quad may be a pipe dream with a baby (and 2nd in the near future) due to layout/square footage issues.

    To your comments;]

    1) Rent being BEST case scenario; in this market do you foresee rents decreasing? With waterside, the main, navy expansion, and the first pana-max port on the east coast I see a bright future. 

    2) Where were you able to find these numbers?  Great information and did not know it was accessible.  I assumed that location would rent in a heartbeat.

    3) Electric and hot water was separately metered.  I agree 100% about utilities.  I have lived in apartments where utilities were included and shamefully abused the perk (think flip flops and board shorts, in New Hampshire....in February).  I read Larry Loftis' book, "Investing in Duplexes, Triplexes & Quads" and he charges tenants a pro-rated utility bill based on square footage.  There was no detail to how he implemented this, any thoughts?  I imagine he would pay the utility bill and charge tenants the following month.  I would be weary as a tenant, but as a landlord it seems like a great option...as long as you can get tenants to bite off on it.

    4) Central Air was a huge concern.  Again, where did you pull this information from?  Very high ceilings so we weren't too concerned aesthetically...but huge expense none the less and another factor into our passing on the property.

    5) The layout was strange and don't know if 4k would be possible without going high end.  I like the idea of hardwood over carpet.  Always surprises me that apartments go with carpets.  Hard wood brings higher rent will need refinishing less often than carpet replacement and is cheaper to refinish (if done yourself) than carpet replacement.  We hope to make our units aesthetically pleasing bunkers.

    6) Calculations were completed w/o electrical and by doubling our current utilities for each unit (2 br).  Rough estimate, but figure rounding way up would put us in the ball park or pleasantly surprised.  Do you have a way to estimate utilities?  Before placing offer we would ask seller for utility bills and contact the City of Norfolk for rates.

    Don't know much about Ocean View but you have me interested!  What are some pros/cons to the area as it compares to Ghent, Colonial Place and Riverwalk? We dropped down to a 1 car family (thanks Hurricane Matthew) as I can bike to work from Ghent...Ocean View would add the expense of buying another vehicle.  Thank you so much for your insight Patti!

    Andy, Jen & Eleanor

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  • Patti RobertsonBusiness Member
    Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
    9y
    757-472-2547
    1Reply
  • Andrew R.
    OP
    West Hartford, CT · Member since 2017 · 38 posts · 11 votes
    9y

    @Patti Robertson; Good to hear about pro-rating utilities. Sounded a bit sleezy but did not know if it was the norm. I had no idea MLS had that kind of search power....you can play with numbers for days! We are expanding our search to OV; but really love the walk-ability further south. Thanks again for the great info and warm welcome to the community!

    @ Bigger Pockets Nation; We are having trouble finding a property that meets our original plan (duplex/tri/quad to house hack). We have been looking for 3 months now without placing an offer. This waiting game is making us impatient so we are starting to look at SFH's with high potential for sweat equity (foreclosures, ugly, dirty, compartmentalized, but livable within 2 months). The goal would still be to live in the property, refurbish and rent once we move in 2 years. However; we will sell if price is right or have difficulty renting (hope to do our homework and not have this scenario). Are we ditching our original plan too quickly? Or, is it better to be flexible, search for both property types and pick up the best deal that comes along? We are renting now and our lease is up in June. We can do month to month at a premium but it is worth it to avoid the wrong deal.

    "Give me six hours to chop down a tree and I will spend the first four sharpening the axe." 

    -Abraham Lincoln

    The search continues,

    -Andy

    0Reply
  • Jeffrey Hotz
    Real Estate Professional · Dublin, OH · Member since 2013 · 251 posts · 165 votes
    9y
    Andrew Ready Hi Andrew, don't jump into something that is going to bite you in the end. Your last post sounded like your getting antsy, and in this business you have to make decisions based on what makes sense relative to your investment strategy, not your interest in owning a rental with VA loan. The loan will always be there, the opportunity may take a while. I spend thousands a month on advertising in multiple markets, and only a few times a year something actually makes sense for me to keep. I'm a current reservist and former active military vet myself, and Vet to Vet I'd advise to make the decision at the point where the opportunity meets the model. Figure out what makes sense for you and your family, and jump in at the time that you find opportunity within your means. Real Estate is incredibly speculative and certainly an advanced investment strategy. Happy to help where I can, feel free to reach out if there's anything You think I can provide, however, Patti Robertson is spot on with her analysis, and in your market area I believe.
    1Reply
  • Andrew R.
    OP
    West Hartford, CT · Member since 2017 · 38 posts · 11 votes
    9y

    @Jeffrey Hotz

    Thanks for the advice and your service.  I will certainly be reaching out once we wrap our heads around these plans a little more.  Re-reading my post it sounds like we are ready to jump off a cliff, we are exploring other paths to reach our goal.  It's like free samples at Ben and Jerry's, you have to try a few before placing your order.

    Finding a multifamily that we are willing to live in does not seem likely in this market, therefore we are not scraping, but reassessing our strategy.  Multi-family is plan A but could see us waiting 2 years for this to happen.  As a military family, as you know, we don't have that kind of time.  @Patti Robertson is a rock star, thank you both for the help!

    We are new to the game and are trying to find what makes the numbers work....unfortunately they work great in a lot of places we don't want to live. We have found some interesting foreclosures in neighborhoods we like with promising ARV's, however, I am no expert on quoting rehabs. Any good leads on a contractor or foreclosures?

    Are there any ways to creatively finance and or partner to execute a foreclosure purchase and BRRRR without completely strapping our bank account? 70k cash + rehab cost + rent while rehabbing is do-able, but is a little more risk than my family is willing to accept on our first deal. We are looking to purchase, rehab (big jobs w/ contractor), move in once livable, finish rehab (we can paint/floor/tile ourselves (Americorps NCCC alumni!)), and either sell or rent in summer 2019 when we transfer. I know there are ways to finance a foreclosure with a conventional loan but have heard and experienced that good deals will always go to someone with cash.

    If there are other options that may work in this area for our situation, we are all ears!

    0Reply
  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    Howdy @Andrew R.

    Just came across your post.  From one Vet to another thank you for your service.

    The problem with your plan (I see this a lot on these forums with new investors) is it is extremely difficult to successfully combine these two strategies. The main problem is the BRRRR strategy goal is to get as close to 100% of your cash out as possible. This typically requires purchasing a distressed property at a significant discount and Rehabbing it to force equity appreciation. It also means using a combination of short term financing and cash for the acquisition and/or Rehab of the property. Your are also trying to limit holdings costs to a minimum. Using a VA or FHA loan (House Hacking) to acquire the property is not short term. You must live in the property for at least one year. Meaning you will have Holding costs for the whole year. The Holding costs are a result of the negative cash flow that typically occurs while you are House Hacking.

    The secondary problem that occurs when try to combine these strategies is when you try to refinance. When you Refinance the property the Lender will provide a loan that has a 75% LTV ratio based on a new appraisal. That means you must have 25% in equity invested in the property either through cash or appreciation. How much cash will you have in the property? FHA only requires 3.5% down payment and VA requires 0%. I know you said you could put something down but how much? 25%? I would not count on the property increasing in value over one year to compensate for a lower down payment. If you do nothing to increase the value of the property (I.e. Rehab), then, the new appraisal for the refinancing would more than likely be based on your purchase price. You could not pull any cash out because you have to leave your 25% in the property.

    Both are good strategies to start real estate investing. They just do not work well together. If you are intent on pursuing this combination anyway I would recommend you look into using the FHA 203K loan. This loan is designed for buying fixer-uppers and includes the Rehab costs. 1-4 unit properties are ok. You must still plan to live there at least one year. This way if you can put more than the 3.5% down payment that will help. Also, you should be able to purchase a property that needs repairing at a discount. Then force appreciation through the Rehab.

    The catch! You need your All-in costs to be as close to 70% of your projected ARV/Market Value as possible. All-in costs include purchase price, Rehab costs, closing and holding costs. That gives you the best opportunity to get your cash out when refinancing.

    Hope this helps.

    1Reply
  • Andrew R.
    OP
    West Hartford, CT · Member since 2017 · 38 posts · 11 votes
    9y

    Thanks @John Leavelle for the reply and your service as well! 

    We have come full circle on our real estate journey. Still hoping for a multi-family but they are in short supply...at least in neighborhoods we are targeting. I feel we could be waiting 10 years to find "the one". There are, however, a plethora of small SFH in great rental areas that need TLC.

    203K looks like our new direction...or at least another option.  We came to this conclusion before I read your post....feels like you were reading my mind!  Thank you for taking the time and having such great insight to our situation.  We are looking at putting in an offer on a 1,000ft bungalow near a college campus this week!

    Is there anything you wish you did differently or that worked well financially while you were serving?

    There are so many strategies out there, and they all seem to work great... for the right person, in the right area, at the right time.  Reading through them, they all make sense!  It is fun to test drive them in my market and with my family/situation to see how the numbers work and gauge our level of risk/sanity.  Just hoping to make the best decisions for my family and our future.

    BP continues to amaze me. Thank you again!

    0Reply
  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    9y

    @Andrew R.

    What would have I done differently?  Wow, too many things to mention here.  :)  The first home we bought we should have rented it out when we left for the next assignment.  I only had a 30 day notice so my wife stayed behind to sell it.  We took a lose.  Also should have started investing in real estate in general a lot sooner.  Of course hind sight is 20/20.

    Something you might want to start getting educated on is Wholesaling.  Very little investment required, minimum risk, minimum liability, and short turn-around on investment/profit.  You can do it part time.  A good way to build your investment funds.  You can pick up and do it in any market you move to.  That way you would not be dependent on get your Cash out on your current strategy to keep investing.  Just a thought.

    Good luck.

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